Mortgage arrears: don't dig yourself into a hole

When an Arklow homeowner barricaded himself in his house this week, it illustrated the severity of the country's repossession situation, writes CONOR POPE

IT IS HARD not to be affected by stories of home repossession. Once the veneer of dry legal language is stripped away, it involves people, mostly those down on their luck, being evicted from their homes.

The problem of repossession was given a human face earlier this week when a man used heavy machinery, including a digger, to barricade himself and his sister into their family home in Arklow, Co Wicklow, in a bid to stop the house from being repossessed.

Dermot Ivers claimed all he wanted to do was reopen negotiations with an unspecified lender who had attempted to serve a repossession order last Tuesday.

Once rare, home repossession has become a major problem in modern Ireland, as the Master of the High Court Edmund Honohan confirmed recently when he announced that 600 new cases of repossession had come before the courts in just one month. To put that number into perspective, little more than 50 homes were repossessed in all of 2007.

Honohan said he was conducting a survey on the 600 new cases which had come into his list and would be publishing the results later this year, but he was able to say that a pattern was emerging of arrears averaging about 10 per cent of the original loan.

EARLIER THIS WEEK Fine Gael TD Bernard Allen, the chairman of the Public Accounts Committee (PAC), warned that the Republic was facing a “disaster” if steps were not taken to aid homeowners struggling to pay their mortgages.

“With so many people struggling to keep up with mortgage payments, it is vital that action is taken now to force the banks to make repossession the absolute last resort. If this does not happen we could be facing a repossession disaster in this country which could have major implications for any fragile, economic recovery,” Allen said.

Felix O’Regan of the Irish Banking Federation says that talk of disaster serves only to frighten consumers who may be struggling to make repayments.

He says the figures from the Master of the High Court do not tell the full story and insists that the banks are taking steps to tackle mortgage arrears.

“We would prefer that people had hope. They need to engage constructively with their lenders to find a workable, manageable solution to their problems,” he says. O’Regan suggests people have a long “menu of possibilities”.

“Some people might find themselves in such a bind that it might be worth considering a payment holiday,” he says.

Other options on the table include extending the period of the mortgage so that monthly repayments fall, switching to an interest-only mortgage for a period, or adding any accumulated arrears on to a mortgage and then paying them off over the full term of that mortgage rather than attempting to clear the arrears over a much shorter period.

“It is important to remember that there is a cost to all of these options,” O’Regan warns. “But the most important thing to remember is it is about sitting down with your lender and working out what is best for you and keeping the channels of communication open.”

The IBF acknowledges that there was excessive lending and excessive borrowing during the boom years, “but rather than dwelling on the past we are trying to deal with the realities. The repossession figures are showing a downward trend in the number of cases going before the courts and the number of houses being repossessed.”

O’Regan does have a point – although as many as 70 repossession cases have been listed for the High Court in a single day in recent weeks, most cases end up being adjourned so borrowers can make payments as agreed with lenders following discussions.

Earlier this month, the Government approved new measures to help those struggling to pay their mortgages. A new code of conduct on mortgage arrears will allow homeowners with arrears to agree new repayment terms with their lenders.

UNDER THE NEW CODE, banks and building societies will not be permitted to charge those involved in the resolution process extra interest or penalties and they will be prohibited from changing the terms of low-interest tracker mortgages to increase repayments.

A five-step resolution process will kick in when either the borrower or the bank communicates with the other party about a problem mortgage and once the process is under way, the borrower is obliged to provide all relevant financial information to the bank.

At the third stage, this is assessed and a resolution, which could involve cutting the repayment amounts or switching to an interest-only mortgage, is agreed as a fourth step. The final stage allows borrowers who do not agree with the resolution to appeal to the Financial Services Ombudsman.