The Central Bank's Mortgage Arrears Resolution Targets (MART) process, as announced in March 2013, sets time bound and measurable targets for the six main banks requiring them to systematically address their arrears book. Under this rolling process, quarterly performance targets have been set to require the banks to propose and put in place durable long term solutions to address individual cases of mortgages in difficulty where the mortgage is more than 90 days in arrears.
A sustainable solution has been clearly defined in the Central Bank's published MART document (http://www.centralbank.ie/regulation/industry-sectors/credit-institutions/Documents/Internal%20Guideline%20-%20Sustainable%20Mortgage%20Arrears%20Solutions.pdf) as one of the following:
"An arrangement concluded under a bank's MARP in accordance with the CCMA, where the borrower is cooperating under the MARP and the bank has satisfied itself that the arrangement provides a sustainable solution which is likely to enable the customer to meet the original or, as appropriate, the amended terms of the mortgage over the full remaining life of the mortgage, including repayment of the original or an agreed revised principal sum where offered. This may include an interest only or other temporary solution for a period if it is likely that full repayment of the original or revised principal will be achieved over time, or where there is a payment plan to return the account to sustainability through the clearance of arrears.
A personal insolvency arrangement effected under the Personal Insolvency Act 2012; or
If an arrangement could not be reached or is not appropriate, that the PDH and BTL property securing the loan has been voluntarily sold or, failing that, any situation where a Specified Credit Institution takes possession of the property including by way of voluntary agreement with the borrower or by Court Order or otherwise".
The Central Bank has informed me that a range of sustainable solutions have been utilised by each of the lenders to date. These include but are not limited to the following:
- Term Extensions
- Split Mortgages
- Permanent Interest Rate Reductions
- Voluntary Solutions
The Central Bank has advised that each sustainable solution impacts the outstanding loan balance and arrears in different ways. For example, an arrears capitalisation involves adding the outstanding arrears to the loan balance which is then repaid over the duration of the loan term whereas a split mortgage involves splitting the loan balance (including the arrears) into affordable and warehoused portions. Additionally, the Central Bank's Code of Conduct on Mortgage Arrears (CCMA) sets out requirements for mortgage lenders dealing with borrowers facing or in mortgage arrears. The CCMA provides a strong consumer protection framework to ensure that borrowers struggling to keep up mortgage repayments are treated in a fair and transparent manner by their lender, and that long term resolution is sought by lenders with each of their borrowers. The CCMA 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 CCMA sets out a list of options for alternative repayment arrangements that may be offered by lenders. Provision 39 of the CCMA requires lenders to explore all of the options for alternative repayment arrangements offered by that lender. Under the CCMA, where an alternative repayment arrangement is offered by a lender, the lender must provide the borrower with a clear explanation, on paper or another durable medium, of how the alternative repayment arrangement works, including:
a) the reasons why the alternative repayment arrangement(s) offered is considered to be appropriate and sustainable for the borrower as documented by the lender in compliance with Provision 40 of the CCMA, including demonstrating, by reference to the borrower's individual circumstances, the advantages of the offer for the borrower and explaining any disadvantages;
b) the new mortgage repayment amount;
c) the term of the alternative repayment arrangement;
d) the implications arising from the alternative repayment arrangement for the existing mortgage including the impact on:
the mortgage term,
the balance outstanding on the mortgage loan account, and
the existing arrears on the account, if any;
e) a statement that the alternative repayment arrangement may impact on the borrower's mortgage protection cover;
f) the frequency with which the alternative repayment arrangement will be reviewed in line with Provision 43, the reason(s) for the reviews and the potential outcome of the reviews, where:
circumstances improve,
circumstances disimprove, and
circumstances remain the same;
g) details of any residual mortgage debt remaining at the end of an alternative repayment arrangement and owed by the borrower;
h) how interest will be applied to the mortgage loan account as a result of the alternative repayment arrangement;
i) how the alternative repayment arrangement will be reported by the lender to the Irish Credit Bureau or any other credit reference agency or credit register and the anticipated impact of this on the borrower's credit rating; and
j) the timeframe within which the borrower must accept or decline the offer.
A lender must also advise the borrower to take appropriate independent legal and/or financial advice.
The framework is in place to enable banks to work with distressed homeowners to reach sustainable solutions for dealing with their personal indebted situations. However, early and effective engagement between borrowers and lenders is key to resolving the cases of mortgage difficulty.
