Dr. Michelle Norris:

I thank the chairman and members of the committee. I am chair of the Housing Finance Agency plc and I am accompanied by my colleague, Mr. Barry O'Leary, the chief executive officer of the agency.

I have circulated a detailed statement to members outlining the function of the agency and our main areas of operation. As I have addressed the committee on a couple of previous occasions, I do not plan to go into all our areas of operation in detail, rather I will focus on our work in financing housing associations. To give some background about the agency, the Housing Finance Agency was set up in 1981. Its function is to advance loan finance to local authorities and the voluntary housing sector, in other words, housing associations, to be used for any purposes authorised under the Housing Acts and to borrow and raise funds for this purpose. In terms of functions under the Housing Acts, in the past we have funded some aspects of local authority social housing development. Currently, we fund housing associations, social housing development and supports for low-income home purchasers, such as local authority mortgages, the shared ownership scheme and other schemes along those lines which had existed in the past. We finance these schemes by loan finance. Our mission is to source and structure the loan finance in a cost-effective manner to the requirements of our customers.

We do not have a role in the formulation of housing policy. That is the function of the Minister and the Government. Rather our role is to provide appropriate funding for the housing schemes devised by the Minister and projects established by the Minister.

The agency does not receive any Exchequer grant or subvention. We do not lend directly to individuals or households. In respect of local authorities, we are effectively a centralised borrower on their behalf. We borrow money and loan it on to local authorities. It is then disbursed by them to individual mortgage borrowers. For our housing business, the Government guarantee on our borrowings enables us to raise funds at very competitive rates. The total outstanding loan book of the Housing Finance Agency at 31 December was €4.4 billion.

My written statement to the committee outlines all our various functions. I am happy to take any questions on those.

In my comments today I wish to outline to the committee our functions in relation to housing associations or approved housing bodies as they are called in this statement. The Housing Finance Agency has only recently commenced lending to housing associations. In the past we lent directly to local authorities and they passed on the money to housing associations via the capital loan and subsidy scheme. Powers for direct lending to housing associations are enshrined in section 17 of the Housing Act 2002. Our role in this regard in very important because the supply of housing finance for housing associations from commercial institutions, commercial lenders, is currently very low and also Government grant aid for this sector which was previously the main source of funding for the sector has been radically reduced since 2008. Therefore, the Housing Finance Agency loans are currently the main form of loan finance for the sector. However, direct lending to housing associations brings with it a different level of risk for the Housing Finance Agency compared to our traditional role of lending to State institutions such as local authorities. We endeavour to minimise this risk by devoting considerable resources to comprehensively assessing the suitability of lending to housing associations and putting in place controls to protect the agency's assets, which by extension are the assets of the State.

In order to be considered for loan finance from the Housing Finance Agency, housing associations must first apply for certified body status. A set of criteria are used to determine suitability and they span three broad areas - past financial performances, current corporate governance and future developmental and financial plans. To date, we have received 20 applications from housing associations for certified body status, that is, eligibility to borrow from the agency. Of these six have been approved and ten rejected, one withdrawn and three are pending decision by the Housing Finance Agency's credit committee. Where an application is rejected we advise the housing association in question what reforms are required to attain certified body status and we are committed to supporting them to make a successful reapplication in the future. Several of the housing associations who failed to get certified body status from the agency in the past have been approved subsequently on reapplication.

However, we see no justification for amending our criteria for granting certified body status to facilitate a larger number of approvals. In view of the fact that housing associations are currently unregulated by Government, we consider that the criteria we apply are the minimum necessary to ensure the loan to the Housing Finance Agency is repaid and the State's investment in the housing association sector is thereby protected. Once housing associations gain certified body status from the Housing Finance Agency, they can apply to us for finance for individual housing developments. Currently, we have approximately €500 million available for lending to the sector. To date, finance for individual housing developments to the value of €36 million has been approved, of which €13.12 million has been drawn down and €22.6 million still remains to be issued.

After housing associations gain certified body status, the subsequent loan approval rate is very high and 100% of loan applications to date have received an offer of loan finance from us. Our arrangements for assessing loan finance are that we lend up to 80% of existing use-value social housing for a period to the length of the payment and availability of payment agreement paid to the housing association by the local authority.

A payment and availability agreement is an ongoing subsidy to the housing association for letting dwellings for social housing which they effectively us to pay down the loan to us. Existing use value social housing means that we assess the cost of the development, not in relation to its market value, although we do take account of market value. Primarily we examine the cost to the State of accommodating people in alternative accommodation when we conduct an assessment of the project on which we are providing a loan.

To date all loans issued to housing associations have been charged at a variable rate and are used to purchase existing dwellings. Recently, we have made available a fixed rate loan product and a product for new housing developments in response to feedback from borrowers.

In return for a loan we seek a charge over the project's assets. In other words, the assets we are lending against. We do not seek a floating charge on all of the assets of the housing association, such as other dwellings they own. I raise the issue because in a statement made to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on 11 September there was an implication that the agency sought a charge of all assets owned by the housing association. That is not correct and I have written to the Chairman of that committee to clarify the matter.

I shall refer to the organisation's views on regulation of the housing association sector. The sector is very diverse. It includes a wide variety of some very large organisations and some very small organisations which provides valuable services to low income and vulnerable households. In view of the fact that the State's capacity to fund large-scale capital grants for social housing is likely to be limited for some time and local authorities borrowings for social housing provision constitute part of the national debt, it is likely that housing associations will play a much larger role in the provision of social housing in the future.

However, our experience of lending to housing associations indicates that if the sector is to meet these challenges a number of issues need to be addressed. They are as follows. First, the establishment of a system of independent regulation on a statutory basis. Second, the upskilling of housing associations' financial and development planning resources. Third, the sourcing of private finance for housing associations on a sustainable long-term basis. All of these issues are critical because the Housing Finance Agency's loans to housing associations also constitute not being part of the national debt. That limits the State's capacity to finance the sector using Housing Finance Agency loans over the long-term in order to move funding for the social housing sector out of the national debt or off-balance sheet. In other words, housing associations will have to generate loan finance for the private sector via loans, bond issues, etc.

The experience of raising private finance for social housing in the UK and other European countries indicates that it is possible. Most social housing finance in Europe is generated in the private sector. The use of large scale capital grants, like what we had in Ireland, is very unusual. However, experience abroad indicates that private finance will be forthcoming in two circumstances. If housing associations have the requisite skills to raise and manage the finance and a suitable independent regulatory regime is in place to protect investors' money.

Finally, the Housing Finance Agency is happy to apply its resources, financial and otherwise, in order to assist the housing association sector in its progress towards financial independence. It also wants to ensure that an adequate number of social housing units will be delivered in line with Government policy.