Joan Burton (Dublin West, Labour)

I have to hand the code of conduct on mortgage arrears as published by the Central Bank and will turn to the relevant provisions. The onus will be on lenders and borrowers alike to engage and to deal with the immediate problem. When I attended the presentation by Professor Jason Kilborn, he, together with everyone else with expertise on debt, all stated the critical thing is to get both the lender and the borrower to engage. Unless one gets to that point of engagement, one is not really dealing with what is a tremendously difficult and traumatic issue in which, I suggest to Members, the critical point from a public policy point of view is to ensure people remain in their family homes.

This year, the Department of Social Protection will spend approximately €50 million on mortgage interest supplements for more than 18,000 families. This new provision reflects the Department's desire for positive and absolute engagement from the lenders in return for the supplement being given to them by the Department through its payment of the interest portion of people's mortgages. While I appreciate this constitutes a change, I refer to the lecture by Professor Kilborn and others. The critical problem in Ireland, which has been identified in many of the discussions, is to use leverage with the lenders to induce the latter to enter into reasonable arrangements. Consequently, simply paying the mortgage interest supplement without having the lender fully committed to and engaged with the mortgage arrears process, is not very helpful although I acknowledge it is helpful, up to a point, to the individual. The code of conduct on mortgage arrears stipulates that forbearance is one of the elements that is required. The Department is spending a not insignificant amount of money at present and this sum of €50 million is going directly to the banks, albeit without any longer outcome. I believe Senator Byrne acknowledged this point in his remarks. There is no quid pro quo by the banks to their distressed customers, who also are customers of the Department of Social Protection. The purpose of this provision is to obtain greater and better engagement in the mortgage arrears process by the lenders.

The code of conduct on mortgage arrears sets out how mortgage lenders must treat borrowers in, or facing, mortgage arrears with due regard to the fact that each case of mortgage arrears is unique and must be considered on its own merits. Since becoming Minister, I have had the opportunity to visit a number of citizens information centres and, in particular, offices of the money advice and budgeting service, MABS. The Department is spending approximately €47 million on salaries and supports for the Citizens Information Board, CIB, and MABS. This is a not an inconsiderable amount of money in respect of employing money advisers and so on. However, the critical issue people have highlighted to me is the lack of serious engagement by the banks. The other issue dealt with by MABS in particular, as well as by community welfare officers, is that many people have complex debts and have more than one loan. This debate pertains solely to people's most important loan, namely, the loan on their family home, and to having a strategy to keep people in their family homes above all else. However, people do not merely have mortgage debt but also have credit union debt, car loan debt and possibly credit card debts. In addition, they may have run a business in the construction industry and may have used part of the collateral in their family home to guarantee some of the debts of that business. When meeting MABS advisory officers nationwide I have been forcibly struck by the complexity of people's debts and the fact they may have a string of different debts.

The issue is how should one best leverage the €50 million the State will spend through the Department of Social Protection in paying mortgage interest to the banks. Should one try to do this in a manner that requires greater engagement by the lender in the mortgage arrears resolution process? This is the purpose of the provision under discussion. The code of conduct sets out the framework lenders must use when dealing with borrowers in mortgage arrears or in pre-arrears. All such cases must be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his or her mortgage obligations. Under the code of practice on mortgage arrears, a lender must explore all options for alternative repayment arrangements to determine which options are viable for each particular case. The lender must provide the borrower with a clear explanation in writing of the implications of any alternative repayment arrangement. In addition, the lender must establish an appeals board to consider any appeals submitted by the borrower and to independently review decisions made by the lender's arrears support unit, the lender's treatment of the borrower's case or the lender's compliance with the requirement of the code. Under the code, lenders must now have staff who are dedicated to dealing with arrears in such an arrears support unit. Section 12 provides that the person applying for mortgage interest supplement must satisfy the Department that he or she is actively participating with his or her mortgage lender in accordance with the processes for dealing with people who have mortgage arrears. The Department's objective is to ensure people are assisted to stay in their family home and the lender assists people in doing that, given that the Department of Social Protection is undertaking, after a period, to meet the mortgage interest payment. It is a significant commitment on the part of the Department of Social Protection. In return for forbearance or other arrangements, after a period the bank will actually get the Department to meet the mortgage interest requirement.

Section 12 provides that arising from such participation, the person must have entered into an alternative payment arrangement with his or her mortgage lender. Where the claimant has entered into an alternative payment arrangement with his or her mortgage lender, he or she must also be complying with that alternative arrangement and he or she has availed of an alternative repayment arrangement for at least 12 months. These new eligibility criteria apply to new mortgage interest supplement claims only. Existing mortgage interest supplement claims will not be affected. The mortgage interest supplement scheme will be available after the person has availed of an alternative payment arrangement for 12 months from the lender.

The code of conduct on mortgage interest arrears published by the Central Bank applies to the mortgage lending activities of all registered entities, except credit unions, operating in the State including a financial services provider authorised, registered or licensed by the Central Bank and a financial services provider, authorised, registered or licensed in another EU or EEA member state. The code applies to the mortgage loan of a borrower which is secured on the primary residence, namely, the family home. Section 33 of the code states:

A lender must explore all options for alternative repayment arrangements, when considering a MARP case, in order to determine which options are viable for each particular case. Such alternative repayment arrangements must include:

a) an interest-only arrangement for a specified period;

b) an arrangement to pay interest and part of the normal capital element for a specified period;

c) deferring payment of all or part of the instalment repayment for a period;

d) extending the term of the mortgage;

e) changing the type of the mortgage, except in the case of tracker mortgages;

f) capitalising the arrearsand interest; and

g) any voluntary scheme to which the lender has signed up e.g. deferred interest scheme.

This change is seeking to ensure lenders and borrowers are part of the mortgage arrears resolution process. The key point made by Professor Jason Kilborn is there has to be a realistic coming together of both the lender and the borrower to work out a resolution of the difficulties. The Minister for Justice and Equality is currently preparing legislation on personal insolvency arrangements. Again, the Department of Social Protection's role is to assist people who qualify for mortgage interest supplement but to ensure they are in a mortgage arrears resolution process.