I propose to take Questions Nos. 88, 114 and 118 together.
The “split mortgage” was suggested by the Inter-Departmental Mortgage Arrears Working Group (Keane Report) as one of the possible viable options for restructuring a mortgage in certain circumstances. The concept of a “split mortgage” involves splitting a distressed mortgage into an affordable mortgage and warehousing the balance. I am informed by the Central Bank that the majority of lenders have now introduced, or are in the process of introducing, a “split mortgage” as one of the alternative repayment arrangements to restructure a mortgage. While lenders have taken the broad approach set out in the Keane report, the product details vary from lender to lender. The most notable difference involves the interest rate charged on the warehoused element of the split mortgage and this varies from 0% up to the full mortgage interest rate. Also, the maximum amount that can be warehoused is dependent on each lenders own internal criteria. The split mortgage, like all other forbearance and modification arrangements, is based on affordability and sustainability of the arrangement from both the borrower and the lender’s perspective. There is also a commercial and contractual leeway for the lender in formulating the details of any particular restructure or alternative repayment arrangement from the initial contractual requirements.
As lenders offer split mortgages with differing terms and conditions, the main supervisory issue is one of transparency and the Central Bank is of the view that all lenders should make public all terms and conditions and eligibility criteria for a “split mortgage” to aid both customers and financial advisors. In addition, the Code of Conduct on Mortgage Arrears will require the lender, where an alternative repayment arrangement is offered, to outline the reasons why the alternative arrangement offered is considered to be appropriate and sustainable, as well as the advantages and any disadvantages or potential disadvantages of any arrangement offered, in the context of the individual circumstances of the borrower.
While the Central Bank engagement with lenders to require them to propose options for the sustainable resolution of mortgage difficulty is a major element of the strategy to deal with the mortgage arrears problem, other measures are also important. Among these is the reform of personal insolvency legislation with more accessible and effective debt resolution mechanisms being made available to debtors and the less penal character of debtor insolvency.
The necessary overall strategy and building blocks to address the mortgage arrears problem are, therefore, now in place. These include the Central Bank targets initiative, the new Code of Conduct on Mortgage Arrears, the fundamental change to personal insolvency legislation including the provision of new, more accessible and less penal resolution mechanisms to debtors and a comprehensive mortgage information and advice service.
The onus is now on lenders to move to address individual arrears cases in a comprehensive and speedy manner. Therefore, I expect the banks to increase the number of “split mortgage” and the other long term restructured mortgage arrangements put in place over the remainder of this year.
As part of the process banks are requested to make regular returns to the Central Bank on their performance against the targets and the Central Bank will audit the performance of the lenders in this regard. I can assure the Deputy that, both my Department and I will keep in close liaison with the Central Bank and individual banks on this important issue.