Debt body recommends mortgage arrears process

GOVERNMENT PROPOSALS to help people who cannot pay their mortgages do not require banks to extend an existing one-year wait before taking action to repossess the homes of those in arrears.

The Government-appointed Mortgage Arrears and Personal Debt Expert Group published a series of recommendations yesterday aimed at tackling the immediate problems facing people who are either falling behind with their mortgage payments or are at risk of doing so.

The group is proposing a five-step system that allows banks to agree terms with borrowers for dealing with arrears, including: changing repayment amounts, deferring payments, extending the period of the mortgage, switching to interest-only payments, and paying off arrears and interest over the loan’s life. Banks will not be allowed to impose penalties or extra interest charges.

The group says that a 12-month moratorium forcing banks to wait a year before going to court to repossess the homes of those in arrears, should not be extended.

Its report points out that the banks do not take action against people who face the problem and seek assistance, so there is no advantage in extending it.

At the same time, it states that extending it could discourage homeowners from dealing with arrears or from facing up to the fact that they may never be able to pay off their mortgage.

The report also states that in cases where the process it recommends is exhausted, and borrowers refuse to agree to any resolution, then the banks should be free to take action against them.

The banks agreed to the moratorium last year under a code of conduct for mortgage arrears.

The report says banks should be free to take action against borrowers who refuse to co-operate with efforts to find a resolution to their problem.

The group, chaired by accountant Hugh Cooney and whose members include financial regulator Matthew Elderfield, Pat Farrell of the Irish Bankers’ Federation and senior civil servants, says that its recommendations aim to allow people to keep their homes wherever possible.

However, it says that where it emerges that they cannot ever repay the debt, they should agree early on to surrender their property to the bank.

A second report, due in September, will consider the options for borrowers in that situation.

That report will also tackle the problems faced by people whose loans are worth more than the value of their homes – known as negative equity – and the scope for debt forgiveness.

The recommendations published yesterday are based on a five-step process. The first involves communication between banks and homeowners. Once the process starts, the one-year moratorium applies.

The next stage requires the homeowner to provide the bank with all necessary financial information, while the third involves assessing this.

The fourth stage involves both parties agreeing on a resolution. If the borrower does not agree with the final resolution, they can appeal to the financial services ombudsman.

The group also says that the State’s mortgage interest support scheme, designed to assist homeowners, should be revised.

It should be expanded to include couples where one person is working, but should be means-tested and should be only paid on interest-only loans.

It also proposes a number of safeguards for the scheme, including paying the money directly to the borrower’s mortgage account.