Dáil debates
Tuesday, 14 May 2013
Topical Issue Debate
Mortgage Arrears Proposals
6:00 pm
Robert Dowds (Dublin Mid West, Labour)
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Like most Members of this House, I am extremely put out at the snail's pace of movement on the part of the banks in dealing with the mortgage arrears crisis. More than 23,500 home owners are more than two years in arrears with their mortgages, which amounts to approximately 100,000 people when we include their families. This crisis has an appalling impact on families, leading to marital strife, stress, anxiety and mental health issues. It is appalling that the banks are so unwilling to address this issue adequately. Families need certainty about their situations, something the banks are failing abjectly to provide.
AIB is owned by the State. It claims to have set up 1,400 split mortgages to ease the burden on the families concerned. I have been reliably informed by a specialist in the area that all AIB has done is to identify 1,400 mortgages that would be eligible for a split mortgage. If my information is correct, AIB is misleading at best or downright deceitful at worst and I want to challenge the CEO of AIB to provide the proof that what he has said is true and that AIB has 1,400 split mortgage procedures processed and completed.
We need long-term forbearance measures that will ease the burden on hard-pressed families. There are two options for long-term forbearance in which the banks are not engaging. It is my understanding that they are not engaging in mortgage-to-rent arrangements or debt-for-equity arrangements, the effect of which lack of engagement is putting these families in great distress.
As I understand it, the banks do not want to accept ownership of debtors' houses while residents remain as tenants. The banks must get over this hang-up and enter into proper arrangements.
As the Minister of State, Deputy Jan O'Sullivan, will be aware, the public is appalled by the reckless way in which the banks dragged this country over a financial cliff. I ask her to insist that the CEOs of all the banks, particularly the State-owned banks, come in on a monthly basis to demonstrate how they are tackling the mortgage arrears crisis.
6:10 pm
Seán Kenny (Dublin North East, Labour)
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I thank the Ceann Comhairle for allowing me raise this matter as a Topical Issue and I thank the Minister of State for attending the House today.
I am sure every Member of this House has been contacted by constituents who are in a distressed state due to mortgage arrears. It is a widely held view that the odds are stacked in favour of the banks and mortgage lenders and that there is a need for further protection for the mortgage consumer. I understand that more than 23,000 households are more than two years in arrears with their mortgages. I believe nobody should be asked to leave his or her home and that families should have the option of remaining in the home as tenants as a last resort. All solutions should be based on the borrower's net disposable income.
The Irish Brokers' Association and the Independent Mortgage Advisers' Federation responded last month to the consultation paper on the code of conduct on mortgage arrears and suggested a number of alternatives. They suggested that borrowers be given 60 days' notice rather than 30 days' notice, in the context of the Personal Insolvency Act, before a lender commences legal action. I also support the suggestion that borrowers should be able to contact a team of identifiable staff with dedicated phone lines instead of having to ring free or CallSave telephone numbers and wait in a long queue to get through, which further compounds their difficulties.
It has been pointed out that, unlike in the United Kingdom, VAT will be charged on personal insolvency practitioners' fees, which are ultimately added onto the mortgage. I urge that this be changed.
The Irish Brokers' Association and the Independent Mortgage Advisers' Federation have expressed concern about the appeals process and suggested that the Central Bank should investigate the rulings to date of the mortgage appeals boards. We need to know in what percentage of appeal cases for each bank the original decision of the bank was reversed in full, partially reversed and upheld.
Jan O'Sullivan (Limerick City, Labour)
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I thank Deputies Robert Dowds and Seán Kenny for raising this issue. As they will be aware, the Minister for Finance, Deputy Noonan, is in Brussels. I am taking this on his behalf.
I can assure the Deputies that the Government is most aware of the significant difficulties some homeowners are facing in meeting their mortgage obligations and it remains committed to intervening to advance measures to assist those mortgage holders who are experiencing real and genuine difficulty. Incidentally, I attended the Cabinet sub-committee meeting on this issue yesterday.
One of the key measures is the Central Bank's code of conduct on mortgage arrears, which applies to mortgage lending activities with borrowers in respect of their principal private residence in the State. Compliance with the code is mandatory for all mortgage lenders regulated by the Central Bank. The code provides a number of protections to borrowers. These include the establishment of a formal mortgage arrears resolution process, MARP, to deal with mortgage customers who are in arrears or in pre-arrears, the establishment of a dedicated appeals support unit and a separate internal appeals process by lenders to deal with individuals on a case-by-case basis.
The Central Bank has advised that as soon as a borrower goes into arrears, a lender must communicate promptly and clearly with the borrower to establish in the first instance why the repayment schedule, as per the mortgage contract, has not been adhered to. Lenders must proactively encourage borrowers to engage with them about financial difficulties which may prevent them from meeting their mortgage repayments. They must ensure that all communications about arrears and pre-arrears are provided to borrowers in a timely manner. All information relating to a lender's handling of arrears and pre-arrears cases must be presented to the borrower in a clear and consumer-friendly manner. The language used in communications must indicate a willingness to work with the borrower to address the situation and must be in plain English so that it is easily understood. Where possible, legal jargon must be avoided.
The House will be aware that on 13 March the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks for proposing and concluding sustainable solutions for borrowers who are in arrears for more than 90 days, and proposed changes to the code of conduct on mortgage arrears. As the regulator, the Central Bank's intention is now to require banks to proactively address significant mortgage arrears cases, for both private dwelling and buy-to-let mortgages, and, where appropriate, to propose durable and sustainable resolution measures. In determining whether a proposal constitutes a sustainable solution, the lender needs to evaluate both actual and prospective affordability as part of the borrower's affordability test as well as the capital implications for credit institutions in terms of their 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, there are some fundamental principles that must be respected. First, the affordability assessment of the borrower needs to be based on his or her current and prospective future servicing capacity for all borrowings, and assumed prospective future increases in the debt-servicing ability of the borrower must be credible and conservative. In addition, lenders need to apply a realistic valuation of the borrower's assets, particularly his or her property. This also applies to any assumption of asset price appreciation as well as the estimated costs relating to a potential foreclosure of the property. Finally, lenders need to use an appropriate interest rate when discounting future income flows, which should take account of the lender's cost of funds. The Central Bank will assess compliance with these principles in its supervisory audit of compliance with the targets, including thorough analysis of a sample of modifications. Performance targets have been set for the following institutions: ACC Bank, AIB, Bank of Ireland, KBC Bank Ireland, Permanent TSB and Ulster Bank. These institutions cover the vast majority of the mortgage book in Ireland, accounting for nine out of ten of mortgages held. The Central Bank continues to engage with all mortgage lenders to ensure adequate mortgage arrears resolution strategies are in place.
As I mentioned, the Central Bank is also currently reviewing the code of conduct on mortgage arrears. The intention of this review is to strengthen the existing protections, where necessary, including improving transparency for borrowers, while also ensuring that the resolution of arrears cases is facilitated. Issues considered as part of the review, and on which views were sought in the Central Bank's consultation paper, include new safeguards to ensure borrowers are given sufficient warning before being classified as non-co-operating; changes to the contact levels permitted while ensuring consumers are not subject to harassment; transparency on resolution options so borrowers have a full understanding before making a decision; and consideration of whether there is merit in allowing a lender to move a borrower in arrears off a tracker rate where the lender has offered an alternative arrangement which is more advantageous in the long term.
It is expected-----
Olivia Mitchell (Dublin South, Fine Gael)
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I might come back to the Minister of State for the rest.
Jan O'Sullivan (Limerick City, Labour)
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The reply is rather long all right.
Robert Dowds (Dublin Mid West, Labour)
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I thank the Minister of State for her reply.
I ask that the following questions be put to the banks. First, how many staff are working in the arrears support unit of each bank? Second, how many customers per month will have a restructured payment schedule in 2013 and what progress are the banks making in this regard? Third, according to the Central Bank quarterly report of December 2012, 47% of restructured mortgages were back in arrears after three months, clearly indicating that the restructuring was not what the client needed but what the bank wanted. Are restructuring offers being based on customers' ability to pay or on what the bank forces them to pay? Fourth, why will the banks not offer debt-for-equity swaps or mortgage-to-rent schemes in large numbers as long-term forbearance measures? Finally, how much has the taxpayer provided to the banks for mortgage debt write-off?
Seán Kenny (Dublin North East, Labour)
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I thank the Minister of State for her reply.
I raise briefly the mortgage position of the Priory Hall home owners in my constituency. I ask the Minister of State to intervene with the various lending institutions and seek to arrange for these mortgages to be frozen as at the date of the Priory Hall evacuation on 17 October 2011 until a solution is found. Collectively, the residents in Priory Hall are approximately €1 million further in debt today than they were at the time of the evacuation in October 2011. Their average mortgage is now approximately €20,000 in arrears and the amounts outstanding will continue to rise as the matter drags on indefinitely. Priory Hall home owners are considerably distressed by the fact that lending institutions are seeking payment of the accrued interest and capital as part of the monthly repayments should a solution be found, as the average mortgage will increase by approximately €250 a month, a sum that many residents will not be in a position to pay, thus leading to possible repossession on top of the stress associated with the loss of their homes. There is also considerable distress and concern among the Priory Hall residents about their credit ratings, given the large arrears.
The banks are dealing with them as they would deal with a normal customer in mortgage arrears. However, I believe they represent a special case in that they are prohibited from living in their homes, and their arrears may be recorded with the Irish Credit Bureau, thus affecting their future credit rating. This is distressing for them as they may not be in a position to avail of future credit for family homes, cars, and school and college fees if their credit rating is downgraded. It is unconscionable that this further punishment would be inflicted on the entirely blameless families who have already been punished enough. The State-capitalised banks should set the example for all the other mortgage providers and freeze the mortgages at the balance owed at the time they lost their homes, and it should remain frozen until a solution is found.
6:20 pm
Jan O'Sullivan (Limerick City, Labour)
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The Central Bank's announcement on 13 March stated that the performance targets were about concluding sustainable solutions as well as proposing them. I will pass on the Deputy's questions to the Minister for Finance.
Robert Dowds (Dublin Mid West, Labour)
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Can I have some replies to them?
Jan O'Sullivan (Limerick City, Labour)
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I will ask him to reply to the Deputy. The Government is aware of the issue relating to VAT on practitioners, which Deputy Seán Kenny mentioned in his initial contribution. I know the Deputy has been extremely concerned about the residents in Priory Hall. I do not know if we can intervene in the way he has asked, but I will certainly examine it to see if it is possible.