THE THREAT of repossession has receded for thousands of mortgage-holders in arrears, following the publication of new proposals by the Financial Regulator.
Planned changes to the existing code of conduct on mortgage arrears would make it more difficult for banks and building societies to seek repossessions.
The new rules would allow those in arrears to stay in their homes longer than allowed by the current 12-month moratorium on repossessions. Lenders would have to explore all viable options with borrowers in arrears and examine all alternative repayment measures.
Where borrowers are behaving reasonably, banks and building societies would have to wait at least a year before applying to the courts to repossess a home. As before, the 12-month period would be measured from the time arrears first arose.
However, under the revised proposals, this period may also be measured from the time a borrower fails to follow a revised payment arrangement and no further arrangements are entered into. In addition, lenders could not seek repossession if their customers had lodged a complaint or appeal with the Financial Services Ombudsman, even if it took longer than 12 months to resolve. This means borrowers who co-operate with their bank or building society would be largely protected against repossession. More than 10,000 mortgages are in arrears of between three and six months, and 22,000 are in arrears of six months and more.
While the proposed changes to the code of conduct are subject to consultation, they were broadly welcomed yesterday by the Irish Banking Federation and groups working with indebted householders.
Legal rights organisation Flac criticised the lack of external oversight of arrangements made by banks with their borrowers. Under the proposals, where it is clear that a borrower is deliberately not engaging with the lender, or has failed to fully and honestly disclose their financial circumstances, the lender may seek repossession.
The regulator says it is intended that financial institutions will not be allowed to impose charges on borrowers who co-operate reasonably and honestly. The new proposals are tougher on lenders than those proposed by the Mortgage Arrears and Personal Debt Expert Group, whose report last month recommended the moratorium not be extended beyond 12 months. The consultation paper also says borrowers must not be required to change from cheaper tracker mortgages to another type.
Lenders must put in place a mortgage arrears resolution process to handle arrears cases, and information must be provided to borrowers in a customer-friendly manner.
In response to reports of borrowers being hounded by lenders over arrears, the code proposes that banks and building societies be allowed only three unsolicited communications with borrowers each month, in addition to contact required under the code of conduct.
The regulator is also seeking views on how the “primary residence” qualifying for protection in the code should be defined.
Uncertainty has arisen in a number of cases. For example, when a couple separate and one partner moves into a holiday home they own, should the code apply to both properties? What happens when a person moves back in with their parents and rents out their property to help meet mortgage repayments?
The new rules would also require lenders to set up dedicated units to deal with arrears and to establish an appeals process.
The existing statutory Code of Conduct on Mortgage Arrears was introduced in February 2009. It replaced a voluntary code operated by the financial institutions. It was amended earlier this year, when the moratorium on repossessions was extended from six months to 12.
About one in 25 mortgages is in arrears of at least three months, according to the most recent figures from the regulator. Court proceedings have been issued in more than 3,000 cases, and almost 500 houses have been repossessed.
The proposals for the revised code are available on financialregulator.ie. The regulator hopes to implement the changes by November.