THE GOVERNMENT HAS launched its plan to tackle the current mortgage arrears crisis.
At the end of December 2012, there were 792,096 private residential mortgage accounts for principal dwellings in Ireland, of which 143,851 (18.2 per cent) were in arrears. Some 94,000 (11.9 per cent) were in arrears of greater than 90 days.
The approach to Mortgage Arrears Resolution can be read at this link (PDF).
The documents state that possible solutions to mortgage arrears could include a split mortgage, where a lender splits a borrower’s unaffordable mortgage loan, with an amount set aside to or ‘warehoused’ at a later date. They also include deferring payment, or debt write-off.
Finance Minister Mr Michael Noonan was joined by Deputy Governor Matthew Elderfield from the Central Bank, and John Hogan assistant secretary in charge of banking policy in the Department of Finance at the launch of the plan today.
Minister Noonan said that the government is at the point where it has all the legal underpinnings in place to allow it to take a very strong action on mortgage arrears, and that it is able to put forward a plan to deal with impaired mortgages.
Also published today were the proposed changes to the Code of Conduct on Mortgage arrears. The amendments seek to ensure that borrowers are not subject to harassment, and that the borrower engages with the lender in a meaningful way.
Banks will be required to meet specific targets which stipulate that: by end-June 2013, they should have proposed sustainable mortgage solutions for 20 per cent of distressed borrowers, and by end-September 2013, 30 percent, and by the end of 2013, the banks for 50 per cent of distressed borrowers.
The framework applies to ACC, AIB, Bank of Ireland, KBC Bank, permanent tsb and Ulster Bank in relation to both principal dwelling homes and buy to let mortgages
Elderfield said that it is realistic to expect “a substantial acceleration in the number of cases that are dealt with on a sustainable basis, improved prompt management of early arrears cases, and, more effective action to staunch the flow of new cases”.
In some cases, where the borrower is insolvent and is at the threshold of repossession despite cutting their expenses right back, the Central Bank believes that some form of sustainable debt relief makes sense.
He said that voluntary surrender of the property or repossession is a possible outcome under the targets “where the borrower’s ability (or unwillingness) to pay falls short of the recoverable value of the property”.
Those borrowers who do not cooperate with their bank are liable under the revised Code to immediate commencement of legal proceedings and rule themselves out of possible participation in the new personal insolvency arrangement.
“The process is designed to assist those who can’t pay – not those who won’t pay,” said Noonan, adding that repossession should and will remain the last resort.
Work is taking place to get the new Insolvency Service of Ireland (ISI) operational in 2013 to provide new options to people in mortgage distress and other debt by facilitating agreed arrangements to allow people stay in their homes.
Regarding the Mortgage to Rent scheme, around 25 cases will be completed by the end of March but over 800, have been put forward for the scheme. Funding has currently been provided for 250-275 households to benefit from the scheme this year.
A mortgage to rent scheme for local authority borrowers in arrears has also been set up and is being rolled-out nationally.
Fianna Fáil finance spokesperson Michael McGrath TD described the plan as “long on aspiration but short on real action”, and criticised it for the additional power it gives to banks and its “failure to set any meaningful or enforceable targets”.
Labour Party TD Ciaran Lynch welcomed the plan, saying that it contains “realistic and measurable targets” and “sets out a workable pathway towards addressing this crisis”. He added that the Oireachtas Joint Committee, on Finance, Public Expenditure and Reform will monitor closely and carefully how the targets are met.