Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

While it must be accepted that, in some cases, mortgage debts are so unsustainable that it will be in the best interest of all the parties to surrender the house, in most cases where this happens the surrender takes place on a voluntary basis. However, in the majority of cases of mortgage difficulty, it will be possible to address the problem, in the best interest of all parties, through a mortgage restructure. Indeed, the code of conduct on mortgage arrears places an onus on the banks, in respect of a co-operating borrower, to explore all the options for an alternative repayment arrangement to address mortgage difficulties. In addition, the Land and Conveyancing Law Reform Bill currently before the Oireachtas provides an important power to the court to adjourn a repossession hearing to allow a personal insolvency arrangement to be proposed and considered as an alternative option.

The mortgage to rent scheme is now available as an option to low income families who wish to remain in their home. The latest information I have is that 37 cases have now been completed and are awaiting closure, while a further 27 cases are at valuation or sale negotiation stage of the process. The mortgage to rent scheme ensures peace of mind for the borrower and their family that they can remain living in their home without disruption to family life, despite being in a difficult financial situation, and they pay a rent they can afford.

A mortgage information and advice service has also been put in place which comprises a detailed website, a mortgage arrears information helpline and a targeted independent advice service provided by accountants to borrowers availing of long-term forbearance from their lender. It is important that this service is kept under consideration and the Department of Social Protection is currently reviewing the one-to-one advice part of the service.

Given that this overall strategy is in place, it is now essential to ensure that banks proactively address the position of their customers in difficulty and that they propose sustainable solutions. Therefore, 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. The Central Bank has indicated that, in determining whether a proposal constitutes a sustainable solution, the lender needs to evaluate both current and future 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, and 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. Lenders need to use an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds. Importantly, 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 concluded a review of the code of conduct on mortgage arrears, CCMA. A revised CCMA came into effect on 1 July 2013 which provides an integrated and cohesive package of consumer protection measures for borrowers facing or in mortgage arrears. It reflects the current mortgage arrears situation and seeks to ensure appropriate resolution of each borrower's arrears situation; ensure that lenders deal with borrowers in a fair and transparent manner; support and facilitate meaningful engagement between lenders and borrowers; and ensure borrower awareness of the benefits of co-operating with their lender, and the consequences of not co-operating.

There has been much debate about the moratorium period, which was previously 12 months. While this has been modified, it should be noted that the revised CCMA requires a lender to wait at least eight months from the date the arrears arose and to make every attempt to engage actively with the borrower during that time before legal action can commence against a co-operating borrower. As a result, we expect that a more realistic and sustainable set of solutions will be offered to address a mortgage problem in everyone's best interest. This change should also be looked at in the context of the new insolvency resolution options that are going to be available to debtors. This legislation also gives the debtor statutory time protection periods to enable him or her to formulate an insolvency proposal to submit to creditors.

Ultimately, the Government is of the view that it is the regeneration of the economy, the restoration of employment levels and income growth that will address the real social and economic problems associated with high levels of personal indebtedness. That is why Government is focused, through its many new initiatives, on fostering and generating economic growth. The successful achievement of renewed growth in the economy will restore consumer confidence and bring the tangible and sustainable recovery the country requires.

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