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

The Deputy will be aware that on 13 March 2013 the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks and a consultation process on changes to the code of conduct on mortgage arrears, CCMA. This new approach is aimed at ensuring banks offer and conclude sustainable solutions for their customers in arrears by setting specific performance targets and proposing revisions to provisioning standards. The Central Bank also proposes to update the CCMA so it continues to provide protection to customers who co-operate with their banks while facilitating and promoting the resolution of arrears cases.

The consultation paper on the review of the CCMA includes a number of proposals intended to clarify and strengthen protections for borrowers. These include clarifications of the definition of "not co-operating" to ensure lenders and borrowers know what type of engagement is expected; safeguards for borrowers, including specific requirements for interaction by lenders with borrowers classified as not co-operating; and a new requirement for lenders to draw up and implement a contact policy, to be approved at board level, which ensures unsolicited communications are not aggressive or intimidating, that borrowers are given sufficient breathing space following each unsolicited communication and that future contact is agreed in advance where possible. Also included are increased provision of information requirements to ensure transparency on alternative repayment arrangements offered, including the reasons the alternative repayment arrangement offered is considered to be appropriate and sustainable for the borrower, the frequency with which the alternative repayment arrangement will be reviewed and the potential outcome of these reviews. These provision of information requirements also cover the implications of options such as voluntary surrender or trading down for the borrower and his or her mortgage loan account, including associated costs or charges; how much, if any, of the outstanding arrears must be repaid; the impact on the borrower's credit rating; and the importance of seeking independent advice on these options.

The Central Bank has informed me that in determining whether a proposal constitutes a sustainable solution, the lender will need to evaluate actual and prospective affordability for the distressed borrower and the capital implications for the credit institutions in terms of their prudential responsibility in order to minimise losses.

While the Central Bank does not mandate any particular model of restructuring and while sustainable solutions will be arrived at on a case-by-case basis, some fundamental principles must be respected. These include an affordability assessment of the borrower based on his or her current and prospective future servicing capacity for all borrowings; a realistic valuation of the borrower's assets, particularly his or her property; and the use of an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds.

The Central Bank has advised that it will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications. Other initiatives which the Deputy will be aware of, such as the mortgage advisory function and the personal insolvency reforms, will also contribute to ensuring a fair balance in the interaction between distressed borrowers and lending institutions.

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