Pearse Doherty (Donegal South West, Sinn Fein)
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To ask the Minister for Finance further to his announcement on 13 March 2013 on dealing with the mortgage arrears crisis, if he will explain what he means by sustainable mortgage solution; if he will specifically outline any metrics that will be used to judge sustainability; and if he will identify the persons that will determine if a mortgage solution is sustainable or not. [14577/13]

Pearse Doherty (Donegal South West, Sinn Fein)
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To ask the Minister for Finance further to his announcement on 13 March 2013 on dealing with the mortgage arrears crisis, the independent advice that will be made available to borrowers who are being forced to sacrifice their tracker mortgage benefits in return for agreeing to a restructuring. [14578/13]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 97 and 98 together.

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 a consultation process on changes to the Code of Conduct on Mortgage Arrears (CCMA). The new approach is aimed at ensuring banks offer and conclude sustainable solutions for their customers in arrears by setting specific performance targets and proposing revisions to provisioning standards. The Central Bank is proposing to update the CCMA so it continues to provide protection to customers who co-operate with their banks while facilitating and promoting the resolution of arrears cases. The CCMA prevents a lender from requiring a principal private residence borrower in mortgage arrears to change from an existing tracker to another rate as part of any alternative repayment arrangement offered. However, as part of the Central Bank’s review of the CCMA, it is considering whether there is merit in allowing a lender to move a borrower in arrears off a tracker rate, where the lender has offered an alternative arrangement which is advantageous to the borrower in the long term. The purpose of the consultation process that is under way is to gather views on such a proposal to determine if a change is required and warranted. On the issue of advice more generally, as the Deputy is aware as part of the Government’s mortgage advisory service which has been developed under the guidance of the Department of Social Protection, mortgage holders who have been presented with long-term mortgage resolution proposals by lenders can avail of independent one-to-one advice on those proposals. This advice is provided by a panel of accountants drawn from members of the main accountancy institutes in Ireland. I encourage borrowers who have been offered long-term forbearance options by their lender to avail of this free service.

The Central Bank has 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 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, some fundamental principles must be respected. For example, 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. 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 has advised that it will assess compliance with these principles in its supervisory audit of compliance with the targets, including through analysis of a sample of modifications.