Catherine Murphy (Kildare North, Independent)
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During the consumer impact section of last February's debate on the promissory note deal, the Minister for Finance made a point of saying it was "critically important that deposit account holders, mortgage account holders and those indebted to the Irish Bank Resolution Corporation, IBRC, understand that their situation following the liquidation should generally remain unchanged". I have been contacted by a number of former Irish Nationwide mortgage holders, who are now obviously involved in the IBRC, since a variation on that statement was contained in a recent reply the Minister gave to a number of Deputies from the Technical Group. The reply stated:

I am advised that the contractual terms and conditions of customer mortgages and other borrowings of IBRC will not change as a result of the appointment of the Special Liquidators or the ultimate sale of the obligations to a third party ... The continued applicability of the Central Bank Code of Conduct on Mortgage Arrears and Mortgage Arrears Targets Programme will depend on the regulatory status of the ultimate acquirer of the portfolio which we will not know until the sales process has concluded.

Michael McGrath (Cork South Central, Fianna Fail)
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I support Deputy Murphy in this regard. The issue at hand is the future of approximately 13,000 individual IBRC mortgage holders. Over 11,000 of those mortgages relate to principal private residences and family homes. The key issue is the potential for these people to lose the protections afforded to them by the code of mortgage arrears if the mortgage book is sold by the special liquidator to an entity that is not regulated by the Central Bank. That is the key concern. As Deputy Murphy has said, a recent ministerial reply suggested that "the continued applicability of the Central Bank Code of Conduct on Mortgage Arrears and Mortgage Arrears Targets Programme will depend on the regulatory status of the ultimate acquirer of the portfolio which we will not know until the sales process has concluded". That is not acceptable. The Minister has the power under section 4 of the IBRC Act to issue direction orders to the special liquidator. As far as I am concerned, under no circumstances should the Minister allow the mortgage book to be sold to an entity that is not regulated by the Central Bank. The consequence of such a sale would be that 11,000 mortgage holders would lose the key protections that apply to their family homes having been built up by successive Governments. To my mind, that would be unacceptable.

The mortgage holders have organised themselves as a group and this is to be welcomed. There is a great deal of information on a website, askaboutmoney.com. Mr. Brendan Burgess is advocating quite strongly on behalf of these mortgage holders. They have other concerns apart from those I have raised. In particular, they are concerned that the mortgage book might be sold on to a vulture fund or a venture capital fund that might unilaterally decide to increase interest rates. While it could be argued that the same thing applies to any bank or individual mortgage holder, it is a key concern for individuals. It is important for this House to reassure people that they will retain these key protections if the mortgage book is sold. That is absolutely essential. The Minister has made some positive noises about the possibility of NAMA ending up with the mortgage book. NAMA would almost certainly step up to the plate in terms of applying the current standards and protections. We need reassurance to be provided in this House.

Brian Hayes (Dublin South West, Fine Gael)
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I thank the Deputies for raising this very important issue for the people concerned. As the House will be aware, the special liquidators were appointed on 7 February to manage the liquidation of the IBRC for the benefit of all the creditors of the IBRC. Their role is to ensure the liquidation is carried out in an orderly manner within a given timeframe.

Independent valuers were engaged to value all the assets of the IBRC including the residential mortgage portfolio. All IBRC borrowers including the residential mortgage customers received correspondence from the special liquidators. This provided them with an update on the special liquidation and the sale of their loans. Borrowers were invited to make representations on the method of the disposal of their loans and the criteria for determining who may bid for these assets. The special liquidators took into consideration the responses received from the borrowers and also the independent sales advice they received. They then decided to split the residential mortgage book into four segments, namely, performing, non-performing, owner-occupier and buy-to let-mortgages, to bring them to the market. The special liquidators believe this sales approach would be the most efficient method of disposal. It is their belief that this approach is in the best interest of IBRC creditors, including the State and by extension the taxpayer.

The special liquidators are obliged to ensure that the assets of the IBRC are sold at a price that is equal to or in excess of the independent valuation obtained from the independent valuers. If no bid is received which is either at or above the valuation price, the loan asset will then be transferred to NAMA at the independent valuation price.

On the sale of the residential mortgage book, it is important to remember that phase 2 of that process has only commenced in the last week. I am advised by the special liquidators that the portfolio has attracted a range of credible bidders. However, it is far too early to speculate as to who may ultimately acquire the portfolio.

The regulatory status of the ultimate acquirer of the residential mortgage book will determine whether the Central Bank code of conduct on mortgage arrears, CCMA, will formally apply to that institution. The CCMA is issued under section 117 of the Central Bank Act 1989 and only applies to PDH mortgages by lenders who are regulated by the Central Bank. Unfortunately, given the legal status of the code, it is not possible to apply the code to institutions other than those institutions regulated by the Central Bank.

While I appreciate the concern of IBRC customers over the continued applicability of the code, a number of factors should be considered in the context of the sale of this book. First, I have been advised that in the event that NAMA ultimately acquires this IBRC residential mortgage book, it will determine its strategy for the management of that book being mindful of its legal obligations and also general market norms. As such NAMA is likely to apply best practice and no borrower will be in any worse position legally.

Second, recent court judgments suggest that compliance with the code is becoming a necessary condition for lenders seeking court orders for the repossession of primary residences. This is an important consideration as it is unlikely that an unregulated acquirer of the IBRC residential mortgage book would not seek to apply the code where it might have a detrimental impact on its ability to seek a repossession order.

I understand and appreciate that the sales process of the IBRC loans is an anxious time for mortgage holders with the bank. I reassure customers that the contractual terms and conditions of customer mortgages and other borrowings have not changed as a result of the appointment of the special liquidators. Furthermore they will not change as a result of the ultimate sale of these obligations to a third party.

The liquidation of the IBRC is progressing in a timely and orderly manner, and I am satisfied with the progress that has been made to date. The wind-down of the IBRC has been an arduous task and there have been many challenges in its execution. However, I reassure the House that the mortgage-holder customers of the IBRC are being treated fairly in this liquidation.

Catherine Murphy (Kildare North, Independent)
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The key point is that they do not feel they are being treated fairly and that moral hazard only seems to apply to the little man. There is an inadequate supply of funding in the Irish banks and they are not interested in taking on these mortgages - even those that are performing. We can assume that the people who will be interested in purchasing these loan books and particularly the performing ones - unless the others are to be very heavily discounted - will be from outside the State. If that is not the case, from where will the money come? Therefore there is a considerable prospect that they will not be under the control of the Central Bank. There is good reason for people to be concerned about how they might be treated afterwards. The loans that are likely to go to NAMA are the non-performing ones that are not attractive to prospective purchasers. People are telling us they are hanging on by their fingernails. Any change in conditions will be of major significance for people with these mortgages. It is not right that they will not be covered by the Central Bank guarantee in how they are to be handled.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister of State for his response. If the loan book ends up in NAMA, I expect that best practice will apply. Even though NAMA is not a regulated entity, I suspect the code of conduct would be applied; I do not question that.

Brian Hayes (Dublin South West, Fine Gael)
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It would have to have regard to it.

Michael McGrath (Cork South Central, Fianna Fail)
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The issue arises if it goes to an entity not regulated by the Central Bank of Ireland. In his response, the Minister of State said it would be in the purchaser's interest to apply the code because it might find it difficult to get a repossession order in court otherwise. However, there is uncertainty there. I believe it should be explicit and clear that under no circumstances should the IBRC mortgage holders lose the key protections every other borrower has under the code of conduct on mortgage arrears. That should be a condition of the sale of the mortgage book. Under section 9 of the legislation, the Minister has the power to impose that condition. I believe that should be done as otherwise we run the risk that 11,000 borrowers in respect of their principal private residences will lose statutory protection for their family homes. That is unacceptable and is entirely avoidable if the political will exists.

Brian Hayes (Dublin South West, Fine Gael)
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It has been very useful to have this debate and I thank both Deputies for raising the issue. I can understand the reasons for concern.

Deputy Catherine Murphy should not assume anything as to who will ultimately purchase this loan book. The State's objective through the special liquidation process is to obtain the best price we can on behalf of the taxpayer, which we all support. As we are now in the process of the sale, I will not prejudge what third party might ultimately acquire this loan book.

As I outlined, there are existing contractual arrangements between lenders and borrowers for those people who took out loans in the first place. They do not ostensively change. The key issue, as Deputy Michael McGrath said, is whether the code of conduct, which we all support, is applicable in this case. NAMA has made clear its intention to apply the code, which we welcome. Whether it ultimately purchases the loan book is a matter that will become known in due course and I will not prejudge that. However, even if it does not, as a result of recent court decisions on repossessions it is clear that the courts are requiring parties to have a clear understanding and operation of the code where repossessions proceedings are brought before the courts.

Having the code in place provides an additional layer of protection. Most importantly having the code applied across the spectrum of people in mortgage difficulty provides some bone of comfort for people. Notwithstanding that, I take Deputy Michael McGrath's point seriously. We will keep this matter under constant review. I fully understand the difficulties people face and the Minister is being briefed on the matter on an ongoing basis.