Seán Sherlock (Cork East, Labour)
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Question 66: To ask the Minister for Finance his views on the recent year end results published by a bank (details supplied); his further views in particular, on the practice of rolling up of interest during 2008 amounting to one third of customer interest for that year; if his attention has been drawn to the extent of this practice at other credit institutions covered by the bank guarantee; and if he will make a statement on the matter. [18969/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The institution to which the Deputy refers is an independent financial institution operating on a commercial basis and it would not be appropriate for me as Minister for Finance to comment in specific terms on its financial performance. However, as the Deputy will be aware, the institution in question is suffering from its exposure to property prices and the general economic downturn, in common with other credit institutions.

Regarding the practice of interest roll-up, this is a feature of land and development financing which has been practised as standard across institutions with land and development books. My understanding is that it operates within defined time limits in the relevant institutions. In considering the ramifications of interest roll-up arrangements, institutions must take a case by case approach in determining whether a borrower has the ability to repay in light of the value and saleability of the underlying asset. This information will inform a bank's assessment of the quality of a loan and whether provision is necessary. In this context, I am informed by the Financial Regulator that Irish credit institutions, as part of case management, are reviewing interest roll-up arrangements, assessing future potential to repay and making provision accordingly.

Joan Burton (Dublin West, Labour)
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Question 67: To ask the Minister for Finance if his attention has been drawn to the fact that many mortgage holders on high rate, fixed interest mortgages who have suffered significant income reductions in the past year and who have not benefitted from the European Central Bank interest rate reductions are having difficulties meeting mortgage repayments and that such mortgage holders are being quoted large breakage fees to switch to cheaper, variable rate mortgages, sometimes amounting to tens of thousands of euro; his views on introducing a relatively modest cap on such breakage fees, particularly for those mortgage holders in financial difficulties; and if he will make a statement on the matter. [18984/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy will be aware, fixed rate mortgages can be regarded as a form of insurance against interest rate changes as fixed rate mortgages provide certainty and security to borrowers regarding the level of their repayments.

As referred to in the Deputy's question in circumstances that many households are faced with significantly increased financial pressures, the current environment of very low interest rates clearly highlights to fixed rate mortgage holders the saving that would be available if they benefited from a variable interest rate. It is clear, therefore, why many fixed rate mortgage holders seek to switch to secure lower repayments.

However, when a borrower signs a fixed-rate mortgage contract with a mortgage provider, the lender in turn enters into an agreement where they borrow the money at an agreed rate. The mortgage lender must repay the money at this agreed rate, so there is a cost to the institution if the fixed rate agreement is terminated before the agreed term which gives rise to the redemption fee charged in these cases.

On 26 March 2009, I undertook, in this House, to raise concerns regarding the level of redemption fees with the Consumer Director of the Financial Regulator who has a statutory mandate to safeguard the interests of consumers. At the beginning of April my Department wrote to the Consumer Director to request confirmation that redemption fees charged for switching from a fixed rate mortgage cover funding costs only and that there are no other costs included.

To date, the Financial Regulator has been able to confirm to my Department, that all mortgage lenders have responded and that all have provided the formula used by that lender when calculating the early redemption fee applying to fixed rate mortgages.

The Financial Regulator is awaiting independent verification, by an actuary, from a number of lenders that the fee being charged recoups only those costs incurred by the lender when financing the fixed rate mortgage. However, the verifications received indicate that the formulae applied by lenders seek to recoup the loss to the lender arising from the early redemption of the fixed rate mortgage and do not seek to apply a penalty charge on the borrower.

The Financial Regulator is also examining whether any other costs are being charged such as administrative fees, etc. Any such charges may be subject to approval by the Regulator under Section 149 of the Consumer Credit Act 1995 and will be examined further in that light. To date the responses indicate that most lenders do not levy additional charges in the case of early redemption of fixed rate mortgages.

The Financial Regulator has advised that further analysis may be necessary once all of the information is received and reviewed. Should the remaining analysis by the Financial Regulator indicate that further consideration of this issue is required, it will be carried out.

It is important to note that a number of important initiatives have been put in place by Government to assist borrowers in difficulties. These include:- · The Money Advice and Budgeting Service (MABS) which is developing a joint protocol with the Irish Banking Federation to ensure effective co-operation when dealing with debt problems of personal debtors. · The mandatory Code of Conduct for Mortgage Arrears requires that when a borrower is in difficulty the lender shall make every reasonable effort to agree an alternative repayment schedule. Under the Code consideration should be given on a case-by-case basis to alternatives such as deferral of payments, extending the term of the mortgage, changing type of mortgage, or capitalising arrears and interest. In any case, lenders will not commence legal action for repossession until after six months from the time arrears first arise. · Finally, as part of the subscription agreement for their recapitalisation Bank of Ireland and AIB will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing where the customer continues to co-operate with the banks.