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Mortgage Arrears Proposals

Dáil Éireann Debate, Tuesday - 21 May 2013

Tuesday, 21 May 2013

Questions (62, 122)

Willie O'Dea

Question:

62. Deputy Willie O'Dea asked the Minister for Finance the progress made to date in implementation of the mortgage arrears resolution targets; and if he will make a statement on the matter. [23935/13]

View answer

Joe McHugh

Question:

122. Deputy Joe McHugh asked the Minister for Finance if he will will update Dáil Éireann on his strategy for supporting homeowners in mortgage difficulty; and if he will make a statement on the matter. [23752/13]

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Written answers

I propose to take Questions Nos. 62 and 122 together.

As the Deputies are aware, on 13 March the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for proposing and concluding sustainable solutions for borrowers in arrears over 90 days for the main mortgage banks and proposed changes to the Code of Conduct on Mortgage Arrears.

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 will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications.

The Central Bank has now written to each of the 6 specified institutions to set out the reporting timelines required with regard to the public and non-public targets of each institution and the target levels.

It is fair to say that progress is underway and the Deputy may wish to note that in the Central Bank’s Q4 2012 mortgage arrears statistics, the Central Bank has indicated that overall there were around 23,430 mortgage accounts that had permanent restructure types at the end December 2012. In addition, the two pillar banks have indicated that each bank will assess at a minimum 1,500 cases each month to determine whether the mortgage is sustainable and identify the most appropriate forbearance treatment.

Separately from this Central Bank action, the new personal insolvency system, in particular the new resolution frameworks provided for in the Personal Insolvency Act, will be shortly be available to borrowers who are in significant difficulty in their mortgage repayments. Utilising this process, the borrower will be in a position to consult an independent personal insolvency practitioner and where necessary to make a formal and realistic personal insolvency arrangement proposal to all eligible creditors, including a mortgage lender. In such a situation the creditors will be obliged to formally consider and vote on the arrangement as proposed by the debtor. I would also remind the Deputies that, under the mortgage advisory service developed by the Department of Social Protection, independent financial advice is available to borrowers who have been offered a long term forbearance option by the lender, and a panel of around 2,000 qualified accountants is now in place to provide this service.

Taken together, the framework is in place to enable banks to work with distressed homeowners to reach sustainable solutions for dealing with their personal indebted situations.

Question No. 63 answered with Question No. 61.
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