Michael McGrath (Cork South Central, Fianna Fail)
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4. To ask the Minister for Finance his views on whether financial institutions are showing sufficient innovation in the nature of the solutions they are putting in place for distressed borrowers to ensure that arrangements are genuinely sustainable; his views on whether there is a lack of consistency in approach across different lenders; and if he will make a statement on the matter. [8565/14]

Michael McGrath (Cork South Central, Fianna Fail)
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The purpose of this question is to ask if the Minister is satisfied with the approach taken by financial institutions to deal with indebtedness, in particular mortgages. It is not explicitly mentioned in the question but it does relate to mortgages. My overall point is that I am not looking for absolute uniformity in terms of the approach taken by the banks to deal with people's indebtedness and mortgage arrears problems but I believe there is a need for greater consistency, which we will tease out in a few moments. I would like to know the Minister's views. Some progress is being made in terms of split mortgages being offered and accepted by people. Many people are still refusing them for reasons we will go into in a moment. Is the Minister satisfied with the consistency and innovativeness used by institutions in terms of offering different solutions?

Michael Noonan (Limerick City, Fine Gael)
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As statutory regulator of credit institutions, the Central Bank has the power, from both a prudential and consumer protection perspective, to require banks to meaningfully address mortgage arrears cases on their books. Durable long-term restructures will have to be applied having regard to the circumstances of individual cases. The Deputy will be aware that the Central Bank's mortgage arrears resolution targets, MART, announced last March set

time-bound and measurable targets for the main banks requiring them to systematically address their arrears book.

On the basis of its audit of the bank's mortgage arrears targets, the Central Bank has indicated that all six mortgage lenders covered by the MART process have reported that they met the 20% proposed sustainable solutions target for the second quarter of 2013 and also the 30% target for the third quarter in 2013. Under this rolling process, quarterly performance targets have now been set to the end of June 2014 to require the banks to propose and put in place durable long-term solutions to address individual cases of mortgage arrears of more than 90 days in arrears.

The subsequent targets set by the Central Bank will be the subject of further audit work to ensure consistency with the sustainability principle in respect of solutions being offered by the lenders. The Central Bank has informed me that a range of sustainable solutions have been utilised by each of the lenders to date, some of which are mentioned in the Central Bank's internal guidelines on sustainable mortgage solutions.

These solutions include but are not limited to the following - term extensions; split mortgages; capitalisations; and permanent interest rate reductions. It will no longer be acceptable for banks to apply short-term solutions to cases where there has been a fundamental and long-term change in the position of the borrower. Durable

long-term restructures will have to be applied having regard to the circumstances of individual cases.

The end December 2013 mortgage arrears data in respect of the six MART banks, which was published by my Department on 13 February, shows that an increasing number of permanent restructures are now being put in place by banks. I would expect that if banks need to introduce new innovative sustainable solutions, the Central Bank will be in a position to assess those products from a regulatory perspective.

Taken together, the necessary framework is in place to enable banks to work with distressed homeowners to reach sustainable solutions for dealing with their personal

indebtedness situations.

However, early and effective engagement between borrowers and lenders is key to resolving the cases of mortgage difficulty.  Where there is effective and meaningful engagement by all parties on a mortgage difficulty, the data show that an increasing number of durable long-term mortgage restructures are being put in place.  It is accepted, however, that it will be necessary for lenders and borrowers to continue to build on this.

Michael McGrath (Cork South Central, Fianna Fail)
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What I am seeking to do is highlight the lack of consistency among the banks. I welcome the new split mortgage model AIB is rolling out, whereby if, over time, a borrower meets his or her obligations under the particular arrangement reached, more and more of the loan essentially can be written off. This is a progressive and innovative initiative and I congratulate AIB and the Irish Mortgage Holders Organisation on its being put in place. Ulster Bank is rolling out its economic concession, whereby some people have had the interest rates on to their mortgages reduced to 0.5%. If one is paying interest at a rate of 4.5% and it is reduced to 0.5%, it makes a massive difference. Again, this is a very innovative initiative. Bank of Ireland is taking a much more hard-nosed and tough approach. Perhaps this is being done at the bidding of the majority private sector ownership of the institution, but the advocates of borrowers and I have seen evidence of this approach.

It is welcome that increasing numbers of split mortgages are being offered. People still have concerns about the balloon payments which must be made at the end of the term of such mortgages. The AIB proposal is quite good in that regard. People are also concerned about the regular reviews that will be carried out. I am aware of split mortgage offers being made in circumstances where full reviews must be carried out every six months. These reviews involve individuals being put to a great deal of trouble because they are required to complete the standard financial statement form on each occasion. People are being denied the certainty they require in order to plan their financial future. I am not seeking uniformity of approach among the banks, but I am looking for a degree of consistency. For example, banks are still charging interest on the warehouse portion of some split mortgage models. That is not a sustainable or viable solution.

Michael Noonan (Limerick City, Fine Gael)
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I do not disagree with the Deputy's analysis. At the start of a process of this nature, it is helpful if the various financial institutions try out different approaches. Some of these approaches work in theory, but they do not work in practice. One must see them operating in practice. It is the function of the Central Bank to ensure the consistency to which the Deputy refers. It is effective in that regard. We are all aware that the start of this process was disappointingly slow. However, it is now moving well and is on track. A total of 51,000 permanent restructures have been offered to date and it is obvious that significant progress is being made.

In the context of the overall position, the problem is not quite as large as some might imagine. A director of AIB recently informed me that the average amount of arrears in respect of the institution's 35,000 mortgages in arrears was €13,000. Average arrears of €13,000 do not constitute an insurmountable obstacle, particularly as the economy recovers and people return to work. If one was to add two years to the term of a mortgage, one could cover the level of arrears to which I refer. I accept, however, that different solutions must be found and that the various banks are taking different approaches. We must give them the freedom to do this, while also pressing them to meet their targets. If the approach being taken by a particular institution is working, the Central Bank should ensure it is adopted by other institutions across the system.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister. I have written to the Governor of the Central Bank, Professor Patrick Honohan, to outline to him my views on these issues. The reality is that how one is treated depends on the bank with which one has one's mortgage. There are significant differences in approach among the banks. That is the reality people are facing. The banks are operating within a framework established by the Central Bank. However, there is a need for greater consistency because people are being treated quite differently depending on the institution with which they have their business. That is unfair. Some progress has been made, but approximately four out of every five borrowers whose mortgages are in arrears have not had a permanent restructuring put in place, which is unacceptable. Given how far we are into this crisis, much more progress must be made. One can state the average amount of arrears of €13,000 among those AIB customers whose mortgages are in arrears is manageable. However, that level of arrears could represent the fact that someone has not been able to pay his or her mortgage for 12, 18 or 24 months. Being obliged to pay down that amount would constitute a serious problem for many of those involved. There is much more work to be done. I acknowledge that some progress has been made, but it has been far too slow. It is not acceptable that four out of five people whose mortgages are in arrears have still not had permanent restructurings put in place. We must do better than this.

Michael Noonan (Limerick City, Fine Gael)
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We can work with the Central Bank to ensure the targets which have been set will be reached. The targets for 2014 are reasonably good. I would be concerned if there were to be any slippage in respect of these targets. We will monitor matters very carefully, both in association with the Central Bank and via my Department's own mechanisms, in order to ensure the targets are met.