Written answers

Thursday, 26 March 2009

Department of Finance

Financial Services Regulation

4:00 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 95: To ask the Minister for Finance if he will issue guidelines or restrictions to mortgage companies involved in home repossession with particular reference to instances in which mortgages were issued when there was a knowledge of either inability to pay or over valuation of the property; and if he will make a statement on the matter. [12737/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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It is a particular priority of the Government to ensure as much as possible that difficulties in relation to mortgage arrears do not result in legal proceedings for home repossession. Home repossession should be, and generally is, the last resort for the lender and the preferred method of dealing with arrears cases should be early intervention.

The Financial Regulator has issued a statutory Code of Conduct on Mortgage Arrears applicable to all mortgage lenders to assist consumers in arrears difficulties. The Code requires that all genuine arrears cases must be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his/her obligations. Where an arrears situation continues, the lender must examine each case on its individual merits and explore with the borrower various alternative repayment measures. A lender may only apply to the courts to commence enforcement of legal action for repossession six months from the time arrears first arise; and must not seek repossession of the property until every reasonable effort has been made to agree an alternative repayment schedule with the borrower or his/her nominated representative.

The Financial Regulator's statutory Consumer Protection Code has applied to credit institutions since 1 July 2007 and was extended to other lenders on 1 June 2008, following the introduction of legislation which provided for the regulation of sub-prime lenders by the Financial Regulator. The Consumer Protection Code contains "Know the Consumer" and "Suitability" requirements, which must be followed by both lenders and intermediaries at point of sale. A mortgage lender will have to 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.

As part of feedback issued by the Financial Regulator in 2007 to mortgage lenders following a survey of the mortgage sales process, the Financial Regulator indicated that factors such as, but not limited to those set out below should be considered when assessing suitability in relation to mortgage products:Purpose of borrowing, type and length of loan, attitude to fixed/variable interest, age of consumer, savings track record, LTV, employment, income, repayment capacity.

If a consumer has a complaint about his/her mortgage a complaint must first be made directly to the lender. If the consumer is dissatisfied with the outcome of his/her complaint he/she can then refer the matter for further investigation to the Financial Services Ombudsman.

The two banks participating in the recapitalisation programme have each committed that they will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing, where the customer continues to operate reasonably and honestly with the bank. The recapitalised banks, have in addition, assured the Government that in the normal course of events they will make every effort to avoid repossessions.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 96: To ask the Minister for Finance if action has been taken or is expected to be taken against mortgage companies involved in sub-prime lending up to the extent of 200% of the entitlement of the applicant; and if he will make a statement on the matter. [12738/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The Financial Regulator's statutory Consumer Protection Code has applied to credit institutions since 1 July 2007 and was extended to other lenders on 1 June 2008, following the introduction of legislation which provided for the regulation of sub-prime lenders by the Financial Regulator. It requires regulated entities to act honestly, fairly and professionally in the best interests of their customers and the integrity of the market. The Code also requires each mortgage lender to inform consumers, in writing, of the status of their mortgage accounts as soon as possible after the lender becomes aware of the arrears.

The Consumer Protection Code also contains "Know the Consumer" and "Suitability" requirements, which must be followed by both lenders and intermediaries at point of sale. A mortgage lender will have to 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.

The Financial Regulator is currently carrying out a further examination of mortgage lenders to ensure that they are in compliance with the specific provisions of the Consumer Protection Code and the Consumer Credit Act. The examination will also review the application of the residential mortgage arrears and repossession procedures and practices in place in mortgage lenders, as advised to the Financial Regulator in 2008, to ensure that consumers are being treated fairly, and will seek an update on the implementation of the "best practices" outlined in the Financial Regulator's letter of 16 December 2008.

If a consumer has a complaint about his/her mortgage a complaint must first be made directly to the lender. If the consumer is dissatisfied with the outcome of his/her complaint he/she can then refer the matter for further investigation to the Financial Services Ombudsman.

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