The Code of Conduct on Mortgage Arrears was introduced by the Central Bank in early 2010 as a way of giving some protection to home owners who had fallen into arrears on mortgage payments. It made sense that the State, through the Central Bank, would force lenders to behave in a responsible manner in their dealings with distressed borrowers.
The primary protection of the Code was to prevent lenders from instituting legal proceedings seeking repossession of the family home. That restriction meant that where a borrower was co-operating the lender had to wait 12 months before it could go to Court.
It is obvious that the Central Bank hoped that during this time responsible deals would be worked out by borrowers and lenders so that repossession was not necessary. The alternative was and continues to be home repossessions on a scale never seen in this country.
But the actual consequence of the code is that distressed home owners have found themselves in a state of stasis - where nothing meaningful is happening. This vacuum is in nobody’s interest. Families are forced to live in suspense, not knowing from month to month where their futures lie. The only thing these families really know is that without some intervention they cannot pay their debts and will be forced to live their lives in a form of slavery to the very banks that have done such damage.
This is so very bad for our country.
Having such a large demographic caught in a debt trap is the recipe for social exclusion and for undermining society itself. Why or how should people have faith in a system which seeks to turn them into serfs? How can people, forced to live just to pay unmanageable debts, be expected to behave as citizens. In reality, the events and responses of the last half decade have destroyed faith in society and have set us against each other. The ramifications here are enormous.
On the other hand the beneficiary of the inaction has been the financial world itself. The vacuum allows it go on living in a make believe world where property prices grow by double digit percentiles year on year and where ordinary people can and are happy to repay vast sums of money. We are happy in this Alice in Wonderland existence to sacrifice our children’s’ future to pay billions to unknown foreign investors. We are happy to hope that somebody will someday come to our rescue.
This make believe world is, in truth, a nightmare and the time has long since come for us to wake up from it.
So the new Code of Conduct and the repeal of the Gunn judgement will make it far easier for banks to repossess homes. The protections are gone and we will be at the mercy of the bankers!
While to some it may seem strange, New Beginning finds all this to be a delaying distraction - subject only, of course, to the actual commencement of the Personal Insolvency legislation. Once this legislation is operative (it only requires the signature of the Minister for Justice) borrowers have enough protection and we say “bring it on!”
Bring it on so that we can, for the first time, face up to the fact that tens of thousands of our people are insolvent. Bring it on so that we can stop pretending that all is well when it so patently and manifestly is not. Bring it on so that we can look the greedy financiers in the eye and say - “we cannot pay and so you will not be paid!”
What can they do? There will be no place to hide. No Code of Conduct or other fig leaf to cover up the ugly truth of Ireland in 2013.
Now a borrower under the new rules can propose arrangements based on what they can fairly live with. If those proposals are rejected there is a benign bankruptcy regime and in three years the borrower is free. They are free to begin again and to be master of their own destinies. They are free to reap what they sow without the on-going malign supervision of some modern day gombeen man.
Bankruptcy was once considered a moral failure but it is not. In a capitalist world which promotes credit, bankruptcy is the quid pro quo. In Britain the bankruptcy laws are contained in their properly named “Enterprise Act” and in the United States bankruptcy can be seen as a badge of honour.
From the very moment Minister Shatter commences the new laws a light will appear at the end of this tunnel. The future of tens of thousands of ordinary people will again be in their own hands.
And this does not have to mean tens of thousands of bankruptcies but must mean the real threat of it. When the lenders see what they will get in such a wave of bankruptcies they will clamber to do deals. They will beg people to stay put on terms which they would never accept today. The banks understand this paradigm and they are nervous. So it suits them that we argue over codes and arrears figures and scratch our heads and blame each other. But enough of such nonsense - the time for action has come.
If you believe that the financial system and its minions have destroyed this country, this is not the time for talking but the time for doing. It is not the time for street protest or for lazy and sentimental words. The banks need your co-operation to survive. Why should you give it to them when their aim is to enslave you and your family? To agree to such servitude is itself an act of treason.
You should not be paying more than what is fair on your mortgage. If 35 per cent of your net income can pay a mortgage based on the current value of your home then it is sustainable and it is fair. The balance must be written off or parked, without interest, for life unless the borrower agrees otherwise. This is the basis of the offers that must be made to force the correction. Paying more than 35 per cent is not good for you or your family, and it is not good for your country.
The banks will resist with talk of Codes and Standard Financial Statements and moral hazard and the rest. But the law for once is now on the peoples’ side. Any refusal to accept reasonable offers made along reasonable grounds can be met with applications for bankruptcy.
And during the three years of bankruptcy life goes on as normal. The idea behind the process is that the debtor is turned upside down and his or her pockets are emptied. For most it has no effect on employment and for many the family home will be excluded for what can a house in negative equity be worth to creditors other than the secured bank. The official assignee (the bankruptcy authority) takes any surplus income after reasonable expenditure. Our experience is that there is no such surplus. But even if there is can that be said to be an unreasonable price to pay for financial freedom in three years?
In the end society is about people. It is the people who have been asked to bear the brunt of this crisis. But people in any civilised society must be free. By coming together to use the insolvency laws collectively so that we rid people of this terrible yoke, we will be doing our country a service it so badly needs.
To the banks and the financial world we can now say, as others have - you can have our people as customers, but know this - they will never be your slaves.
Ross Maguire is a barrister and one of the founders of New Beginning