Mr. Ed Farrell:

I go back to Senator Boyhan's question on individual credit unions and their credit decisions. He asked if they had the required expertise.

Yes and no. There are examples of individual credit unions lending for social housing on a small scale, but the Government's ambition here for the approved housing bodies in on a much larger scale than for individual credit unions or individual smaller approved housing bodies. That is the whole idea behind the special purpose vehicle mentioned in the Rebuilding Ireland report and policy. Collective credit union money on one side would initially go into the fund as per the Central Bank's proposals. We agree with that when it comes to the tier three, the biggest ten or 12 approved housing bodies. The idea is that that fund would then have, either as employees or as a retained firm, people with credit expertise who would help the fund and its shareholders: the credit unions, pension funds and possibly the Strategic Investment Fund. It would not just be the credit union's money that would be in that fund.

There would certainly be expertise then to help make the credit assessment and credit decisions to ensure that the money is put to a safe purpose for whichever individual approved housing body and project. This would be the case whether the project involved one house or ten houses and whether it involved building or buying. Whatever that individual project might be, it has to be a safe and good improvement project. Individual credit unions do not have and would not claim to have the expertise to do the credit assessment on a €500,000, €1 million or multi-million euro loan for a project of that size. That is why the Government's policy is to have a fund or a collective, as it were. The risk is mitigated by being part of a collective.

Deputy Cowen reiterated his support and the fact that he previously sent a submission to the Central Bank's consultation paper.

Deputy Ó Broin referred to tier three and to the preferred model. Our paper and our proposal is ultimately a response to the Government's initial policy document in 2014, the Social Housing Strategy 2020. It was then refined to reflect the updated Rebuilding Ireland plan launched last July. It is fair to say that the 2020 strategy was the Government's policy to enhance the role of approved housing bodies as distinct from local authorities. That is not our area of business, however. Our forte lies in taking in money from and providing loans to our 3 million members. Our surplus funds, as I mentioned in my opening address, amount to almost €10 billion. We are looking to put this surplus into social projects. The money has to be safe, of course, which is why there is a need for credit assessment and credit expertise at a collective level. The model set by the Government's policy is to grant more and more involvement to approved housing bodies and to look for outside funding, not just from credit unions but also from the Strategic Investment Fund and from pension schemes, both national and international.

When it comes to development and acquisition, individual approved housing bodies would approach the fund with proposals for individual projects. The quicker ones to reach the market are those to acquire completed or 90% completed houses. These might be in unfinished estates and the like, although that market has probably largely dried up at this stage. Buying a green or brown field site and then developing it obviously takes longer. Initially there would probably be a bridging loan for the first 12 or 24 months. When the house is built, certified and handed over to the tenants there would be a 30% capital advance from the Department. When the rental agreement and the payment and availability agreement with the tenant kick in we would then set the loan up for 25 to 30 years. We see the fund as having a role in both development and acquisition, though probably more in acquisition to begin with. As we get up and running and gather practical experience, however, there is no reason that we would not have a bit of both.

We have met with PricewaterhouseCoopers, the advisory firm, as part of the Irish Council for Social Housing's remit for this fund, and it was talking about a mix of acquisition and development. I know it is appearing before the committee after us and it will be able to provide more detail. We are more interested in the funding than the actual housing side.

The 100% or 70% is related to the model. The model, as we understand it, is that there is a capital advance payment known as the capital advance leasing facility, CALF, which is worth up to 30%. Large approved housing bodies will get 30% of the project cost on a loan that only has to be repaid after 20 or 25 years if the house does not remain part of the social housing stock. It attracts a low rate of interest but does not get repaid as long as the house is in social housing supply. The other 70% is borrowed. In theory that 70% will be borrowed from the fund. Credit union money would make up some of that fund. That is the model. We did not design the model. It is a safe model for the lender, whether the lender is the housing finance agency, HFA, which is the current main lender, a private bank or this fund made up of credit union money and other moneys. It is as if a private person has a 30% deposit for their house. It is not 80%, 85% or 90% mortgage territory. It is 70%. We would draw the analogy of a borrower having a State job and the State stepping in, if the borrower did not repay the loan, to repay out of his State job earnings. There is a step-in arrangement if the approved housing body disappeared or got into difficulty. The borrower is almost guaranteed its money because it is only a 70% loan initially, and the loan repayment ultimately comes from the payment and availability agreement, which is the rental subsidy from the local authority for the tenant, and the tenant then pays a smaller top up.

The approved housing bodies are in communication. We have had many meetings since the end of 2014, since that initial social housing strategy that the former Minister for the Environment, Community and Local Government, Deputy Kelly, brought out. We have had many meetings with the Irish Council for Social Housing, which is the apex body for approved housing bodies, and with individual housing bodies. We have met with CEOs and finance directors. PricewaterhouseCoopers is assisting them on this special purpose vehicle. We have also met with other financial advisers that the housing bodies were engaging with during 2015, 2016 and this year. We are in constant communication with them and feel that we have a good understanding now of their business model. We have reviewed their annual accounts and their governance structures.

Deputy Casey mentioned governance and regulation or the lack thereof, but housing bodies are now becoming a regulated industry. Tier 3 incorporates ten or 12 of the biggest approved housing bodies, tier 2 incorporates some of the smaller bodies and tier 1 incorporates the very smallest. The 80:20 rule applies to any of our organisations. There are ten or 12 of the really big bodies and then hundreds of the smaller ones. The tier 3 housing bodies are now learning what it is to survive in a regulated environment. I would not speak to their experiences within that regulated environment. They are appearing before this committee later. Certainly credit unions operate in a highly regulated environment. They are regulated by a division of the Central Bank of Ireland, which is the registry of credit unions, to a very high standard, so we would have comfort that the approved housing bodies, some years after the credit union movement, are now regulated. Certainly from now on they are going to be operating in a highly regulated environment, which will provide more comfort on top of the financial contracts that I spoke about earlier, encompassing the 30% and the guaranteed rent. We have had excellent working relationships with the approved housing industry since 2014.

The on-balance sheet versus off-balance sheet debate is going on all the time.

They are trying to keep the approved housing body model off the balance sheet. The Government's desire or requirement is for the social housing model to stay off the balance sheet. That is not something that would involve the Irish League of Credit Unions. We have responded to the current structure for the delivery of social housing. If the discussion about what is and what is not on the balance sheet goes in a different direction, or if the payment and availability of models like the 30% CALF model changes, we will have to consider the changed scenario, structure and environment.

Deputy O'Dowd spoke about individual members having toxic loans or loans with very high interest rates from non-main street lenders. We are talking about private mortgages for private houses. Credit unions are allowed to offer mortgages as a small percentage of their lending. Up to 10% of their loans by value may be offered for periods in excess of ten years. Such loans are generally housing loans. Under their laws and regulatory rules, individual credit unions are allowed to allocate small amounts - up to 10% - of their loans for housing and for mortgages. Now that the global financial crisis has ended and people have more confidence in the Irish economy - perhaps the economic recovery is more evident in the cities than it is as one travels out - more and more people are approaching credit unions to see whether they can switch their mortgages from their current providers, which may include high street banks, non-high street banks and the remains of loan portfolios that were bought from foreign banks that exited the Irish market. To be fair, as Deputy Coppinger mentioned, the credit unions have to make sure such loans are as safe as possible and have as good a chance as any other loans of getting repaid. Ultimately, it is some other local person's money. We always advise members to give the facts to the people in the credit union and they will do their damnedest to facilitate them. When one goes into a credit union, one deals with somebody who understands one's situation and the decision on one's application is made by that person or somebody else in that building. The decision will not have to be relayed back from regional or national headquarters. At least there will be a sympathetic ear. At the same time, it has to make some financial sense.