Michael McGrath (Cork South Central, Fianna Fail)
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To ask the Minister for Finance the way he will ensure that the balance in power between financial institutions and distressed borrowers is not altered in favour of the financial institutions as a result of recently announced measures to deal with the mortgage arrears crisis; if he will commit to putting in place clear guidelines as to what a sustainable solution means for borrowers in terms of day to day cost of living expenses; and if he will make a statement on the matter. [14404/13]

Michael Noonan (Limerick City, Fine Gael)
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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.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his reply. My fear following last week's announcement about restructuring of mortgages is that it very much puts the banks in the driving seat. The banks will now be judge, jury and executioner when it comes to dealing with the individual mortgage account of any family in the country. When one looks at the requirement to put a sustainable solution in place, the bank will decide what the sustainable solution will be. The definition requires that the bank be satisfied that the arrangement provides a sustainable solution. The overall package, comprising the revised code of conduct and the legislation promised to reverse the Dunne judgment, and taking into account the banks' veto in the personal insolvency service, means the balance of power has shifted very firmly in favour of the banks compared to mortgage holders.

The second part of my question relates to living expenses. Reports in the media today state that minimum income guidelines will be issued by the new insolvency service and the Minister for Justice and Equality, Deputy Alan Shatter, next week. Will these guidelines also be used by the banks when they deal with individual mortgage holders or are they merely designed to deal with cases that go before the new insolvency service? We all accept the need for consistency of treatment for all borrowers, including those in arrears and those who are just about managing to pay their mortgages at present. Will the Minister clarify the role of these guidelines in respect of individual mortgages and what their status will be?

Michael Noonan (Limerick City, Fine Gael)
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The banks do not have a veto and will engage with persons who have impaired mortgages in a number of different circumstances, which of course, they do already. There will be face-to-face informal contact between banks and persons with impaired mortgages, which can take the form of speaking to the bank manager or the person who arranged the mortgage in the first instance. Although this is face-to-face informal contact, there is a code of conduct on contact developed by the Central Bank, which is now being modified. The exchanges will be governed by this. A person will not be entirely on his or her own. MABS has up to 2,500 qualified accountants on its books who are available to help people in exchanges with their lenders.

The second area is more formal and this will be under the remit of the insolvency legislation. The director of the insolvency service, who was appointed in October, will make a public announcement on 27 March launching the service. He has retained and employed a cohort of personal insolvency practitioners. Under the Act they will formally be available to persons with impaired mortgages to work out matters. The banks do not have a veto, because if they do not agree to an arrangement under the insolvency service their position will worsen if a person drifts into bankruptcy. There is no veto.

Michael McGrath (Cork South Central, Fianna Fail)
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The Minister often refers to the independence of the Central Bank and states that an independent body oversees mortgages. This is true in that it provides the overall framework, but it does not get down to the level of individual mortgages and arbitration between mortgage holders and banks to achieve fair solutions, and ultimately this is the weakness in the strategy.

I wish to ask about the minimum income guidelines. They are designed to be used by the insolvency service, but will they also be used by the banks in dealing with people in mortgage arrears who have not yet ended up or will not end up in the insolvency service? What will be the standing of these guidelines? Today we have read reports about second cars, Sky Sports, holidays and health insurance being under threat. I acknowledge there must be consistency and fairness in how borrowers are treated, but people deserve to know exactly where they stand. Will these guidelines be used by banks outside the insolvency service? If so, what will be their status? Will they be binding or will they merely be guidelines, which is what was announced today?

Michael Noonan (Limerick City, Fine Gael)
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With regard to the role of the Central Bank, as well as establishing the blueprint, which it announced last Wednesday, and laying out the timescale over which impaired mortgages will be dealt with until the position is resolved, it will also supervise and monitor the arrangements being made by individual banks with mortgage holders.

It will take a representative sample of the arrangements made to see if the case studies they examine correspond to the guidelines that have been set down.

As regards the set of issues concerning the living income for a family, there is a statutory obligation on insolvency practitioners to come up with guidelines. They are working on it and will have the guidelines very shortly when an announcement will be made. That strictly applies to arrangements made within the remit of the insolvency legislation. However, this is a small country and all these people talk to each other. One would expect, therefore, that what is developed by the insolvency service will become the norm for the informal dialogue as well. I will make sure that the Deputy's views are expressed to the Central Bank and the other banks so that people are not operating to different guidelines or no guidelines. That is what the Deputy was saying.

Michael McGrath (Cork South Central, Fianna Fail)
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Yes.

Michael Noonan (Limerick City, Fine Gael)
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If one is developed by the statutory agency, the Deputy is right to say that it should apply universally.