Dáil Éireann Debate, Tuesday - 21 May 2013
100. Deputy Jonathan O'Brien asked the Minister for Finance if, when banks increase the standard variable mortgage rate on a mortgage that is 90 days or more in arrears, they are automatically assessed to not have provided a sustainable solution to the distressed borrower in the context of the target for banks to have offered at least 20% of their distressed mortgage borrowers sustainable solutions by the end of June 2013. [23953/13]
View answerThe Central Bank has advised that in the context of its publication of performance targets for borrowers in arrears over 90 days, in determining whether a proposal constitutes a sustainable solution, the lender needs to evaluate both actual and prospective affordability for the borrower’s affordability and the capital implications for the 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, as follows:
- The affordability assessment of the borrower needs to be based on both their current and prospective future servicing capacity for all borrowings; assumed prospective future increases in the debt servicing ability of the borrower must be credible and conservative.
- Lenders need to apply a realistic valuation of the borrower’s assets, in particular their property. This also applies to any assumption of potential asset price appreciation, as well as the estimated costs related to a potential foreclosure of property; and
- 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 has informed me that it will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications.
