Joe McHugh (Donegal North East, Fine Gael)
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To ask the Minister for Finance if he will explain his conception of sustainable mortgages and unsustainable mortgages here; if he will estimate the number of unsustainable mortgages here; his strategy for supporting people who are burdened by these unsustainable mortgages; the numbers of mortgages drawn down in County Donegal and drawn down in the country that are in long-term arrears; and if he will make a statement on the matter.". [13936/13]

Michael Noonan (Limerick City, Fine Gael)
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The Central Bank of Ireland publishes mortgage arrears statistics on both principal private residences and “buy to let” properties. The most recent available data indicates that, at the end of 2012, 11.9% of PDH and 18.9% of BTL mortgage accounts were in arrears of more than 90 days. The Central Bank has informed me that it does not publish a geographical breakdown of these mortgage arrears figures.

On 13 March 2013 the Central Bank announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks and proposed changes to the Code of Conduct on Mortgage Arrears (CCMA). This comprehensive approach is aimed at ensuring banks offer, conclude and implement sustainable solutions for their customers in mortgage arrears by setting specific performance targets and proposing revisions to provisioning standards. The Central Bank is also proposing to update the CCMA so that it continues to provide protection to customers who cooperate with their bank while facilitating and promoting the resolution of arrears cases.

The Central Bank has also informed me that, in determining whether a proposal constitutes a sustainable solution, the lender needs to evaluate both actual and prospective affordability for the borrower’s affordability and the capital implications for the credit institutions in terms of their prudential responsibility to minimise losses. While the Central Bank is not mandating any particular model of restructuring and while sustainable solutions will be arrived at on a case-by-case basis, there are some fundamental principles that must be respected in that context, including the following:

- The affordability assessment of the borrower needs to be based on both their current and prospective future servicing capacity for all borrowings; assumed prospective future increases in the debt servicing ability of the borrower must be credible and conservative.

- Lenders need to apply a realistic valuation of the borrower’s assets, in particular their property. This also applies to any assumption of potential asset price appreciation, as well as the estimated costs related to a potential foreclosure of property; and

- Lenders need to use an appropriate interest rate when discounting future income flows, which should take account of the lender’s cost of funds.

The Central Bank will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications, and the durability of the restructured arrangements will be monitored and reported over time by the Central Bank.