Dáil Éireann Debate, Tuesday - 27 March 2018
58. Deputy Michael McGrath asked the Minister for Finance if he or his officials have had contact with the Single Supervisory Mechanism, SSM, regarding the classification of certain restructured mortgages as non-performing loans on the books of banks; and if he will make a statement on the matter. [14183/18]
Amharc ar fhreagraThe context of this question will be well known to the Minister. It relates to the proposed sale of loan portfolios on the open market by certain banks, quite possibly to so-called vulture funds, and to the issue of the inclusion of certain mortgage loans which have already been restructured and which are now deemed to be non-performing and are therefore being included in the basket of loans for proposed sale with a view to reducing the level of non-performing loans the banks are carrying. I will go into the context in a moment.
I also want to begin my answer by providing some context to this question. During the height of the financial crisis, a key focus of the authorities was on stabilising and ultimately reducing mortgage arrears through the implementation of sustainable mortgage solutions that were agreed with borrowers. This led to the Central Bank of Ireland introducing public mortgage arrears resolution targets for the banks in the first half of 2013. As the process was rolled out, a split mortgage solution and a part capital and interest solution that met certain criteria were both accepted by the Central Bank as being sustainable for the purposes of these targets.
Since the establishment of the SSM at the end of 2014, the focus has shifted from reducing mortgage arrears levels to reducing non-performing loans, NPLs. This shift in focus has been accompanied by a new strict Europe-wide definition of what constitutes an NPL by the European Banking Authority, which means that certain restructures are deemed to be NPLs even if customers are meeting the revised payment schedules.
To answer the Deputy's question, officials in my Department have met with staff of the SSM at the highest level on two different occasions since the end of 2016. In the course of their discussions, they outlined the background and history to the restructuring effort in Ireland and questioned the logic of now classifying some types of restructured loans, including certain split mortgages, as NPLs indefinitely. While my Department has been informed that the SSM is looking into the regulatory treatment of split mortgages across a number of European member states, I have no evidence at this point that this categorisation is going to change.
Aside from direct interaction with the SSM, my officials have also been actively involved in discussions on NPLs through the European Council’s Financial Services Committee sub-group on NPLs and the more recent European Commission expert group on NPLs. While this has ensured that Ireland’s views are voiced and considered on the matter, ultimately the final arbiter on the resolution of NPLs for Irish banks is the SSM.
As we speak, the reality is that sitting within Permanent TSB's Project Glas are split mortgages relating to 4,300 family homes. That may be as many as 5,000 actual mortgages. These are people who have done all the right things. They have followed the advice of Government and the Central Bank, they have engaged with their lenders, they have reached restructuring agreements and, more than that, they have actually honoured the terms of those restructuring agreements. However, they now find their loans being classified as non-performing. Their loans are sitting within the same basket as loans in respect of which there has been no engagement by the borrower and loans on which no repayments whatsoever have been made for a prolonged period. There is something fundamentally unfair about that. These people are deeply worried about the prospect of their loans, which relate to their family homes, being sold down the river to so-called vulture funds. I share their concern. We need to stand up for them and advocate for them. Their loans need to be removed from the NPL classification. These are, in essence, loans which are now performing.
As I have said since this issue developed, I absolutely understand the concerns that all loan owners have in respect of this matter. I particularly understand the concerns of loan owners who restructured their mortgages or debts and who have met the terms of those restructured loans. I have outlined to the Deputy the action which I and my Department have taken on this matter to date in terms of the engagement we have had with the SSM.
That engagement needs to be stepped up. The Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach has invited Danièle Nouy from the SSM to come before it. Last week, we heard evidence from AIB and Permanent TSB that was completely contradictory. AIB's representatives testified that its split mortgages are deemed to be performing whereas Permanent TSB's representatives told us the complete opposite - that its split mortgage agreements are deemed to be non-performing by the SSM. That has raised very seriously difficulties. We have now had replies in the European Parliament from the SSM to a number of MEPS which make it clear that, depending on the structure and documentation underpinning these mortgage restructurings, it is possible for them to cease being deemed as non-performing and to be deemed as performing. I ask the Minister to lend his political weight to resolving this issue. It is crucial for the people concerned. They do not deserve to be treated in this way.
To emphasise again, I understand completely the anxiety that loan owners feel in respect of the possibility for loan sales and the classification of debts. I have also noted what has been said publicly about this matter, the answers which have been given to Members of the European Parliament by the SSM, and other debate which has ensued on this matter.
To reiterate, as I have outlined in the answer to the Deputy, my Department and I have engaged and continue to engage on this matter. In order for me to recognise the independence of the SSM, it is important for me to acknowledge also its clear assessment of the matter and the fact that it is currently not giving an indication that it will change. However, I am engaging on the matter because I understand the concern of many mortgage holders.
