Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

To ask the Minister for Finance the reason in view of the crisis in mortgage arrears he did not take the power away from the banks and appoint an independent body with the power to compel banks to come to binding agreements with mortgage holders in last week’s mortgage arrears plan; if he considered this option; and if so, the reason he did not include it. [14402/13]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

The Deputy will be aware that last week the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks and proposed changes to the code of conduct on mortgage arrears, CCMA. The consultation paper on the review of the CCMA includes a number of proposals intended to clarify and strengthen the resolution process for arrears cases.

Specific targets have been set by the Central Bank to require banks to work through their mortgage book systematically and to offer durable solutions to mortgage holders for arrears cases that are 90 days or more overdue. The Central Bank will also, over the coming period, set targets for the conclusion of durable solutions and for the sustainability of such solutions. The targets should provide a better measure of progress on a more consistent basis and promote a movement away from temporary forbearance measures which are not sustainable in the long term. In addition, the banks will also be set specific, non-public, targets, principally relating to handling of early arrears cases. The Central Bank is working with individual institutions to incorporate these measures which will be set in line with each institution's capacity, processes and systems. These targets will be adjusted quarterly to ensure they are ambitious.

The banks will be required to publish their performance against the targets for the year end December 2013 and make quarterly reports to the Central Bank. Banks are also required to make regular returns to the Central Bank on their performance against targets. The Central Bank will consider each bank's performance against the targets, including assessing whether sustainable solutions have been offered to customers.

Separately from this Central Bank action, the new personal insolvency system, in particular the new resolution frameworks provided for in the Personal Insolvency Act, will also shortly be available to borrowers who are in significant difficulty in their mortgage repayments. Utilising this process, the borrower will be in a position to consult an independent personal insolvency practitioner and where necessary to make a formal and realistic personal insolvency arrangement proposal to all eligible creditors, including a mortgage lender. In such a situation the creditors will be obliged to consider formally and vote on the arrangement as proposed by the debtor. In the event of a refusal by creditors, the debtor will also have access to the reformed bankruptcy framework, which has significantly reduced the automatic discharge period to three years. I also remind the Deputy that, under the mortgage advisory service developed by the Department of Social Protection, independent financial advice is available to borrowers who have been offered a long-term forbearance option by the lender and a panel of 2,000 to 2,500 qualified accountants is now in place to provide this service.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

The mortgage crisis and the approach that has been taken to it for the last number of years were not created by the Minister. The crisis has been there for the last four or five years. However, the problem now is that the Minister has again left it with the banks and, as Deputy Michael McGrath said, the same concerns exist. I genuinely hope the targets and the approach being taken by the Central Bank produce results, because we need those results and more mortgages back in a sustainable, restructured position. However, all the evidence points to the fact that the banks will do the bare minimum. We own AIB. It has been recapitalised to write down the value of those properties to current market value, so the only threat the Central Bank can impose on AIB is that it will write down the value of those loans to the current market value, which it has been recapitalised for anyway. Where is the incentive for AIB to deal with this issue in a proper fashion?

We will probably see in the first quarter what loans are restructured and we will hear on the grapevine about what is happening, but if this does not work will the Minister move speedily to set up an independent body, over and above the Central Bank, the banks and the mortgage holder, that can impose a settlement? Will he consider that option to deal with this issue once and for all?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

Our view is that the best way to move forward is on a case by case basis, where lenders and borrowers come to an equitable and sustainable arrangement. That is done in the first instance under the monitoring systems of the Central Bank. As I said to Deputy Michael McGrath earlier, the Central Bank will sample the restructured cases to ensure the system is operating satisfactorily. In addition, under the independent Insolvency Service of Ireland other arrangements will be made. On the one hand there is the independent Central Bank quantifying what needs to be done, setting that against a timeline and monitoring it as it proceeds. On the other hand there is an independent insolvency agency under the direction of the insolvency director which has a more formal process. In both cases, there are two independent agencies doing this work. The piece that does not match the Deputy's requirements is that they do not impose solutions. However, the imposition of the solution will follow. If the insolvency arrangement on the bilaterals does not reach agreement and the person who is insolvent moves on to bankruptcy, then the solutions are imposed under bankruptcy law. That is the sequence.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

That is not a solution for the vast majority of people, and the Minister knows that. If one is bankrupt, one loses one's house. That is not a solution for the approximately 186,000 people who are in mortgage distress. The problem is that while it is good that the Central Bank is looking at the banks and will study what they do, the banks have basically refused to listen to the Minister, other Ministers and the Central Bank for the last two years. They have not dealt with this crisis. The only thing the Central Bank can do, if it finds after studying their documents that the banks have not done this, is make them make provisions against the loans, and the State-owned banks have already been recapitalised to make those provisions. I will continue to return to this issue but, hand on heart, I hope this does resolve it, because people need a little light at the end of the tunnel.

I was struck by something Matthew Elderfield said at the press conference when the Minister launched these measures. My understanding of what he said was that for those who will enter restructuring, the bank will look at the long-term gain for all the different options that are available. However, where the value that the bank can get back in the restructuring is less than the current value of the home, the bank will look at repossessing the home. That is a very dangerous situation. Basically, Matthew Elderfield referred to what is more beneficial for the bank in the long term. If somebody has a mortgage of €400,000 and the current market value of the house is €200,000, and the bank comes to the realisation that the most it can get back from the individual is €180,000 with all the different restructuring instruments it has available, it is beneficial for the bank to repossess because it can make €20,000 profit. However, that is not something we should countenance. I was alarmed when Matthew Elderfield said that. Will the Minister comment on that? Does he believe that should be the case or that banks could follow that approach?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

My personal opinion is that it is not that the banks were not acting on this over the last two years or so but that many of the solutions put forward were not sustainable. At the end of December, for example, there was a total stock of 79,852 mortgage accounts that were categorised as restructured. Of these restructured accounts, 42,037 were not in arrears.

The arrangement appears to have been sustainable for one half of them and unsustainable for the other half given that half of them were in arrears again.

Of the restructured accounts, 37% are on interest only arrangements and a further 17,000 mortgages are on payments that are greater than interest only, in other words, interest plus some capital. What we want are arrangements that are sustainable. When someone enters into an arrangement, the matter should be done and dusted and the person should be able to move on, provided there is no dramatic change in his or her income. Obviously, the arrangement will change if somebody wins the lottery or an unemployed partner returns to work. We want sustainable arrangements and the reason we want the Central Bank to monitor and random sample the arrangements that are being made is to test their sustainability. It is not the case that nothing was being done but that what was being done was not satisfactory.

Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

What about the comments made by the Financial Regulator, Mr. Matthew Elderfield?

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

I cannot speak for Mr. Elderfield. He is an independent regulator and I cannot put words in his mouth.