Safety Nets for Consumers in Mortgage Arrears

According to The Central Bank of Ireland, at the end of June 2019, there were 723,280 private residential (PDH) mortgage accounts for principal dwellings held. Of this, 61,901 accounts still had outstanding payments, also referred to as being in arrears. as of June, there were a total of 61,901 total accounts in arrears. Within that, over 18,000 were within 90 days overdue, almost 5,000 were up to 180 days overdue and a staggering 27,792 accounts were over 720 days overdue. However, at the end of the quarter only 1,407 homes were repossessed. So what protections do homeowners have when they are in arrears? In Ireland there are many codes and acts that are specifically designed to protect the family home from repossession.

The main code that deals with family homes, is the Code of Conduct on Mortgage Arrears (CCMA) which was put into place in 2013. The code is issued by the Central bank and relates to customers in arrears and pre-arrears situation. It does not however deal with investment properties. This code requires mortgage lenders to apply the Mortgage Arrears Resolution Process (MARP) to customers in arrears. These financial firms are required to have an Arrears Support Unit (ASU) to deal solely with customers in arrears and to apply the MARP framework. There are 4 steps to the process. 

The first step is to make communication with the borrower about the arrears. It can be a stressful time for the borrower and communication must not be excessive or aggressive and sufficient time must be given to the borrower to absorb the information. The ASU must maintain recordings of calls to the borrower. There are also restrictions on the number of visits that can be made to the borrower. If a borrower fails to make contact with the lender they may be classified as not cooperating, which may in turn cause them to lose the protections applied to them by the CCMA. 

The next step is to get a standard financial statement completed by the borrower. This will provide important information to the lender in order for them to fully understand the borrower’s financial situation. The borrower must be offered assistance in filling out the statement and adequate time allowed to return the information. 

After this statement is assessed by the lender. Each case must be dealt with on its own merits and a tailored plan applied to the borrowers circumstances. The gathering of such information can take some time so an Alternative Repayment Arrangement or a Moratorium may be put in place during this time. 

The final part in this process is Resolution. This involves exploring all options for a possible Alternative Repayment Arrangement. Some of the options are the extension of loan, an interest only period, capitalise the arrears, Mortgage to rent and even the sale of the property or a voluntary surrender. If a borrower falls outside the MARP framework then legal proceedings could commence from as early as 3 months. 

The Consumer Protection Code (CPC) 2012 deals with all loans provided by regulated entities to personal customers. It does not apply to the family home as this is superseded by the CCMA. Similarly to the framework above there is a process to follow when a borrower is in arrears. The lender must contact the borrower within 10 business days after the arrears arose. The lender then must inform the borrower that they have gone into arrears, how much is in arrears, and any interest and charges that have been applied to their account. If a 3rd full or partial payment is missed then the lender will have to inform the borrower of the potential legal proceedings, tell them to seek independent legal advice and inform them that the borrower will remain liable for any outstanding debt regardless of how the property is repossessed. Communication with borrower has to be proportionate and not aggressive. 

There has been some concern in recent years that regulated entities such as banks where selling off their bad loan books to Credit Servicing Firms (Vulture funds). These firms where previously unregulated so consumers where rightly concerned that their secured loan was being sold to an unregulated Vulture fund. In order to address this the Consumer Protection Act of 2015 was enacted to regulate their activities in Ireland. In addition, the CPC of 2012 and the CCMA of 2013 where amended. Similarly, in December of last year Michael Higgins signed a new bill in order to further regulate these vulture funds. Michael McGrath, who holds the position of Assistant Secretary General, Funds, Insurance, Markets and Pensions Division, at the Department of Finance says that, “Under this (new) legislation, vulture funds can be directly inspected and investigated by the Central Bank. The regulator will also, if necessary, be able to take enforcement action against these funds.” 

Despite the high number of houses in arrears, there is a minimal amount of repossessions taking place in Ireland. There are numerous acts and plans put into place to protect homeowners that ultimately keeps this number of repossessions down. With housing prices still on the rise, it’s comforting to know that there are assurance plans put into place for most homeowners.

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