Liz McManus (Wicklow, Labour)
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Question 62: To ask the Minister for Finance his proposals to help persons on high fixed rate mortgages and who may be having difficulties meeting loan repayments and who cannot afford the large lump sum charge to exit the fixed rate mortgage to avail of a lower variable rate; and if he will make a statement on the matter. [18957/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy will be aware, fixed rate mortgages can be regarded as a form of insurance against interest rate changes as they provide certainty and security for borrowers regarding the level of their repayments. As mentioned in the Deputy's question, in circumstances where many households are faced with significantly increased financial pressures, the current environment of very low interest rates highlights to fixed rate mortgage holders the saving that would be available if they benefited from a variable interest rate. It is clear, therefore, why many fixed rate mortgage holders are anxious to switch to secure lower repayments. However, when a borrower signs a fixed rate mortgage contract with a mortgage provider, the lender, in turn, enters an agreement to borrow the money at an agreed rate and it must repay the money at this rate. There will be a cost to the institution if the fixed rate agreement is terminated before the end of the agreed term. This gives rise to the redemption fee charged in such cases.

In the House on 26 March I undertook to raise the concerns about the level of redemption fees with the consumer director of the Financial Regulator which has a statutory mandate to safeguard customers' interests. At the beginning of April my Department wrote to the consumer director to request confirmation that redemption fees charged for switching from fixed rate mortgages only covered funding costs and that no other costs were included. To date, the Financial Regulator has been able to confirm to my Department that all mortgage lenders have responded and provided the formula they use when they calculate the early redemption fee that applies to fixed rate mortgages. The Financial Regulator is awaiting independent verification by an actuary that the fee charged by a number of lenders recoups only the costs incurred by the lenders when they finance the fixed rate mortgage. However, the verifications received show that the formulae applied by the relevant lenders seek to recoup the loss to them arising from the early redemption of the fixed rate mortgage and do not seek to apply a penalty charge to the borrower.

The Financial Regulator is also examining whether any other costs are being charged such as administrative fees. Any such charges may be subject to approval by the Financial Regulator under section 149 of the Consumer Credit Act 1995 and will be examined further in that light. To date, the responses indicate that most lenders do not levy additional charges in the case of early redemption of fixed rate mortgages. Additional information not given on the floor of the House. The Financial Regulator has advised that further analysis may be necessary once all the information is received and reviewed. Should the remaining analysis by the Financial Regulator indicate that further consideration of this issue is required, it will be carried out.

The Government has put in place a number of important initiatives to assist borrowers who are in difficulties. These include the Money Advice and Budgeting Service which is developing a joint protocol with the Irish Banking Federation to ensure effective co-operation when dealing with debt problems of personal debtors. In addition, the mandatory code of conduct for mortgage arrears requires that when a borrower is in difficulty, the lender shall make every reasonable effort to agree an alternative repayment schedule. Under the code, consideration should be given case by case to alternatives such as deferral of payments, extending the term of the mortgage, changing the type of mortgage, and capitalising arrears and interest. In any case, lenders will not commence legal action for repossession until six months after the arrears arise. As part of the subscription agreement for their recapitalisation, Bank of Ireland and AIB will not commence court proceedings for repossession of a principal private residence until 12 months after the arrears appear when the customer continues to co-operate with the bank.

Joan Burton (Dublin West, Labour)
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Does the Minister understand that a number of people are caught in a significant hole because they have been unable to benefit from the European Central Bank's reduction in interest rates? The Minister said in his budget strategy that, because of the reduction in ECB interest rates, he was significantly reducing mortgage interest relief for homeowners. Many people who are caught in the fixed rate mortgage trap borrowed five or six years ago and are losing their seven-year mortgage interest relief. They are losing €900 a year, as well as experiencing high interest rates.

We want to know about the breakage fees in coming off fixed rate mortgages. I have figures from people who have been quoted €10,000, €20,000 or multiples of these figures. I understand the Minister's point that the banks committed to buy the funding at a particular rate, but the variations in breakage fees are extraordinary. Some people who lose their employment and income will end up losing their home. As part of the NAMA negotiations on the funding of the banks, has the Minister asked them specifically to consider the plight of such persons? Has this been considered in discussing the funding of the rescue or bail-out of the banks through NAMA?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Once again, there is no such thing as NAMA negotiations on the funding or bail-out of the banks. This intellectually facile, lazy approach does not add anything to the public debate on the subject.

Joan Burton (Dublin West, Labour)
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I am sorry if I am intellectually facile. I apologise.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There are no such negotiations. The decision on the valuation of the assets will be made on expert advice by the Houses, not by the banks. There is no question of negotiations preceding the establishment of NAMA.

Joan Burton (Dublin West, Labour)
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Why not, or is that an intellectually facile question?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In order to protect the taxpayer, we will have to set the price. We will not engage in negotiations with the institutions concerned. We can certainly have discussions, but the idea they will have negotiating rights in the discussions is absurd.

The position on breakage fees is as I outlined in my answer. With the Financial Regulator, I will continue to monitor these matters and endeavour to ascertain what proportion of fixed rate borrowers have long-term mortgages. The majority of cases that have been drawn to my attention are considerably less than seven years in the degree to which the borrower has locked into the mortgage.

Richard Bruton (Dublin North Central, Fine Gael)
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I would like to see this actuarial assessment because I believe the banks are hoodwinking the consumer director. Numerous people attending my clinics say they received one charge of a breakage fee of, for example, €25,000, but when they went back to confirm it the next day, it had gone up to €40,000. That does not suggest there are consistent formulae that are actuarially sound. I would like to see the evidence. Will the Minister get the consumer director to lay that evidence before the House so we can have it independently assessed?

Has the Minister got evidence, either from the consumer director or the financial institutions, that they have genuinely entered into long-term commitments matching those fixed rate mortgages? My impression is that it has been very hard for banks to enter into any long-term commitments for money. If they are not incurring that cost, they should not be charging the breakage fee.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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While I have not yet received the actuarial advice, I agree it is important that we survey this matter with great care and that any actuarial assessment produced can be analysed by myself. I am certainly open to sharing that information with Members of the House. With regard to the suggestion that the banks do not fund fixed rate mortgages from borrowing at a fixed rate which is related to it, that is a serious suggestion and I will undertake to have it examined by the regulator.

Arthur Morgan (Louth, Sinn Fein)
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Does the Minister accept that he and his office have the capacity to deal with this issue? Can he find some sense of fairness, given that taxpayers are paying the income levy and all the other levies and additional taxes as a consequence of the bankers' actions? Surely some kind of an equilibrium and fairness should be brought to bear to assist those who are suffering, largely at the hands of bankers, as a consequence of this downturn. Something should be given to these very hard-pressed people.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I gave my analysis in my reply. Like Deputy Morgan, I am well aware of those who are hard pressed by the current difficulties in our economy. However, the fact is that borrowers entered a contract to repay a particular loan on a fixed basis, the banks funded that on a fixed basis and there is a fee payable for the loss to the institution caused by the decision to end the arrangement. That is the difficulty. Were I, for example, to interfere in that arrangement, it would put into doubt the capacity of a banking system to enter into fixed term arrangements in future decades.

Arthur Morgan (Louth, Sinn Fein)
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There are changed circumstances.

Kieran O'Donnell (Limerick East, Fine Gael)
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In regard to NAMA, the Minister stated he would dictate the terms with the banks. The banks are not getting long-term funding so there is clearly an issue with regard to the fixed rate they are paying. What proposals will the Minister introduce to help people with distressed loans, particularly mortgage holders? Those with young families are struggling to pay their mortgages. What proposals will the Government introduce?

Joan Burton (Dublin West, Labour)
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Will the Minister lay out his analysis and publish this report? I understand the banks' problems stem from short-term borrowing on the international money markets to fund longer-term investments, so the notion the banks are not having to turn over their borrowing, funded by the bailout and guarantee which this Government arranged, is wrong. I have serious doubts about the explanation given by the Minister. While I do not know whether it comes from the Department of Finance or the Financial Regulator, I would like to see that report published so we could analyse it and perhaps then advise the Minister. They borrowed short - that is their problem - so why is Minister saying they are committed long?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I will reiterate what I said on the record: "When a borrower signs a fixed rate mortgage contract with a mortgage provider, the lender in turn enters into an agreement to borrow the money at an agreed rate."

Joan Burton (Dublin West, Labour)
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For what length of time?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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It is for the period of time of the fixed rate mortgage. I also stated:

The mortgage lender must repay the money at this agreed rate. There is a cost to the institution if the fixed rate agreement is terminated before the agreed term, which gives rise to the redemption fee charged in these cases.

Kieran O'Donnell (Limerick East, Fine Gael)
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What about distressed loans?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As part of the recapitalisation, a number of initiatives were taken in regard to the protection of those with distressed loans in the recapitalised institutions. The Financial Regulator has drawn up a code of practice which applies to all institutions.