Tuesday, 31 March 2015

Finneran outlines position on mortgage arrears

Minister for Housing Michael Finneran TD met with representatives of the Financial Regulator and the Irish Banking Federation on Wednesday on the issue of mortgage arrears and repossessions and issued a statement outlining the current position on Wednesday evening last.

“It’s crucial to remember that the most important issue here is the very real trauma of those who experience difficulties in meeting their mortgage repayments. For those families, the struggle to make ends meet and the fear of repossession is deeply distressing. The key issue for all of us as a society is how we respond to that situation.

“Firstly, it’s important to look beyond the recent data from the Courts Service concerning the number of repossession orders sought relating to residential properties over the course of 2008. In the first instance, it should be noted that the numbers of repossession orders sought are only a small fraction of the numbers of mortgages in arrears. There is a very important message in this for borrowers and that is that repossession is by no means an automatic outcome of getting into arrears; for the vast majority of borrowers encountering difficulties with their mortgage repayments, a solution is found through early engagement between borrower and lender,” said the Minister.

“Constructive arrears management and engagement between a distressed borrower and a lender is absolutely vital and should be the number one priority for all parties involved. There is a danger that households in difficulty will respond by effectively going to ground, avoiding contact with their lending institution; that is not a solution and is something to be avoided at all costs.

“Secondly, it is important to look beyond the figures on repossession orders to see what they don’t reveal – that is the fact that very often repossession orders do not translate into actual repossessions. Generally speaking, less than 10 percent of repossession orders lead to repossession, which says to me that Court orders frequently act as a wake-up call to distressed borrowers, jolting them into making contact with their lenders with a view to achieving a mutually beneficial outcome by agreeing a way forward, possibly through flexible approaches to repayment and repayment scheduling,” said the Minister.

“It is only right that IBF Member institutions would take a sensitive and practical approach to individual cases. The Government has been very active on this issue in recent months. I have met on a number of occasions with the IBF and with the Regulator to ensure that adequate measures are in place to protect consumers and households in difficulty. Since December, the Government has taken steps, through the Office of the Regulator to bring forward a statutory Code of Practice in respect of arrears and repossessions. Unlike the previous voluntary Code, this will apply to all lenders – including non-bank lenders. While I have concerns about the manner in which some of these institutions approach the issue of repossessions, it is important to note that as a share of the overall market, they account for only around two percent of all mortgages,” the Minister commented.

The new Code was published by the Regulator on 13 February and in addition to the procedures set out under the previous voluntary Code, the new Code will formally extend the waiting period before court proceedings will be initiated in the case of arrears from three months to six. Where appropriate, the Regulator may also initiate Administrative Sanctions Procedures against lenders who fail to apply the Code. The Code came into effect last week. In addition, the banks participating in the recapitalisation scheme have been required to agree to a moratorium on the commencement of court proceedings for repossession of a principal private residence within 12 months of arrears appearing, where the customer maintains contact and cooperates reasonably and honestly with the bank. 

Finally, to support households who are at risk but may not yet actually be in arrears, there are supports in place. The Supplementary Welfare Allowance scheme provides for a supplement to be paid in respect of mortgage interest to any person in the State whose means are insufficient to meet their needs. The amount payable is variable, but the scheme is designed to ensure that remaining income, after paying the interest on a mortgage, does not fall below a minimum level. Advice is also available from local offices of the Government’s Money Advice and Budgeting Service (MABS).”