Sustainability and consistency of approach key to addressing mortgage arrears – Finance Committee report

8th July 2014

In its report Hearings on Matters relating to Mortgage Arrears Resolution Processes published today, Tuesday, 8th July 2014, the Committee said that sustainability should be a key factor in the provision of mortgages and in providing solutions to address people who find themselves in mortgage arrears – a resolution only becomes a sustainable solution if it is sustainable in the long term for the borrower.

Whilst recognising the importance of a case by case approach, there is however a fundamental need for Consistency of Approach for all lenders and the perception among the public should be that all borrowers will receive fair and equal treatment, the report recommends.

Provision for Payment into Retirement should be a cornerstone of future policy on dealing with mortgage arrears to ensure borrowers facing retirement and who have the ability to maintain a long term sustainable solution will remain in their homes.

The Report recommends specific changes that will resolve outstanding legal and administrative Issues that are hampering the mortgage resolution process unnecessarily. The current over reliance on legal action needs to be remedied and greater use must be made of alternative courses of action. Practical solutions are laid out in the Report.

Transparency and Communication are a prerequisite to making real progress and resolving the issue, according to the Committee report. Effective communication at an early stage in many arrears situations could avoid borrowers getting themselves into insurmountable situations where they feel they are digging themselves into an ever expanding hole. In tandem with this, it is imperative that all decisions taken regarding people, who are already under great stress, are properly documented and there is clear evidence that the process is transparent.

Split Mortgages represent an innovative solution in certain cases and the Committee has brought forward a range of proposed products, a number of which have been adapted by some banks already in response to earlier Committee requests.

Reforms and Supports will play a vital role in providing a real and sustainable solution to the problem. Supports such as Mortgage to Rent Scheme, Debt for Equity Solution and others are all innovative examples and demonstrate the need to continue to develop and evolve sustainable solutions for those in mortgage distress.

The Committee makes a total of 47 recommendations that chart a course of action. Among the recommendations are:

• A definition of what constitutes a sustainable mortgage from the borrower’s point of view is necessary if the mortgage arrears problem is to be addressed in a meaningful way
• Legal resolutions should not in themselves be regarded as sustainable solution.
• The Central Bank should ensure that Affordability Assessments are conducted and recorded on all files reported by financial institutions as sustainable.
• The Committee notes that the current sustainable solutions are not stress-tested. They are based on current ability to pay, but do not take account of future income shocks, or, the likelihood of future interest rate rises. The Committee recommends that each financial institution should develop a robust system of ‘stress testing’ of all new product offerings before they are introduced.
• Banks who initiate legal proceedings against a borrower should be required to set out, in written detail, why the alternative resolution options are not appropriate for that particular customer.
• Commencing legal proceedings should, at all times, be an action of last resort. All other solutions should be discussed and explored before recourse to legal means. In this context, the Central Bank should issue a set of Guidelines promoting the use of alternative resolution routes.
• The Committee recommends that the Central Bank continue its robust monitoring of all lending institutions, reflecting its 2009 published guidelines, to ensure proper scrutiny and prudential lending practices are in place.

Committee Chairman Ciarán Lynch said: “The difficulties faced by homeowners who have entered arrears is a matter of national concern. In addition to the personal turmoil experienced by both individuals and families, the delay in resolving such difficulties inevitably acts as a ‘brake’ on wider economic recovery. The ability and desire of those who find themselves in arrears to resolve their financial plight and regain solvency mirrors the overarching objective of the national economy returning to growth and future prosperity.

“For too long, the mortgage arrears crisis was left to develop. The absence of any mechanism to address this issue inevitably created a ‘state of paralysis’ where both debtors and creditors found themselves in a rapidly deteriorating situation. The Joint Committee on Finance, Public Expenditure and Reform recognized the lack of progress in finding reasonable solutions when it first examined this issue. Working together on a cross-party basis, the Committee sought, above all, that a process be set in place that would address the issue of debt sustainability. A series of hearings with the banks, representatives of organisations involved in assisting debtors who find themselves in arrears, the Insolvency Service of Ireland and the Central bank raised some very important and interesting matters.

“The Committee is clear in calling for renewed vigour and purpose in accelerating the resolution of the mortgage arrears crisis. The current options are not a remedy in themselves and the Committee believes that new and innovative approaches are required, and above all, a commitment to finding fair and sustainable solutions is of paramount importance.

\"Ultimately, it is important to emphasise that the arrears crisis is, above all, a human crisis. While houses consist of bricks and mortar the consequences and ramifications for those involved are borne of real human emotion. In effect, what is at stake is one’s home, the right to “a roof over one’s head”. Generally, people will do everything in their capacity to meet their obligations to retain this right. What is required is for all parties to come together, engage in a meaningful way and plan a resolution strategy that serves the interests of both parties in a fair and sustainable manner.\"

Read the report here.

Media Enquiries to:

Ciaran Brennan,
Houses of the Oireachtas,
Communications Unit,
Leinster House,
Dublin 2

P: +3531 618 3903
M: 086-0496518
F: +3531 618 4551
Email: Ciaran.brennan@oireachtas.ie


Committee Membership

Deputies

Richard Boyd-Barrett, People Before Profit
Michael Creed, Fine Gael
Pearse Doherty, Sinn Fein
Regina Doherty, Fine Gael
Stephen Donnelly, Independent
Timmy Dooley, Fianna Fáil
Alan Farrell, Fine Gael
Sean Fleming, Fianna Fáil
Simon Harris, Fine Gael
Joe Higgins, Socialist Party
Heather Humphreys, Fine Gael
Kevin Humphreys, Labour Party
Mary Lou McDonald, Sinn Fein
Ciarán Lynch, Labour Party (Chairman)
Michael McGrath, Fianna Fáil
Dara Murphy, Fine Gael
Kieran O’Donnell, Fine Gael
Aodhán O Ríordáin, Labour
Arthur Spring, Labour Party
Brian Stanley, Sinn Féin
Liam Twomey, Fine Gael

Senators

Sean D Barrett
Thomas Byrne
Paul Coghlan
Michael D’Arcy
Aideen Hayden
Tom Sheahan.