Tommy Broughan (Dublin North East, Labour)
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Question 213: To ask the Minister for Finance his views on initiating a full review of the operation of the mortgage sector here; and if he will make a statement on the matter. [34058/08]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The function of the Minister is to provide an appropriate and robust legislative framework for regulation of the financial services sector with a particular focus on the consumer.

The Financial Regulator has a wide regulatory remit in respect of financial matters, including banking supervision, which relates to the prudential supervision of mortgage providers i.e. banks and building societies. The objectives of supervising financial institutions are to foster a stable banking system and to provide a degree of protection to depositors with individual credit institutions.

As part of its banking supervision role, the Financial Regulator supervises the financial institutions on an ongoing basis and develops supervisory guidance and requirements for their operation. It also involves prudential supervision which includes monitoring the business of banks and building societies and how it is planned, managed, and controlled and checking compliance with statutory and non-statutory requirements.

In recent times various initiatives have been introduced by the Financial Regulator for the financial services sector, including the mortgage sector, to encourage responsible lending and lending of products that are appropriate to a consumer's particular circumstances.

At present, there are a number of regulations that financial institutions must have regard to when engaging in mortgage provision activities. Firstly, the Financial Regulator and the Irish Banking Federation have agreed guidelines on a stress testing requirement applying at the level of individual loan applications under which the lender must stress test the borrower's ability to repay the loan in the event that the interest rate applied were to increase to ECB + 2.75%.

Secondly, the Financial Regulator's Consumer Protection Code contains "Know the Consumer" and "Suitability" requirements, which must be followed by both lenders and intermediaries at point of sale. The mortgage provider must demonstrate that it has gathered sufficient information from the consumer to allow it to provide a recommendation to that consumer. The mortgage recommended must be suitable to the consumer having regard to the facts disclosed by the consumer. A written statement setting out the reasons why a mortgage product/selection of mortgage products offered to the consumer are suitable must be given to the consumer. Mortgage intermediaries must submit to a mortgage lender a signed declaration that it has had sight of all original supporting documentation including banks statements, P60/certificate of earnings and other supporting documentation evidencing the consumer's identity and ability to repay.

In addition, when a consumer falls into arrears, the Code requires that regulated entities must inform the consumer in writing of the arrears, the date the account fell into arrears, the number of and total payments missed, the amount of arrears interest charged to date and the interest rate applicable to the arrears. Supporting the specific provisions of the Code is the overarching principle that regulated entities must "act honestly, fairly and professionally in the best interests of its customers and the integrity of the market."

In mid 2007 the Financial Regulator carried out survey of the sales process of mortgage providers to examine how firms were planning to comply with Code provisions relating to mortgage suitability and to issue feedback to regulated mortgage lenders on key issues.

Overall, the findings showed that those institutions surveyed were well advanced in planning and implementing amendments to their systems and processes, in order to comply with the Code provisions relating to mortgage suitability.

In its feedback to mortgage providers, the Financial Regulator advised, inter alia, that whilst affordability is a prime component of suitability, there are other factors directly related to the consumer's individual situation that should be taken into account in order to fully assess the suitability of a mortgage sale e.g. purpose of borrowings, age of consumer, attitude to fixed/variable interest, type and length of loan.

The Financial Regulator will also continue to monitor compliance with the Consumer Credit Act, 1995 which imposes various obligations on mortgage lenders and mortgage intermediaries, including, calculation of APR, warning on loss of home if repayments are not kept up to appear on mortgage applications, and provisions covering the advertising of housing loans.

In addition, the Deputy may wish to note that the EU Commission December 2007 White Paper on the Integration of EU Mortgage Credit Markets, COM(2007)807, summarises the conclusions of a comprehensive review of the functioning and the level of integration of EU mortgage credit markets. It presents a package of measures to improve the efficiency and the competitiveness of EU residential mortgage markets. My Department is working with the Commission on this initiative which involves amongst other things examining various aspects of the mortgage credit market here in Ireland on an ongoing basis.

Last week against the backdrop of unprecedented difficulties in international financial markets, the Government acted quickly and resolutely to guarantee the depositors and lenders with Irish financial institutions and ensure these institutions can access the funding necessary to enable them to continue to provide the financial services and liquidity needed for the proper functioning of our economy and society. The Credit Institutions (Financial Support) Act 2008, provides the necessary legal underpinning to the Government's announcement and I will shortly bring before the Houses of the Oireachtas the scheme provided for in the Act, which will set out in greater detail the terms and conditions on which assistance will be provided. In taking its decisive move, the Government has done its part to create the conditions that will enable credit institutions to access funding so that they are in a position to fulfil their role in providing credit in our economy and society. It is now up to these institutions to respond to the Government's action by ensuring the flow of finance is channelled to sustain economic activity.

Accordingly, I do not see the need at this time to initiate a full review of the operation of the mortgage sector in Ireland.