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

On 13 March last, the Central Bank, in its capacity as regulator of credit institutions, announced new measures to address the problem of mortgage arrears. These included the publication of performance targets for the six main banks in respect of the number of sustainable solutions to be proposed to mortgage borrowers. Initially, the Central Bank required the relevant lenders to propose by the end of June sustainable solutions to 20% of mortgages that were in arrears of more than 90 days. The target rises to 30% by the end of September and to 50% by the end of December 2013. The Central Bank will in due course set targets for the conclusion of sustainable solutions.

In determining whether a proposal constitutes a sustainable solution, the lender must evaluate both actual and prospective affordability of the solution by the borrower as well as the capital implications for the credit institution in terms of its 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, it has indicated that there are some fundamental principles that must be respected in this matter. The affordability assessment of the borrower must be based on his current and prospective future servicing capacity in respect of all borrowings, and assumed prospective future increases in the debt servicing ability of the borrower must be credible and conservative.

Lenders must apply a realistic valuation of the borrower's assets. This also applies to any assumption of potential asset price appreciation, as well as the estimated costs related to a potential repossession of property and lenders must use an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds.

The Central Bank has been in communication with each of the relevant institutions to set out the reporting requirements with regard to the public and non-public targets of the respective institution. It also will assess compliance with the sustainability principles as outlined above in its supervisory audit of compliance with the targets, including an analysis of a sample of modifications.

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The necessary overall strategy and building blocks to address the mortgage arrears problem are, therefore, now in place. These include the Central Bank targets initiative, the new code of conduct on mortgage arrears, the fundamental change to personal insolvency legislation including the provision of new, more accessible and less penal resolution mechanisms to debtors and a comprehensive mortgage information and advice service. The onus is now on lenders to move to address individual arrears cases in a comprehensive and speedy manner. Therefore, I expect the banks to increase the number of split mortgages and the other long-term restructured mortgage arrangements put in place over the remainder of this year.

As part of the process banks are requested to make regular returns to the Central Bank on their performance against the targets and the Central Bank will audit the performance of the lenders in this regard. I can assure the Deputy that both my Department and I will keep in close liaison with the Central Bank and individual banks on this important issue.

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