# Central Bank Consultation Paper on SFS and MARP



## Brendan Burgess (29 Mar 2021)

The Central Bank has published a consultation paper on the layout of the Standard Financial Statement. 



			https://www.centralbank.ie/publication/consultation-papers/consultation-paper-detail/cp139---review-of-the-standard-financial-statement
		


In a pre-consultation I said that I thought it was ridiculous having a public consultation on the content of a form and that it should be just a part of a review of the MARP and CCMA generally. 

But they have gone ahead with the formal consultation on the Appendix to the CCMA. 

They have also used the consultation to get feedback on the CCMA generally to inform a review at some unspecified time in the future.   I will certainly give feedback on this aspect of it.
_
*Feedback outside the scope of this review *
While the scope of this consultation is a targeted review of the SFS document and associated
supports to ensure its effectiveness, the Central Bank has also received feedback from
stakeholders on certain requirements of the CCMA relating to the MARP. It is not proposed to
proceed with amendments to the MARP or the wider CCMA at this time, as this will require deeper
consideration and analysis. However, while we are not making any specific proposals at this point
in time, Part 2 of this paper provides an opportunity for stakeholders to raise views and
suggestions on the requirements of the MARP, and/or on the requirements of the CCMA more
generally. The Central Bank will give due consideration to any feedback provided in this context
in a future wider review of the CCMA, and any proposals developed will be subject to public
consultation._

*Part 2 *
...the Central Bank also received wider
views from stakeholders on the MARP, and requirements of the CCMA more generally. In
particular, the working group raised views on the following: 

 Whether there are certain situations where an SFS may not be required;

 The merits and demerits of a potential short-form SFS  for specific situations;

 The period of time an SFS could be valid for, or the frequency at which it is requested; 

 Whether there are certain situations where the MARP as a whole may not need to be applied; 

 How a regulated entity can be more transparent about the ARAs available in its suite of options;
and
 The treatment of separated borrowers.

The Central Bank is of the view that feedback on the above points requires deeper consideration
and analysis. While the Central Bank is not making any specific proposals in this context at this
point in time, we welcome any views or suggestions stakeholders may have on the MARP, or on
the requirements of the CCMA more generally.  

The Central Bank will give due consideration to any feedback provided in response to this part of
the paper in a future wider review of the CCMA. At that stage, any proposals that might be
developed on foot of the feedback provided will be subject to public consultation, where
stakeholders will be given the opportunity to raise further and more detailed views. 

Question for discussion: Do you have any views or comments you wish to raise on the
MARP, and/or the CCMA more widely?


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## Brendan Burgess (29 Mar 2021)

My main suggestion was that for very many cases the lender should be able to agree a rescheduling of a mortgage without the need for the formal MARP or the need to complete an SFS or, maybe, with a one page SFS.

Examples:


Someone has a temporary financial problem e.g. they are between jobs, and they want a short payment break.  The lender should be able to agree that with the borrower over a phone call and follow it up with a letter with the new agreement.
Someone who has never had arrears, who has plenty of positive equity in their home, but who wants to extend the term of their loan to reduce their monthly repayments. For example, they might be taking a one year career break.
Someone who has overpaid their mortgage in the past and reduced the term instead of the monthly repayment.  Under the CCMA, they would have to complete the SFS and have their mortgage restructured even if it is due to be repaid in full by the original date.

None of these should be forced to fill in the detailed SFS.  This is time consuming for the borrower and for the lender.


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## Brendan Burgess (29 Mar 2021)

The Covid payment breaks is a good example of  how short term payment breaks should be dealt with. 

A phone call and some basic details leading to a short-term break or restructuring.


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## Brendan Burgess (29 Mar 2021)

The SFS and MARP should be used only in the following circumstances 


Serious arrears have already accumulated 
There has been a major change in circumstances which make a full review necessary 
a significant and permanent long-term reduction in the borrower's income
A separation of two joint borrowers 
a significant increase in expenditure 

The person needs a major restructuring such as a split mortgage or an extension of the term beyond the age of 70 or mortgage to rent
The borrower is in deep negative equity


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## RedOnion (29 Mar 2021)

Brendan Burgess said:


> My main suggestion was that for very many cases the lender should be able to agree a rescheduling of a mortgage without the need for the formal MARP or the need to complete an SFS or, maybe, with a one page SFS.


But this is already possible for mortgage holders who aren't already in payment difficulty. For example AIB offer payment moratoriums with a simple 1 page form.

There are reasons outside of CCMA / MARP that banks need to go through a similar process. For example they need to show that a forebearance is sustainable if they don't want it treated as a non-performing loan. 'fixing' one issue doesn't remove everything else.


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## Brendan Burgess (29 Mar 2021)

RedOnion said:


> But this is already possible for mortgage holders who aren't already in payment difficulty.



But only if they are not in payment difficulty! 

If someone is between jobs and can't afford their mortgage this month, they are in payment difficulty.
If someone wants to take a career break, it could be argued that they would be in payment difficulty.


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## Brendan Burgess (29 Mar 2021)

RedOnion said:


> There are reasons outside of CCMA / MARP that banks need to go through a similar process.



And I have no problem with that. But they should not need to complete a 10 page SFS. 

A one pager would do in most cases.

Brendan


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## Brendan Burgess (29 Mar 2021)

RedOnion said:


> AIB offer payment moratoriums with a simple 1 page form.



This is exactly what I am proposing. 



			https://aib.ie/content/dam/aib/personal/docs/our-products/mortgages/payment-holiday-form.pdf


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## Brendan Burgess (16 Apr 2021)

The closing date for this is Tuesday next 20th April

Brendan


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## Brendan Burgess (17 Apr 2021)

Here is the first draft of my submission. I give examples of where the MARP is appropriate and where it is not appropriate. I would welcome any other examples to help make this point.

Update: Finalised version below.


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## Thirsty (18 Apr 2021)

I would add to your list of examples
A borrower who has never been in arrears and now has a terminal illness should not be forced into the SFS / MARP process.  Medical reports should be all that is necessary to restructure on compassionate grounds.


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## Brendan Burgess (18 Apr 2021)

Hi Thirsty

An interesting one.

Have you experience of this? I would have thought that the lenders would be flexible in these cases.

Are they forced into the MARP as well? 

Brendan


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## Thirsty (18 Apr 2021)

Yes to both your questions.

One would have expected some commonsense and cop-on, but that was not the case.


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## Brendan Burgess (20 Apr 2021)

I have finalised my submission as follows: 

Submission on Consultation Paper 139 Review of the Standard Financial Statement

From Brendan Burgess www.askaboutmoney.com

As I participated in the pre-consultation, I won’t repeat my views on proposed revised SFS. I will confine my comments to Part 2.

*Question for discussion: Do you have any views or comments you wish to raise on the MARP, and/or the CCMA more widely?*

The MARP is the equivalent of using a hammer to crack a nut. It is appropriate only for very serious, long-term arrears cases which will require a major permanent restructuring of the mortgage. It is not appropriate in most cases which require temporary or minor rescheduling.

The lender should develop a triage system and treat borrowers based on the seriousness and potential duration of the problem. A customer who engages with their lender proactively, who has overpaid their mortgage over the past ten years who has plenty of positive equity who needs a three-month payment break should get a very different treatment from someone who has lost their job shortly after drawing down their mortgage three years ago and who accumulated a year’s missed payments.


*Factors suggesting MARP is appropriate **Factors suggesting MARP an overkill*A record of missed paymentsA good record of mortgage paymentsArrears over 90 daysNo arrears or overpayments madePermanent reduction in income or permanent increase in expenditureTemporary problem of reduced income or increased expenditureApplying for a major restructuring of their mortgage.Applying for a short-term solution or modest term extensionOther loan commitmentsNo other loan commitmentsInability or unwillingness to pay anythingAble and willing to pay at least the interestHigh Loan to Value or Negative EquityA low current Loan to ValueNot engaging with lenderEngages pre-emptively with the lenderSeparation of joint borrowers


The MARP is very demanding and time consuming for both the borrower and the lender. Its complexity means that the lender will often experience delays in processing it and giving the borrower a decision. This is very frustrating for the borrower who may go into arrears while waiting for a decision.

*The Macroprudential Rules should reduce the risks generally for lenders and borrowers. *

The MARP was an appropriate response at a time when many borrowers had taken out 100% mortgages at massive multiples of their income, resulting in an inflated house price market. There was serious risk to the lenders and to the borrowers.

During the last crisis, most of the borrowers fell into the category where the MARP was appropriate.

With the introduction of the Macroprudential Rules, and the resultant moderation of house prices, the systemic risk has been greatly reduced and the responses should be adapted accordingly.





* 

The mortgage system and the CCMA should recognise that life happens.*

It is unrealistic to expect that all households will always be able to pay the mortgage in full with certainty every month to the end of the term.

Since the standard mortgage product was introduced, the environment has changed where jobs are often not for life and it usually requires two people to pay the mortgage.

Taking a payment break, switching to a period of interest only, or extending the mortgage term should be expected, should be treated as normal and the lender should not be required to classify the mortgage as non-performing.

* 

Some examples of where the MARP is an overkill.*


The borrower is struggling with their monthly mortgage repayments but can meet them most of the time. Extending the term of the mortgage would bring the repayments down to a more manageable level.
The borrower has built up moderate arrears due to the loss of their income but now has a new job and can afford to meet their revised repayment in full if the arrears are capitalised.
The borrower is considering taking a year long career break but could only afford to do so if the mortgage payments are reduced for that year.
The borrower has just lost their job but has no visibility over how long it will take them to get a new job and when they can resume mortgage payments. The SFS is irrelevant in this situation as the key issue is the person’s employment. The SFS may become relevant if the borrower takes 6 months to return to work and will be unable to afford their mortgage without a substantial restructuring.
In better times, the borrower has overpaid their mortgage and the current balance is below what the original scheduled balance would be.
The borrower has been diagnosed with a terminal illness and the mortgage is going to be cleared anyway by the mortgage protection policy. The unfortunate borrower in this situation should not have their problems accentuated by the MARP hammer.
*The Covid Payment Breaks experience shows that the MARP is an overkill in about 90% of cases.*

The panic over Covid allowed the lenders to do a test run of what I am proposing. 90% of those who took advantage of the payment breaks returned to full payments. This was a positive experience for both the lender and the borrower.

The 10% who did not return to normal payments probably represent the percentage of people who would require the full MARP in normal times. In other words, the MARP is an overkill for about 90% of the people who are forced into it.

*Applying the MARP to every case is an example of the very expensive over-regulation.*

Applying the MARP to every arrears case irrespective of the duration and extent of the arrears, is a very good example of where massive and inappropriate over-regulation imposes a very heavy cost on the lender and pushes up the cost of doing business in Ireland. It is a major contributor to the extremely high mortgage rates in Ireland.


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