The Financial Regulator's Code of Practice on Mortgage Arrears

Re: If you can't meet your mortgage payments...

Summary of Financial Regulator’s Code on Mortgage Arrears

1)This applies to home loans only – not to residential property loans

2)Mortgage lenders must adopt flexible procedures for the handling of arrears cases. Such procedures must be aimed at assisting the borrower as far as possible in his/her particular circumstances.

3) all viable options open to the borrower must be examined during which consideration must be given to his/her repayment capacity, previous payment history and any equity remaining in the property.

4) If a third repayment is missed, the lender may issue a formal demand. With the issue of a formal demand for either the full amount due on foot of the mortgage or for possession of the property, the borrower must have been advised in writing of the following:
i. the total amount of arrears;
ii. where applicable, any excess interest (expressed as a rate or an amount) that may continue to be charged and the basis on which this will be charged; and/ or any charges that may be payable (the basis for which will have been detailed in the original contract documentation);
iii. advice regarding the consequences of failing to respond - namely, the potential for legal proceedings and loss of his/her property - together with an estimate of the costs to the borrower of such proceedings.

5) it must wait at least six months from the time arrears first arise before applying to the courts to commence enforcement of any legal action on repossession of a borrower’s primary residence. (Note that AIB and Bank of Ireland have agreed to a 12 month wait)

6) The lender must notify the borrower when it commences the enforcement

7) Lenders may distinguish between borrowers who are genuinely unable to pay – because of changed circumstances - and those who could pay some/all of the arrears but will not.

8) The lender must explore with the borrower one or more of the following alternative repayment measures:
• An arrangement on arrears could be entered into whereby the amount of
monthly repayment may be changed, as appropriate, to help address the
arrears situation.
• Deferring payment of all or part of the instalment repayment for a period might be appropriate where, for example, there is a temporary shortfall of income.
• Extending the term of the mortgage could be considered in the case of a
repayment loan - although this may not make a significant difference to the
monthly repayments.
• Changing the type of the mortgage might be appropriate if this could give rise to a reduction in the level of monthly mortgage outgoings (i.e., mortgage and related assurance payments).

• Capitalising the arrears and interest could arise where there is insufficient
capacity over the short term to clear the arrears but where repayment capacity exists to repay the capitalised balance over the remaining term of the mortgage.

9 ) The lender must continue to monitor the repayment arrangement. To this end, the borrower must be advised of a relevant contact point.

10) Where appropriate, the borrower must be made aware of other options such as trading down, voluntary sale or alternative refinancing through another lender.

11) The lender must inform the borrower that irrespective of how the property is repossessed and disposed of, the borrower will remain liable for the outstanding debt, including any accrued interest, charges, legal, selling and other related costs, if this is the case.

This became effective at the end of February 2009.

It got very little publicity. Is it much different from what the banks were already doing? The IBF had a very similar voluntary code.

The only difference is that the banks must wait 6 months before taking legal action. But the code seems to give banks the option of taking earlier action if the borrower is avoiding them.

Again, I would imagine that this was the practice anyway. Banks were not going for repossession, except as a last resort.

Banks now have to inform borrowers that if there is a deficit after the house is sold, that the borrower will be liable for the deficit.

Brendan

The difference is that it is putting a statutory footing to what was only 'voluntary' before. It also provides protection if the borrower engages with the lender, currently the majority of repo's happen when the person doesn't respond to correspondence etc. and that is not likely to change, but for those that do engage there will be some measures in place to reduce the damage or at least to give more reasonable time frames for the debt collection/repo process to take place.

Actually, I have since discovered that the main difference is that the code now applies to non bank lenders such as Start Mortgages.

They were not members of the IBF so they did not adhere to the code. The code makes very little practical difference to the customers of the main banks.

Brendan

The cynic in me thinks this 6 months/year wait only suits the banks currently as they don't want to reposses lots of rapidly dwindling assets, in a market where there are no buyers and with borrowers without jobs whom it's pointless to sue for the difference in sale price versus monies borrowed. Instead they have the taxpayer/state paying people's mortgages. So we're paying the banks on the double.