At A time when the Government is under intense pressure because of the cost of bailing out the banks, it makes good political sense to defend struggling homeowners against a threat of repossession by aggressive mortgage lenders. Measures announced by Coalition Ministers yesterday are specifically designed to protect the family home, which is regarded as a social and economic priority.
Although the reforms recommended by a mortgage strategy group and adopted by Cabinet are limited in nature — a final report will issue in September — their implementation will come as a considerable relief to many thousands of families.
In particular, a prohibition on the imposition of penalty or arrears charges while borrowers are engaged in an agreed resolution process is timely. So is a requirement for all lenders to accept a revised code of conduct. From the Government’s side, it has extended the mortgage interest supplement scheme to include families where one spouse is working.
There is, as Financial Regulator Matthew Elderfield said recently, no silver bullet solution to mortgage arrears because homeowners could be incentivised to breach their financial obligations. But he has undertaken to act swiftly to implement these reforms and to ensure that borrowers are treated fairly. The International Monetary Fund also accepted the need to protect vulnerable homeowners from repossession, provided the relief measures were narrowly targeted. That has happened on this occasion. But it also suggested the banks, which have been bailed out by the State, could absorb the initial costs of such a scheme.
A range of forbearance measures has been proposed by the mortgage strategy group in its report. The group will now consider how loans might be modified, through reducing interest rates, extending maturity dates, rolling up outstanding interest and a lending institution taking equity in a home.
In addition, the reform of debt enforcement; the regulation of debt-recovery agencies and the establishment of a central debt enforcement office will be reviewed. A considerable amount of work is involved. Following a report by the Law Reform Commission, however, there is broad agreement that bankruptcy laws should be modernised and debt enforcement procedures removed, where possible, from the courts.
The revised programme for government undertakes to protect families who are experiencing difficulties with their mortgage repayments. About 32,000 mortgages have now been in arrears for three months. Some progress is, however, being made. Last February, a six-month embargo on financial institutions taking legal action for the non-payment of interest on a home loan was extended to a year.
Taoiseach Brian Cowen has spoken of minimising the number of home repossessions while Minister for Finance Brian Lenihan has asked lending institutions to recognise the efforts of those trying to repay their debts. These measures will provide some welcome relief for stressed families.