1. Introduction
The Government acknowledges that the mortgage arrears situation is one of the most serious social and economic issues facing the country.
It is a cause of distress to many families. It is also an impediment to economic recovery.
Last week, the Central Bank published information for mortgage arrears in the period up to December 2012. This shows that the rate at which mortgages are falling into arrears for more than 90 days is declining. And the number of early arrears cases under 90 days cases has reduced.
However, the statistics also highlight the scale of the problem. 94,500 mortgage accounts for private dwellings are over 90 days in arrears – and 23,500 are in arrears for over 720 days.
The Government has prioritised this issue by putting in place new legislation, structures and processes to resolve the mortgage arrears issue.
The banks must now step up their engagement with borrowers in difficulties so as to allow these people to see a better future.
That is why the Government welcomes the publication today, by the Central Bank, of specific, time-bound targets for the six main banks which will ensure early and measurable progress towards this objective.
These targets stipulate that:
- by end-June 2013, the banks should have proposed sustainable mortgage solutions for 20% of distressed borrowers, and
- by end September 2013, 30%, and
- by the end of 2013, the banks should have proposed sustainable mortgage solutions for 50% of distressed borrowers.
The targets will become progressively more demanding so that the vast majority of distressed borrowers will have been proposed such solutions by end-2014.
The Central Bank will also, in the months ahead, set demanding quarterly targets for the conclusion of sustainable solutions and for the subsequent performance of these solutions.
The Central Bank will require public disclosure of performance against these targets and will audit performance against the targets.
The Central Bank has made clear that it will consider regulatory action, including the imposition of additional capital requirements where necessary. It also plans to require more rigorous provisioning for mortgage loans in arrears greater than 90 days which have not been subject to a sustainable solution.
Progress will be monitored closely by the cross-Government Mortgage Arrears Steering Group and the enhanced Cabinet Committee on Mortgage Arrears and Credit Availability and the Government will take any further actions it deems necessary.
These targets are one part of the Government’s overall strategy. While the targets will spur the banks into taking sustained action, other important elements include:
· Updating the Central Bank Code of Conduct on Mortgage Arrears to facilitate effective resolution of borrowers’ arrears situation. A consultation paper on revisions to the Code is being published today.
· Intensive and ongoing engagement by the Central Bank to ensure that the banks continue to develop their operational capacity to deal with the mortgage arrears problem.
· Establishing the Insolvency Service of Ireland which will facilitate insolvent borrowers and lenders to come to an agreed solution. It will enable many people to make a fresh start.
· Enabling people to remain in their family home through further roll-out of the mortgage-to-rent scheme and developing options for a mortgage-to-lease scheme.
· Provision of more comprehensive advice and guidance to people based on the availability of new arrangements for people in arrears.
The Government believes that the ingredients of a transparent resolution process for borrowers are now in place.
A key message to people who are experiencing difficulties with their mortgage payments is to engage with their bank and to avail of the process in place.
The process is designed to assist those who can’t pay – not those who won’t pay.
Repossession should and will remain the last resort – the purpose of the strategy is to ensure that, wherever possible, the banks offer a sustainable solution that allows families to remain in their home.
2. Progress to date
Since the Government took office, it has confronted the problem of mortgage arrears and taken a series of steps to deal with it. These actions in addressing this problem stand in stark contrast to the inactions of the previous Government which had taken no action on updating the arcane personal insolvency rules and had banks that were barely functioning as banks, let alone working with their customers.
In October 2011, the Interdepartmental Group on Mortgage Arrears published its report. Based on its recommendations, the Mortgage Arrears Steering Group led by the Department of Finance has co-ordinated a whole-of-Government response to this issue:
· Innovative personal insolvency law reform;
· The newly-established Insolvency Service of Ireland (ISI);
· Engagement by the Central Bank, through ongoing oversight, with the banks in terms of developing resolution strategies and capacity;
· Facilitating families to stay in their homes through the mortgage-to-rent scheme which transfers ownership to a local authority or approved housing body;
· Development of mortgage arrears information and advisory functions including website, helpline and advice service;
· Introduction of a special rate of mortgage interest relief for first-time buyers in the years 2004-2008
· Extensive support through the Department of Social Protection’s Mortgage Interest Supplement scheme
Since March 2012, the Cabinet Committee on Mortgage Arrears has overseen development of this framework. More detail on progress to date is contained in Appendix 1.
3. Next Steps
Having ensured that the legal and institutional framework is in place, the focus in 2013 will be on effective action by the banks.
This is why the Government welcomes the targets set by the Central Bank to ensure banks achieve successful restructuring arrangement for cases of mortgage arrears.
These targets, in conjunction with the operation of the new personal insolvency regime, aim to ensure that the banks focus on sustainable resolution of mortgage arrears rather than relying on short-term forbearance measures.
The Government is now setting down a clear Roadmap for the remainder of 2013 with identifiable and time-bound milestones. At all stages, progress will be monitored closely and further action taken when and where necessary.
The milestones encompass the following issues:
(i) Rolling targets for resolution strategies by the banks
(ii) Up-dating the Code of Conduct of Mortgage Arrears
(iii) Establishment of the Insolvency Service
(iv) Further roll-out of mortgage-to-rent schemes and progression of mortgage-to-lease schemes
(v) Advice and guidance services
(vi) Further legislative reform
(i) Targets
The Central Bank is setting the following targets for the six main banks – Allied Irish Bank, Bank of Ireland, Permanent TSB, ACC, KBC and Ulster Bank:
- by end June 2013, 20 % of mortgage customers that are 90 days plus in arrears will have a proposed sustainable solution,
- by end September, 30% and
- by end December 2013 50% of these customers will have a proposed sustainable solution.
Further quarterly targets will be defined by the Central Bank in light of experience with the goal of ensuring that by the end of 2014, the vast majority of mortgages will have been offered a sustainable solution.
In the coming months, the Central Bank will also establish targets for the percentage of such arrangements that will be concluded by end 2013.
The Central Bank has also set a target, that in 75% of all concluded arrangements, the terms of the agreement are being met. This target will apply from Q1 2014.
All of these targets will apply to both principal private residences and buy-to-let properties.
The Central Bank will conduct regular audits to help it reach a judgment regarding whether the target results as reported by the banks have been achieved in practice.
The Central Bank will consider regulatory action, including the imposition of additional capital requirements, for banks that fail to meet targets for dealing with mortgage arrears or which demonstrate poor resolution strategies or poor implementation of these strategies.
The Central Bank also plans to require more rigorous provisioning for mortgage loans in arrears greater than 90 days which have not been subject to a sustainable solution.
The Central Bank will also set specific targets for each of the banks. These targets will primarily monitor early arrears cases and operational effectiveness.
20% of mortgage customers that are 90 days plus in arrears will have a proposed sustainable solution End Q2 2013
30% of mortgage customers that are 90 days plus in arrears will have a proposed sustainable solution End Q3 2013
50% of mortgage customers that are 90
days plus in arrears will have a proposed sustainable solution End Q4 2013
Central Bank to set targets for (i) what percentage of such arrangements will be concluded and (ii) what percentage of such arrangements are working (i.e. not re-defaulting) Q3 2013
The Central Bank will review banks’ compliance with these public targets and will assess the reasonableness of their decision-making by examining a sample of cases Ongoing
The Central Bank will oversee banks performance in relation to the handling of early arrears and their operational effectiveness. Ongoing
(ii) Reviewing the Code of Conduct on Mortgage Arrears (CCMA)
The Code of Conduct on Mortgage Arrears (CCMA) is a key part of the Central Bank’s mortgage arrears framework.
It is designed to provide appropriate and effective consumer protection measures and to ensure that borrowers who are experiencing, or are concerned about, mortgage arrears are treated in a fair and transparent manner.
The CCMA, first published in 2009, set out rules for lenders in respect of their dealings with borrowers in mortgage arrears. The current CCMA, which came into effect on 1 January 2011 further strengthened protections for borrowers in mortgage repayment difficulty by setting out the mortgage arrears resolution process (MARP).
The Central Bank commenced a review of the CCMA in Q4 2012. The review provides an opportunity to strengthen the protections of the CCMA, where necessary, while ensuring that the framework is facilitating and promoting the effective and timely resolution by lenders of each borrower’s arrears situation.
The Central Bank has today issued a consultation paper seeking views on its proposals in a number of areas, including:
· Co-operation and engagement
· Contact between the lender and borrower
· Link between the CCMA and Personal Insolvency legislation
· Use of the Standard Financial Statement (SFS)
· Reviews of alternative repayment arrangements
· Appeals and complaints
· Resolution options
· Tracker mortgages
These proposals are intended to provide an integrated and cohesive package of consumer protection measures for borrowers facing, or in, mortgage arrears, and reflect the following principles:
· To ensure appropriate resolution of each borrower’s arrears situation.
· To ensure that lenders deal with borrowers in a fair and transparent manner.
· To support and facilitate meaningful engagement between lenders and borrowers.
· To ensure borrower awareness of the benefits of co-operating with their lender and the consequences of not co-operating.
A timeframe of four weeks has been set for responses to the public consultation. This timeframe reflects the urgent need to provide greater clarity and stronger protections in the CCMA. In addition, it also recognises that pre-consultation with relevant industry and consumer stakeholders took place in advance of the review, and the fact that it is a review of an existing code.
Publish consultation paper on revised Code of Conduct on Mortgage Arrears 13 March 2013
Issue revised Code of Conduct on Mortgage Arrears End-May 2013
(iii) Establishment of the Insolvency Service of Ireland (ISI)
Extensive work is taking place to get the new Insolvency Service of Ireland (ISI) operational as early as possible in 2013 under its Director who was appointed in October 2012.
The ISI will provide new options to people in mortgage distress and other debt by facilitating agreed arrangements to allow people stay in their homes.
Detailed work has been undertaken in preparing a public information campaign on the role of the ISI; the establishment of a regulatory framework for personal insolvency practitioners who will operate the new personal insolvency arrangements, the design and implementation of appropriate IT systems, and developing guidelines on reasonable living expenses.
The benefits of this work will be seen in the coming months.
Launch the Insolvency Service of Ireland website End-March 2013
Publish Guides to the three new arrangements End-March 2013
Put in place an information line for the public. End-March 2013
Publish Regulations for the authorisation and licensing of Personal Insolvency Practitioners End-March 2013
Publish Guidelines on a Reasonable Standard of Living and Reasonable Living Expenses for Debtors End-March 2013
Authorise and regulate approved intermediaries and personal insolvency practitioners Q2 2013
Commence taking applications from public June 2013
(iv) Mortgage to Rent/Mortgage to Lease
The mortgage-to-rent scheme is a Government initiative to help homeowners who qualify for social housing support and who are at risk of losing their homes. To be considered for this scheme, a person must be engage in the Mortgage Arrears Resolution Process (MARP) with his/her lender and agree that they can no longer afford to pay their mortgage loan now or in the future. Further conditions are that a person must not own any other property or have assets in excess of €20,000 and their net household income must not exceed €25,000-35,000, depending on where a person is living.
Since last June, the mortgage to rent scheme has been available as a mainstream social housing solution for the most acute cases of mortgage arrears. All lenders are now engaging with the process and substantial progress has been made.
A relatively small number of cases, approximately 25, will be completed by the end of March but many more, 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, making the difficult transition from homeowner to social housing tenant but, crucially, without losing their home.
A mortgage to rent scheme for local authority borrowers in arrears has also been set up and is being rolled-out nationally following successful piloting in 2 local authorities.
Development of the mortgage to lease model is also progressing. Under the mortgage-to-lease scheme, the lender would become the long term owner of the property after voluntary repossession had taken place. The household would become a social housing tenant of the relevant local authority and the local authority would, in turn, lease the property from the financial institution for the period of the lease.
The Housing Agency, the Department of the Environment, Community and Local Government and the Department of Finance are working on a model for the scheme with stakeholders. This would add a further long term option for the particularly distressed households.
Continued roll-out of mortgage-to-rent scheme Ongoing 2013
Develop options for possible mortgage-to-lease scheme Q3 2013
(v) Advice and Guidance
A mortgage arrears information and advice service has been established to help people in mortgage arrears. This service encompasses provision of mortgage arrears information and advice through
www.keepingyourhome.ie, the mortgage arrears information helpline and the availability of independent financial advice for people being offered long term restructuring proposals by the banks
It will become more important as the banks roll out their long term forbearance options and the Personal Insolvency Service becomes operational.
An Information campaign to promote awareness and build an understanding of the service is scheduled to commence before the end of quarter 1.
The campaign will involve both radio, national and local, and press advertising initially and will be followed by the circulation to all mortgage holders of a comprehensive information leaflet about the service. The campaign will focus in particular on those people who are in pre arrears and who are unaware of where they can access support and advice.
This independent financial advisory service will be reviewed in June 2013 to ensure that it is fully meeting its objectives. The review will encompass all aspects of the service including whether participation in the service could be extended to other interested parties.
New information campaign involving national and local media Q1 2013
Provision of mortgage arrears information and advice through
www.keepingyourhome.ie, the mortgage arrears information helpline and the availability of independent advice for people being offered long term restructuring proposals by the banks Ongoing
Review of independent advice service to ensure its fully meeting its objectives June 2013
(vi) Further legislative reforms
A High Court ruling in July 2011 – the Dunne Judgment – has created uncertainty in the law relating to the exercise by lending institutions of their repossession rights. Further more recent High Court cases have also arisen in relation to this issue.
This arose as an unintended consequence of
the Land and Conveyancing Law Reform Act 2009 and its repeal of earlier statutory provisions.
The Government will introduce new legislation to resolve this difficulty by the end of March 2013.
The Bill seeks to ensure that statutory provisions in force prior to implementation of the Land and Conveyancing Law Reform Act 2009 on 1 December 2009 will continue to apply to mortgages created prior to that date.
The new legislation does not create new rights of repossession for lenders. It restores certain long-standing rights of lenders which existed before the 2009 Act and which were unintentionally removed, according to the Dunne judgment, by that Act.
Publish legislation to ensure that statutory provisions in force prior to implementation of the Land and Conveyancing Law Reform Act 2009 on 1 December 2009 will continue to apply to mortgages created prior to that date.
March 2013
(vii) Monitoring and Review
As stated above, the Central Bank will continuously monitor the performance of the banks against these targets and take appropriate action in the event of banks failing to meet them.
The Cabinet Committee on Mortgage Arrears and Credit Availability will closely monitor progress against the targets and on all other aspects of the strategy.
This will include close engagement with the banks to ensure that they are now delivering on a sustainable resolution of this problem.
In light of this, the Government will be prepared to take any further action it deems necessary.
Appendix 1
Summary of Key Actions to date
- Enactment of the Personal Insolvency Act 2012
This Act introduces three new alternatives to bankruptcy and provides for the establishment of the Insolvency Service of Ireland (ISI).
The ISI will be responsible for all matters concerning personal insolvency. Its main functions will be to:
· monitor the operation of the arrangements relating to personal insolvency provided for in the Act;
· consider applications for Debt Relief Notices;
· process applications for protective certificates
· prepare and issue guidelines as to what constitutes a reasonable standard of living and reasonable expenses;
· authorise persons to perform the functions of an approved intermediary;
· authorise and regulate personal insolvency practitioners;
· provide information to the public on the working of the legislation.
Lorcan O’Connor was appointed Director-Designate of the ISI at the end of October 2012. Work is ongoing in relation to the design and implementation of appropriate IT systems, preparing for a public information campaign on the work of the ISI, and the establishment of a regulatory framework for personal insolvency practitioners who will operate the new personal insolvency arrangements.
The Act also reforms the bankruptcy laws to ensure the automatic discharge from bankruptcy, subject to certain conditions, after 3 years.
- Engagement with the Banks
The Central Bank has worked closely with the banks in developing their Mortgage Arrears Resolution Strategies (MARS).
Banks have had to submit board approved modification and resolution options and complete pilot operations in respect of these before beginning to roll-out their resolution strategies in the last quarter of 2012.
Core performance indicators for the banks have been agreed and have been added to the Quarterly Mortgage Arrears and Repossession Statistics.
An ongoing assessment of banks operational capabilities and review of provisioning has been underway since 2012. This includes continuous evaluation of bank’s capacities in relation to resources, contact strategy, protocols and information systems.
- Establishment of a Mortgage Arrears Information & Advisory Service
This new Service commenced in 2012 to provide information and advice on the services and supports available to people who are having difficulties making mortgage repayments.
The website
www.keepingyourhome.ie was launched in June 2012 as the key online portal for mortgage arrears information and advice, with over 63,000 hits to date.
A Mortgage Arrears Information Helpline was established in July 2012. It provides comprehensive mortgage arrears information and guidance in relation to the Code of Conduct for Mortgage Arrears and other supports available for those in mortgage arrears and pre-arrears. Almost 3,000 people have called the helpline to date and have benefited from this support.
An Independent Advice Service for Borrowers being offered long-term forbearance by their lenders was delivered in September 2012. The main accountancy organisations have agreed to be involved in this element of the service and a county by county panel of over 2,000 participating accountants is available on
www.keepingyourhome.ie.
In this element of the service when a lender offers a borrower long term forbearance on their primary residence, they will be advised that financial advice is available from an accountant of their choosing, the cost of which will be paid by the lender. Within a two week timeframe the accountant will meet with the borrower and explain and advise on the financial implications of the proposal.
- Facilitating Families to stay in their own homes
Mortgage Interest Relief
A special rate of 30% for the tax years 2012 to 2017 was introduced for first-time buyers who bought their sole or main residence for the first time in the years 2004 to 2008 or paid their first mortgage interest payment in this period. This measure has benefitted 270,000 homeowners.
Development of the mortgage to rent scheme
Under this scheme that is designed to keep people in their homes, householders who are having trouble paying their mortgages can switch from owning their home to renting their home as social tenants.
The Housing and Sustainable Communities Agency is now driving the day-to-day implementation of the scheme.
Mortgage Interest Supplement
Mortgage Interest Mortgage Interest Supplement (MIS) provides short-term support to help people pay their mortgage interest repayments. It has been estimated that it benefits 19,000 households.
From June 2012 new applicants for MIS must show that they have availed of an alternative payment arrangement with their lender for at least 12 months under the Mortgage Arrears Resolution Process.
In December 2012 the condition that people who were in receipt of a mortgage interest supplement could not offer the house for sale was removed. This will facilitate people who wish to sell or downsize. In these cases, the person can remain eligible for mortgage interest supplement until the property is sold.
Local Property Tax (LPT)
The Finance (Local Property Tax) Act 2012 contains a system of deferral arrangements, for owner-occupiers and tenants on leases that are longer than 20 years, where there is an inability to pay and certain specified conditions are met.
• A person who qualifies for full deferral can opt to defer 100% of the LPT liability. This applies to a single individual with income below €15,000 and a couple with income below €25,000.
• A person who qualifies for partial deferral can opt to defer 50% of liability and must select a payment option to pay the balance of the liability. This applies to a single individual with income below €25,000 and a couple with income below €35,000.
• To take account of individuals in mortgage distress, the deferral limits may be increased by 80% of the mortgage interest payable. This type of deferral is available until the end of 2017.
• The Finance (Local Property Tax) (Amendment) Bill 2013 was recently published and provides for a proposed new deferral arrangement for a person who has entered into an insolvency arrangement.
• Further new measures provide for the possibility of a deferral for liable persons who cannot without excessive hardship pay local property tax when it becomes payable, as a consequence of a significant and unexpected financial loss or expense.