This article was originally published by The Business Post.
Taoiseach Enda Kenny last week confirmed what most people already knew: the growing mortgage arrears crisis is the single biggest issue facing the Irish people at present. The latest figures show that more than 10 per cent of all mortgages are now in arrears or have been restructured.
This means that an awful lot of people now need an awful lot of help. For many of them, the first port of call is the state-funded Money Advice and Budgeting Service (Mabs).
However, despite the great work of its staff, there are significant structural problems with Mabs. In fact, its present structure inhibits its effectiveness in dealing with the current crisis.
It has no clear governance structure. Instead, it comprises 52 separate limited companies, each managed by a voluntary board. Mabs has been under the control of the Citizens Information Board for four years now, but it has no dedicated board, no strategy of its own and no independence.
Last September, I got a shock. I was waiting to appear before the Oireachtas Finance Committee to discuss the mortgage arrears issue. Both Mabs and the Citizens Information Board were giving evidence, and, given their relationship, I expected them to be singing off the same hymn sheet. In fact, they fundamentally disagreed over policy.
The Department of Social Protection funds Mabs to the tune of about €18 million per year. This is a significant sum and it needs to be pointed in the right direction.
Last year, Mabs dealt with 26,000 debtors face to face, and a further 24,000 over the phone or through its website. This is a significant number of people and gives a clear indication of the size of the problem.
Those in financial difficulty deserve a sharply-focused organisation which ensures that the best quality service is provided. The Mabs staff are focused, and Mabs as an organisation can be too. But it has to change.
It was set up in 1992 following an exposé on money lenders, but the world has changed dramatically since then. It was originally established as a rights-based service working to support those in debt to meet their obligations, according to their means.
Today, its original structure is not fit for purpose. It should immediately be restructured out of respect to those it is trying to serve, as well as its staff. It needs a board and a specified management team – these are essentialto ensure adequate corporate governance and an independent strategic vision and direction.
Insolvency legislation would provide a backdrop to negotiations about long-term sustainable and affordable solutions for borrowers. Every consumer debt-focused organisation should have a role to play in the new legislative regime which builds on its collective, dedicated knowledge and experience in this area. We are anxiously awaiting its introduction.
Mabs has an integral part to play in services to borrowers and those in debt. The Programme for Government includes an intent to establish a debt management agency, but this has not been implemented.
In the Senate last week, Minister of State for Public Service Reform Brian Hayes said the government would be adding mortgage staff to the Citizens Information Board. This is worrying. Why dilute the structure, as delicate as it is? Who benefits from such a move? Not the debtor.
In dealing with the mortgage crisis, the response from banks has been pathetic. We need to move to long-term solutions which can be set against the backdrop of the insolvency legislation.
Skilled negotiation and professional organisations will be required to resolve mortgage debts as well as unsecured debts.
The fact that 10 per cent are now in arrears of 90 days or more – and remember, this does not include buy-to-lets, shared ownership schemes or anyone who has got into trouble in the past few months – represents an unwelcome but not unexpected milestone in our economic landscape.
It’s time for action, not more repetitive commenting on an obviously serious issue. People are scared and need clear leadership from government, something which has been lacking and which has been replaced by spin.
In addition to mortgage debt, most struggling households have additional debt that requires resolution. This debt must be treated in conjunction with mortgage debt to arrive at a realistic repayment plan which takes into account the debtor’s individual circumstances and capacity to pay.
In the coming months, New Beginning will change. We will become a not-for-profit organisation that will provide financial, negotiation, advocacy and legal services to struggling homeowners. This will be funded by clients on a not-for-profit basis to ensure the borrower is represented professionally.
There is a benefit to borrowers coming together in large numbers and having effective solutions negotiated. This may include a borrowers’ union, for want of a better description.
At the moment, the deck is very much stacked against the debtor. Banks and creditors have significant fire power in the form of staff, administration, internal and external lawyers – an endless arsenal of administrative tools to pursue and destroy.
The debtor has very little in the way of protection and very little support. This is why a fit-for-purpose Mabs and other service providers are so important.
*David Hall is a founder of the New Beginning group, which lobbies for and supports mortgage holders in difficulty*