Dáil Éireann Debate, Tuesday - 2 July 2013
65. Deputy Michael McGrath asked the Minister for Finance his views on the negligible number of split mortgage arrangements in place to deal with distressed borrowers at the end of March 2013; if he has sought assurances that the banks are putting in place genuinely long-term solutions as required by the mortgage arrears resolutions targets programme; and if he will make a statement on the matter. [32226/13]
View answerOn 13 March last, the Central Bank, in its capacity as regulator of credit institutions, announced new measures to address the problem of mortgage arrears. These included the publication of performance targets for the six main banks in respect of the number of sustainable solutions to be proposed to mortgage borrowers. Initially, the Central Bank required the relevant lenders to propose by the end of June sustainable solutions to 20% of mortgages that were in arrears of more than 90 days. The target rises to 30% by the end of September and to 50% by the end of December 2013. The Central Bank will in due course set targets for the conclusion of sustainable solutions.
In determining whether a proposal constitutes a sustainable solution, the lender must evaluate both actual and prospective affordability of the solution by the borrower as well as the capital implications for the credit institution in terms of its 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, it has indicated that there are some fundamental principles that must be respected in this matter. The affordability assessment of the borrower must be based on his current and prospective future servicing capacity in respect of all borrowings, and assumed prospective future increases in the debt servicing ability of the borrower must be credible and conservative.
Lenders must apply a realistic valuation of the borrower's assets. This also applies to any assumption of potential asset price appreciation, as well as the estimated costs related to a potential repossession of property and lenders must 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 been in communication with each of the relevant institutions to set out the reporting requirements with regard to the public and non-public targets of the respective institution. It also will assess compliance with the sustainability principles as outlined above in its supervisory audit of compliance with the targets, including an analysis of a sample of modifications.
Additional information not given on the floor of the House
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 mortgages 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.
I thank the Minister for his reply. I believe that with all the focus in the last week or so understandably having been on the Anglo tapes, the revised code of conduct and the latest mortgage arrears statistics have not received the attention they deserve. More than 142,000 families are in mortgage arrears on the family home at present. This is a national crisis that deserves a decisive response. In his reply, the Minister outlined that under the mortgage arrears targets programme, 20% of those in arrears were to be offered sustainable solutions by the end of June 2013. These sustainable solutions can involve being put on interest-only repayments, putting someone into insolvency or the voluntary surrender of the property. Many of them will not, by definition, represent genuine long-term restructuring of the mortgage.
The Minister's reply refers to the reporting arrangements. Will Members receive information at the end of each of the those milestones, namely, the 20% and 30% targets, as to what is being offered? While I do not expect such detail by bank, will Members be informed that X percentage received an offer of a split mortgage, while Y percentage is being put into insolvency? While this is the responsibility of the Central Bank, such information is critical because the banks are becoming increasingly aggressive with people on the ground. This is being facilitated by the change in the law concerning repossession, by the removal of the limit on the number of unsolicited contacts, by the tracker rate now being on the table for the first time and by the removal of the moratorium at 12 months. Moreover, if one is deemed to be non-co-operative, the banks now can move immediately. They are becoming more aggressive and while all Members accept they also must face up to the crisis, my difficulty is that the banks are firmly in control. They are in the driving seat and decide what is a sustainable solution. They decide who is or is not non-co-operative. Many people wish to work through their situation and are in genuine financial distress.
Thank you Deputy. I must call on the Minister.
At present, the evidence on the ground is that the banks are becoming more aggressive. They are being armed with more and more tools by the Central Bank and the Government.
Thank you. I call on the Minister.
Will Members get information on the sustainable solutions that are being offered?
I agree with the Deputy. This is a difficult situation and I am glad that there is now movement to resolve it. On the data available to me on the targets set down, approximately 25,000 offers have been made across the banks already. I can get more precise data for the Deputy. I do not have to hand the breakdown on what are the specific solutions across the range of solutions that may be applied but the general principles are as I have laid out. These general principles now have been refined further by the code of conduct on mortgage arrears, which has been reviewed again by the Central Bank. The criteria taken into account are the personal circumstances of the borrower, the overall indebtedness of the borrower, information provided in the standard financial statement, the borrower's current repayment capacity and the borrower's previous history.
However, the principle under which everything is operating is an attempt to distinguish between those who cannot pay and those who will not pay. For those who cannot pay, the banks are engaging and providing sustainable solutions. There is of course a difference between the target on offer and the subsequent targets on solutions. Consequently, there will be a second set of data giving information on the offers that have been accepted.
We need the breakdown in aggregate form of the 25,000 sustainable solution offers the Minister said have been made. Under the definition provided in the mortgage arrears resolution targets it is up to the bank to make the call as to what that solution is but it can be interest only. That is fine for those in short-term financial difficulty but it can mean putting somebody into insolvency or handing back the keys to the House. They might be sustainable solutions in one person's definition but in another person's definition that could mean the family home is gone. We need to have the data. Looking at the latest figures to the end of March, the reality is that of the more innovative long-term solutions such as split mortgage or a permanent interest rate reduction, less than 400 have been put through and in the context of 142,000 people actually in arrears with their family home, that is a drop in the ocean.
Progress in this area must be accelerated. We need more data. I hope the Minister's plan works but I have my doubts. I would rather that an independent office had the final say in determining what is a fair solution to a person's mortgage difficulty but the Minister has gone down a certain road. I hope it works but we need the data.
I have some statistics that may be of help to the Deputy. At the end of March 2013, a total stock of 79,689 private dwelling house mortgage accounts were categorised as restructured. That is an increase of 1.8% on the end of December 2012. Of the restructured accounts, 53% are not in arrears. New data collected this quarter, that is, quarter 1 of 2013, indicated that 76% of restructured accounts were deemed to be meeting the terms of their agreement. A total of 24,706 new structure arrangements were agreed during the first quarter of the year. A total of 33.1% of the restructured accounts are on interest only arrangements, a fall of four percentage points on the end of December position, while a further 21.7% are on payments that are greater than interest only. Together, interest only arrangements and reduced payment arrangements account for approximately 55% of all restructured types. That was 59% at the end of December. A total of 144 accounts are in split mortgage arrangements, an increase of 92 cases on quarter 4, while 241 accounts have availed of permanent interest rate reduction, an increase of 17 cases. We have data and I will try, when we are making various statements, to give as much data as I can.
