I thank Deputies Robert Dowds and Seán Kenny for raising this issue. As they will be aware, the Minister for Finance, Deputy Noonan, is in Brussels. I am taking this on his behalf.
I can assure the Deputies that the Government is most aware of the significant difficulties some homeowners are facing in meeting their mortgage obligations and it remains committed to intervening to advance measures to assist those mortgage holders who are experiencing real and genuine difficulty. Incidentally, I attended the Cabinet sub-committee meeting on this issue yesterday.
One of the key measures is the Central Bank's code of conduct on mortgage arrears, which applies to mortgage lending activities with borrowers in respect of their principal private residence in the State. Compliance with the code is mandatory for all mortgage lenders regulated by the Central Bank. The code provides a number of protections to borrowers. These include the establishment of a formal mortgage arrears resolution process, MARP, to deal with mortgage customers who are in arrears or in pre-arrears, the establishment of a dedicated appeals support unit and a separate internal appeals process by lenders to deal with individuals on a case-by-case basis.
The Central Bank has advised that as soon as a borrower goes into arrears, a lender must communicate promptly and clearly with the borrower to establish in the first instance why the repayment schedule, as per the mortgage contract, has not been adhered to. Lenders must proactively encourage borrowers to engage with them about financial difficulties which may prevent them from meeting their mortgage repayments. They must ensure that all communications about arrears and pre-arrears are provided to borrowers in a timely manner. All information relating to a lender's handling of arrears and pre-arrears cases must be presented to the borrower in a clear and consumer-friendly manner. The language used in communications must indicate a willingness to work with the borrower to address the situation and must be in plain English so that it is easily understood. Where possible, legal jargon must be avoided.
The House will be aware that on 13 March the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks for proposing and concluding sustainable solutions for borrowers who are in arrears for more than 90 days, and proposed changes to the code of conduct on mortgage arrears. As the regulator, the Central Bank's intention is now to require banks to proactively address significant mortgage arrears cases, for both private dwelling and buy-to-let mortgages, and, where appropriate, to propose durable and sustainable resolution measures. In determining whether a proposal constitutes a sustainable solution, the lender needs to evaluate both actual and prospective affordability as part of the borrower's affordability test as well as the capital implications for credit institutions in terms of their prudential responsibility to minimise losses.
While the Central Bank is not mandating any particular model of restructuring and while sustainable solutions will be arrived at on a case-by-case basis, there are some fundamental principles that must be respected. First, the affordability assessment of the borrower needs to be based on his or her current and prospective future servicing capacity for all borrowings, and assumed prospective future increases in the debt-servicing ability of the borrower must be credible and conservative. In addition, lenders need to apply a realistic valuation of the borrower's assets, particularly his or her property. This also applies to any assumption of asset price appreciation as well as the estimated costs relating to a potential foreclosure of the property. Finally, lenders need to use an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds. The Central Bank will assess compliance with these principles in its supervisory audit of compliance with the targets, including thorough analysis of a sample of modifications. Performance targets have been set for the following institutions: ACC Bank, AIB, Bank of Ireland, KBC Bank Ireland, Permanent TSB and Ulster Bank. These institutions cover the vast majority of the mortgage book in Ireland, accounting for nine out of ten of mortgages held. The Central Bank continues to engage with all mortgage lenders to ensure adequate mortgage arrears resolution strategies are in place.
As I mentioned, the Central Bank is also currently reviewing the code of conduct on mortgage arrears. The intention of this review is to strengthen the existing protections, where necessary, including improving transparency for borrowers, while also ensuring that the resolution of arrears cases is facilitated. Issues considered as part of the review, and on which views were sought in the Central Bank's consultation paper, include new safeguards to ensure borrowers are given sufficient warning before being classified as non-co-operating; changes to the contact levels permitted while ensuring consumers are not subject to harassment; transparency on resolution options so borrowers have a full understanding before making a decision; and consideration of whether there is merit in allowing a lender to move a borrower in arrears off a tracker rate where the lender has offered an alternative arrangement which is more advantageous in the long term.
It is expected-----