Michael Noonan (Limerick City, Fine Gael)

Sorry, does the Deputy want me to answer the question asked? The difficulties arose not only from over-investment in development but from the fact that people who ran profitable businesses in other sectors of the economy used their profits to invest in developments which are now dragging them down. The stain spreads right across the economy and it is essential to reverse this trend.

Putting more than €10 billion of lending finance per annum back into the economy is clearly a positive development, but it has the potential to impact negatively on the economy if we repeat the mistakes of the past. Working with the Central Bank, the banking policy division of my Department will develop safe monitoring tools to prevent the excessive concentration of lending in risky sectors and ensure lending is made in those sectors that, above all, support sustainable employment. We will proactively encourage lending in the sectors in which we need to see additional growth such as agriculture, manufacturing and the green economy, as well as to allow people to once more buy their own homes.

The Credit Review Office which was established by my predecessor has a very important role to play in overseeing the lending behaviour of the banks and supporting the implementation of best practice standards to meet the needs of small businesses. The office commenced operations on 1 April 2010 to ensure Allied Irish Banks and Bank of Ireland achieved their objectives of making €3 billion in new lending finance available each year to SMEs in the period from 2010 to 2012. While this process has improved somewhat the previous wholly unsatisfactory situation, problems remain. The most recent quarterly report from the Credit Review Office states "the perception of bank borrowing being difficult to access" has led to some businesses engaging in the "risky strategy" of investing working capital in fixed asset projects. This puts such businesses in a more perilous position of being unable to trade through difficult trading periods and dampens their investment in improvements or expansion. However, there are some important positive signs. The credit reviewer, Mr. John Trethowen, states the potential of borrowers to appeal to the Credit Review Office against their treatment and credit decision has "in itself had a positive influence on the behaviour of these two banks". It is a step in the right direction, but clearly more needs to be done. We will build on the work of the office to ensure effective access to enlarged credit lending finance from the pillar banks.

NAMA was established as a vehicle to reduce risk in our systemic banks by taking the riskiest loan portfolios off their books and also forcing the upfront recognition of loan losses, while providing these institutions with assets in a form that could be used to access liquidity. In the context of further deleveraging measures in the banking sector being central to the State's agreement with the ECB, the IMF and the European Union, the deleveraging achieved by NAMA must be seen as a necessary development. NAMA has realised a significant amount of the deleveraging required if the banks are to be restructured to a size more appropriate to an economy the size of Ireland's.

With regard to the agency's influence in the property market, when I recently met the board of NAMA, I explained that I expected it to review all options in regenerating activity in the property market as soon as possible. Following that meeting, the chairman of NAMA recently stated the agency was exploring ways by which it could provide finance for commercial and residential property deals in line with its objective of reinvigorating the property market. He has also stated he envisages NAMA working with the two pillar banks to identify solutions which will increase access to residential mortgages for its Irish residential portfolio. In that context, I understand the agency is preparing detailed plans and that it proposes to enter into discussions with the two pillar banks shortly. In the context of its commercial remit and consistent with section 2 of the National Asset Management Agency Act 2009, it is at all times open to considering proposals aimed at contributing to broader social and economic objectives. It assures me that it will play a key social and economic role by regenerating activity in the property market through its asset sales strategy and the provision of liquidity for the banks in the form of NAMA securities which can be used as collateral for funding.

It is a deeply rooted cultural characteristic of Irish people that they value the ownership of their home. Unfortunately, the financial crisis has created conditions in which many home owners, through no fault of their own, find themselves in arrears with their mortgage repayments and at risk of losing their homes. Through its agencies, the State is assisting mortgage holders in arrears in a measured and proportionate manner. This is undoubtedly the correct policy.

The mortgage interest supplement scheme, managed by the Department of Social Protection, provides assistance where the mortgage relates to a person's principal private residence. It currently supports approximately 18,500 mortgage holders. The money advice and budgeting service, MABS, provides a national, free, confidential and independent service operating from 53 offices nationwide. MABS devotes a substantial amount of its resources to dealing with client mortgage difficulties.

The expert group on mortgage arrears and personal debt, which was chaired by Mr. Hugh Cooney and included Mr. Matthew Elderfield, head of financial regulation at the Central Bank, as well as other external experts and senior officials from Departments, published an interim report in June 2010 and a final report in November 2010. Since the publication of the reports, the Central Bank has revised the code of conduct for mortgage arrears, with effect from 1 January 2011, to reflect many of the recommendations of the expert group, including key recommendations relating to the introduction by all regulated lenders of a standardised mortgage arrears resolution process, MARP.

The provisions set out in the revised code of conduct for mortgage arrears are a very important means of helping all residential mortgage holders. This code sets out how mortgage lenders must treat borrowers in or facing mortgage arrears, with due regard to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits. The code sets out the framework that lenders must use when dealing with borrowers in mortgage arrears or in pre-arrears. For the purposes of the code, a pre-arrears case arises where the borrower contacts the lender stating that he or she is in danger of getting into financial difficulties and-or is concerned about getting into mortgage arrears. Lenders are required to comply with the revised code as a matter of law but have been given a period of six months grace, ending on 30 June 2011, to put in place some of the provisions of the code.

The revised code includes more detailed requirements for lenders when dealing with borrowers in arrears and financial difficulties. The most significant changes require that the code will now apply to borrowers who notify their lender that they are facing financial difficulties and may be at risk of mortgage arrears, that is, pre-arrears cases; lenders must establish a mortgage arrears resolution process, MARP, and use this framework when dealing with arrears and pre-arrears customers; lenders must ensure communications with borrowers are presented in a clear and consumer-friendly manner and must make available to borrowers aninformation booklet that provides details on the MARP; lenders cannot initiate more than three unsolicited communications with a borrower by whatever means in a calendar month other than correspondence required by the code or other regulatory requirements; a lender must not require a borrower to change from an existing tracker mortgage to another mortgage type as part of an alternative arrangement offered to the borrower in arrears or pre-arrears; lenders are required to set up an arrears support unit to assess arrears and pre-arrears cases; borrowers can appeal the decision of the arrears support unit and the lender's treatment of the borrower's case under the MARP to an internal appeals board that lenders are required to establish; and the complaints process under the Central Bank's consumer protection code is replaced with an appeals process under the revised code of conduct on mortgage arrears.

One very important tool set out in the code is as follows. When a lender is determining the 12 month period, it must wait before applying to the courts to commence legal action and it must exclude any time period during which a borrower is complying with the terms of an alternative repayment arrangement, making an appeal to the internal appeals board or making a complaint to the Financial Services Ombudsman under the revised code. Effectively, if a borrower agrees an alternative repayment arrangement for the mortgage with the lender and continues to meet their revised repayments, the lender cannot start legal action against them to seek repossession.

The Central Bank has also written to lenders to issue directions which will mean that lenders cannot impose arrears charges or penalty interest on borrowers who are co-operating with the MARP. One of the main recommendations of the expert group was for a deferred interest scheme. This is intended to allow borrowers to pay at least 66% of the mortgage interest but less than 100% and defer payment of the balance for up to five years based on a full appraisal of an individual borrowers circumstances. Mortgage lenders have been requested to commit to the scheme. Lenders representing the majority of the market have indicated their willingness to implement the expert group's proposals for a deferred interest scheme or a variation of it. These are AIB, EBS, Bank of Ireland, Irish Life and Permanent, Irish Nationwide Building Society, Springboard and Start. While the deferred interest scheme is voluntary for all lenders, those who have signed up in support of the scheme will be monitored by the Central Bank to ensure compliance.

To implement the recommendations of the expert group regarding the mortgage interest supplement scheme, changes to primary and secondary legislation are required. I am informed that the Department of Social Protection is formalising an implementation plan that will set out a framework for the future of the mortgage interest supplement scheme.

The recommendation of the expert group to amend the local authority needs assessment process has been implemented by the Department of Environment, Heritage and Local Government. Local authorities have been provided with clear guidelines on the treatment of applicants for social housing support whose mortgages have been deemed unsustainable. Discussions are ongoing between the Department of Environment, Heritage and Local Government and the Irish Banking Federation to enable borrowers whose properties are to be repossessed to remain in their homes for a period of time, pending the sourcing of appropriate accommodation by the housing authority.

It is my understanding that the Minister for Justice and Equality intends to give early attention to the final report of the Law Reform Commission on personal debt management and debt enforcement, which was published in December 2010. That report contains recommendations on comprehensive reform of the system of personal insolvency law in Ireland.

While all efforts must be made to assist those struggling with mortgages, the Government must be conscious of the overall impact on the taxpayer. It should be noted that the mortgage arrears and personal debt group did not recommend a formal debt forgiveness scheme. It set out a list of policy considerations in regard to loan modification techniques, which included the potential impact on borrowers and the taxpayer. While I share the concerns of Deputies, I must emphasise that any assistance to mortgage holders must be very carefully targeted to ensure there are no additional unnecessary costs imposed on the taxpayer. It should also be noted that not all those in negative equity are struggling to meet mortgage repayments. Many considerations must be taken on board and I thank Deputies for their contributions.

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