Cost of mortgages in negative equity should be reduced – Ó Snodaigh
Speaking in the Dáil today on the NAMA legislation Dublin Sinn Féin TD Aengus Ó Snodaigh said the banks should be given a task of reducing the costs of mortgages for people at risk of defaulting on their payments.
Deputy Ó Snodaigh also said TDs with bank shares should exclude themselves from the Dáil debate or at least declare those shares when debating the legislation.
Deputy Ó Snodaigh said, “I asked that Members who have shares in the banks declare their interests when speaking in the Dáil. I also asked that they should exclude themselves, because they have a vested interest in NAMA succeeding. To my knowledge, nobody has acknowledged that they have shares in the banks. Their excuse is that they publish their interests in the register of interests every year. That register of interests needs to be reviewed in a case like this where people have a vested interest in bailing out the banks so that their shares can go up and they can benefit.
“These are not small amounts of shares. These are shares that must be declared because they are valued at over €13,000 per annum. It is a simple thing to do. A Member should stand up and state that he or she has an interest, but would like to debate the Bill in the public interest.
“The banks that lent so recklessly and the developers who coined the money at the height of the boom should share the pain these people are facing. If people run into difficulties in repaying their mortgages, then an option could be to reduce the costs of the mortgage more in line with the actual value of the home.
“We should set the banks a task of reducing all of those mortgages by 30% to make them affordable and to prevent families from defaulting on a mortgage. If those banks reduced those mortgages by 30%, we could set the conditions and limitations on this kind of renegotiations, so that it will only be for houses worth €600,000 or less. That is not a great cost when compared with what we are doing to bail out speculators and developers, but it would address huge problems that the State will be facing in the near future.” ENDS
Full text of Deputy Ó Snodaigh’s Dáil speech follows:
Deputy Aengus Ó Snodaigh: Is Bille rí-thábhachtach é seo. Mar a dúirt mo chomhghleacaí, an Teachta Morgan, nuair a bhí sé ag labhairt faoi seo, ní chóir go mbeadh sé os ár gcomhair in aon chor, ach tá sé ann. Tá deis agam impí ar an Rialtas, fiú ag an stad seo, é a tharraingt siar. Caithfidh an Rialtas éisteacht ceart a thabhairt do moltaí na ndaoine ar cad ba chóir dúinn a dhéanamh leis an slám mór airgid a chuirfear ar strae má théimid dul síos bóthar NAMA.
Inné, d'eisigh mé preasráiteas mar gheall ar iad siúd le morgáistí. Dúirt an ESRI go mbeidh 35,000 duine i gcruachás maidir leis an morgáiste atá acu, ó thaobh a tithe de, sa bhliain atá amach romhainn. Más fíor sin, tá fadhb mór ag teacht romhainn sa Stát seo muna dhéanamid rud éigin chun déanamh cinnte de nach mbeidh 35,000 teach gafa ag na bancanna nó na comhlachtaí morgáistí a thóg iad sin dóibh. Cuirfear 35,000 clann amach ar an sráid, os rud é nach féidir leo a morgáistí a íoc, muna dhéanfaimid rud éigin. Dúirt mé gur chóir dúinn féachant ar conas is féidir linn déileáil le seo i gceart.
This is not just about figures in the air and NAMA, but about real lives. Yesterday, the ESRI stated that 35,000 people would be unable to pay their mortgages next year. That is a shocking indictment of Government policies during the Celtic tiger years. People bought their homes at the height of the boom and they are not to blame for the situation in which they find themselves, struggling to maintain mortgages on what were once hyper-inflated properties. Yesterday's report is an indictment. In those years, successive Fianna Fáil-led Governments, the Central Bank and the management in those banks which are now before the Government with a begging bowl, encouraged people and forced families in many cases to pay hyper-inflated prices for their properties, or pay hyper-rents. There was no alternative, because the investment required for social housing was not there.
I disagree with the ESRI's suggestion that people who run into difficulties should have their mortgage rescheduled. Many of these people bought their properties in the last five or ten years. Many of them did so because the Central Bank allowed 100% mortgages and even 110% mortgages in some cases. These people now have a noose around their necks. They also have 35 to 40 year mortgages, because that option was encouraged to get everybody into the property market, as if the Celtic tiger would never slow down or never die. It is not an option for those with 35 or 40 year mortgages to re-mortgage. What will happen to them? There is no social housing to pick up the tab that the Government should have picked up. There is no empty social housing around the country which would take this up.
The banks that lent so recklessly and the developers who coined the money at the height of the boom should share the pain these people are facing. If people run into difficulties in repaying their mortgages, then an option could be to reduce the costs of the mortgage more in line with the actual value of the home. I did a quick calculation on some of the banks' submissions on NAMA and used a geographical breakdown to lift the number of mortgages in the Twenty-six Counties out of the figures that were presented to us by the Minister a few weeks ago. The total residential lending of the five banks covered by NAMA - I am excluding Anglo Irish Bank as it lent very little for residential mortgages - came to about €100.25 billion. If we accept that roughly one third of those people took their mortgages out in the last five or six years, then that comes to about €33 billion. We should set the banks a task of reducing all of those mortgages by 30% to make them affordable and to prevent families from defaulting on a mortgage. If those banks reduced those mortgages by 30%, we could set the conditions and limitations on this kind of renegotiations, so that it will only be for houses worth €600,000 or less. That is not a great cost when compared with what we are doing to bail out speculators and developers, but it would address huge problems that the State will be facing in the near future.
I remember when many people - myself included - gambled on the stock market through Eircom shares. We were all encouraged to take out Eircom shares, because it was a sure thing. I made that choice. I gambled, I suffered, I lost. These property developers gambled on a property market, yet the taxpayer is expected to bail them out. There was no bail out for shareholders in Eircom, yet we will bail out speculators like Liam Carroll, Sean Dunne and others we are getting to know as their court appearances take place.
I asked that Members who have shares in the banks declare their interests when speaking in the Dáil. I also asked that they should exclude themselves, because they have a vested interest in NAMA succeeding. To my knowledge, nobody has acknowledged that they have shares in the banks. Their excuse is that they publish their interests in the register of interests every year. That register of interests needs to be reviewed in a case like this where people have a vested interest in bailing out the banks so that their shares can go up and they can benefit. These are not small amounts of shares. These are shares that must be declared because they are valued at over €13,000 per annum. It is a simple thing to do. A Member should stand up and state that he or she has an interest, but would like to debate the Bill in the public interest.
There is significant misinformation coming from the Government about the figures on NAMA. The lie that NAMA will only pay €7 billion over the odds for the bad loans being bought back from the banks is truly shameful. The Government claims that NAMA is buying €77 billion worth of loans, but that the true value of these loans would be €88 billion. The developers who borrowed €77 billion actually bought €88 billion worth of property.
They say those are the figures, but last week's "Prime Time" programme demonstrated that argument was nonsense and there was nothing we did not already know. In most cases the developers were getting deposits for the loans secured on properties from other banks. Therefore, the whole argument is incorrect. NAMA used a figure of €88 billion to work down to a figure of €47 billion to be paid by the State plus a further €7 billion. It says this has allowed a 47% drop in property prices and that is the value and we will all benefit from it, perhaps in ten years time. There are two problems with this argument.
The recent Liam Carroll-Zoe Developments case with the ACC Bank made the front pages when the Ceann Comhairle was not on them. The judge took the view that if the company sold all its properties in a fire sale, they would only sell for 25% of their value. This, therefore is their value. The State should take this figure of 25% as the value of bank properties because this is a fire sale. We should not pay more than what the courts are willing to accept. We should pay €22 billion maximum for these types of properties so that we do not end up having to force our property market to recreate a bubble to ensure we get a return benefit from the properties we acquire. Therefore, €22 billion is the figure we should pay.
If we accept that the NAMA legislation will pass and if it pays that €22 billion, that will leave us with €30 billion or so that the State was willing to throw away into speculators pockets that could be used for something else. I will put forward some radical but realistic suggestions for how that money could be used to benefit the State for the foreseeable future and underlie a basis for the new economy required for the country. Most Deputies have seen or received e-mails about a proposal termed Spirit of Ireland, a radical proposal to ensure security of energy. Energy security is a major issue throughout the world and every economy wants to ensure that when oil and fossil fuels run out or prices go out of kilter, they will have their own sources of energy. The Spirit of Ireland proposal would employ tens of thousands of people for up to ten years in the construction phase and also provide security of energy for the future. I urge the Government to consider investing this type of money into that project rather than into NAMA. The advantage of this would be we would not only get energy security, but would also make a profit which could then go to other projects.
Last week I listened to some of those involved in the roll-out of broadband. They said €4 billion - a significant amount - would underpin the knowledge and smart economy we are trying to develop. We could position ourselves well if that was rolled out properly and if investment was put into state-of-the-art broadband, rather than the hotchpotch type of broadband we have currently where one house can get it and the one next door cannot. The cost of approximately €4 billion would supply state-of-the-art broadband to every house, business and school in the country. This money could come from the saving made if the Minister did not take the ridiculous route of spending huge amounts that should not be spent on bailing out the banks. It could come from the €20 billion or €30 billion savings made if the Minister paid 25% rather than 47%.
We could also spend the savings on capital projects such as building proper schools, removing prefabs and finishing road projects and transport infrastructure that will help us become more dependent on public transport rather than on private cars which burn more fossil fuels. That is the type of investment required and a further benefit is that this creates employment. The Government may not be able to remember the benefits that come from creating employment as it is so long since it put a proper job creation project together. People pay tax when they are employed and they have extra money in their pockets to spend. The Government benefits again from their spending, through VAT returns and then suddenly we have an Exchequer benefiting from having people in employment rather than having to spend its money on dole queues.
I also propose the Government should set aside proper funds for seed capital. The current funding of €500 million or €200 million will not go far. If we are to invest and plan for the future, we need to put proper seed capital in place so that small and medium enterprises and indigenous companies can avail of money to help them get on the road to becoming profitable and paying back in corporation or other taxes in the future. Otherwise, they sit on their ideas and somebody somewhere else around the world will develop the idea and make the profits. These are practical proposals the Government should accept.
I said earlier there were two problems with regard to the Government using the figure of €88 billion to work down to €47 billion. The second problem is that the Government seems to assume that property prices have bottomed out. It assumes that everything will either stay the same for a while or start to rise. I do not understand the basis for this. If one reads the property pages, one sees prices are still coming down. If one watches auction prices, one sees prices still decreasing. Anybody who goes into areas where houses have been waiting to be sold for the past year and a half knows property prices are still going downwards and will continue to do so. The same is true for commercial and industrial property. The presumption of a rise is wrong.
We have 400,000 people on dole queues and that number is increasing. Where are the people who will buy the houses? The banks are not lending money for them, but apart from that more people are unemployed and therefore cannot afford or will not be allowed to avail of a mortgage. Also, people in insecure jobs or on three-day working weeks cannot take out mortgages. The dole queues do not include the people whose hours have been reduced slightly. Economists such as Morgan Kelly and David McWilliams do not believe prices have bottomed out. I agree and do not think we will see a bottoming out of prices for another year or so. At that stage, we will be very close to the 25% value the banks put on Liam Carroll's property. The figure of 25% is the value we should consider if we are going down the NAMA road to ensure the best value for money is obtained by the State. The additional money the Government was willing to spend or throw away on NAMA should be spent on projects such as those I have mentioned.
In addition, some 36% of NAMA's loans will solely be on land. Land values have fallen even faster and further than property values, particularly where there is nothing on the land. If over one-third of the bad loans are on land, the 30% discount is even further away from the ballpark figure. I will deal with the issue of land value further on Committee Stage.
I wish to raise a number of questions with regard to local authorities, which are owed millions of euro by companies on development lands. The local authorities had planned to spend this money, but where will it come from now? Can they go to NAMA and look for their development levies? There is also an issue with regard to derelict sites. For example, in Dublin the local authority can proceed through derelict sites legislation and compulsorily purchase land that is empty. If land that becomes the property of NAMA remains derelict can local authorities compulsorily purchase it from NAMA, which is not the State?
What happens to major projects such as the Cherry Orchard regeneration project? That is totally stalled because the plan was based on lands which will probably now end up in NAMA. That means that everything in Cherry Orchard will grind to a halt until such time as somebody sells off the land NAMA will take and starts to invest and build on it.
There are enormous problems in relation to NAMA and major questions which I do not believe the Government will be able to address.