New Central Bank measures on arrears to include write downsThursday 14 March 2013 11.38
The Government and the Central Bank have unveiled unprecedented measures to tackle the mortgage arrears crisis.
The steps put greater emphasis on writing down debt while acknowledging some borrowers will have to volunteer to surrender possession of properties.
Banks will be forced to reach sustainable solutions with 20% of borrowers in arrears by the end of July.
That figure will increase to 30% by the end of the third quarter of 2013 and 50% by the end of the year.
The Central Bank also said today it was starting a consultation process on its code of conduct on mortgage arrears.
That will see the restriction which blocked banks from making more than three unsolicited contacts with customers per month dropped.
The Central Bank has not found the banks were harassing customers in its site visits to banks, but was concerned that the limited contacts were hampering lenders dealing with arrears.
The new policy will see borrowers afforded breathing space to deal with banks while blocking banks from harassing customers.
Consideration will also be given to whether there is merit in allowing a lender to move a borrower in arrears off a tracker, where the bank has offered an alternative arrangement ''which is more advantageous in the long term''.
Significantly, as part of the new targets for banks, regulators are openly asking lenders to include debt forgiveness if it is appropriate.
In the Central Bank's definition of a sustainable solution, it includes repayment of "a revised principal sum" - in other words some of the debt being written down if the bank offers a deal to a customer.
The Central Bank hopes to increase the use of split mortgages. This would see a home loan divided into two parts with the customer paying the first part and the second part would be parked without interest accruing in some circumstances.
In some cases the second part would be written off at the end of the term of the home loan. However, it would be up to individual banks to determine if this would be appropriate.
If a new sustainable solution can not be reached with the bank, the borrower has the option to use the personal insolvency arrangements which will be operational in June.
If banks fail to restructure loans they will have to write down the loans to value of the loan to repossession value of the property. That will require banks to set aside more capital for loans in arrears.
The measures will cover AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC.
Mixed reaction to arrears announcement
AIB has welcomed the announcement on mortgage arrears measures and said they would "assist the bank in increasing the pace of implementing resolutions for customers in mortgage difficulty".
The bank's CEO David Duffy said that, where customers are engaging fully and prioritising mortgage repayments, they would "seek to keep people in their homes wherever possible."
Permanent TSB also welcomed the announcements and said it was "committed to addressing the problem of customers with mortgage arrears in as constructive a manner as possible".
The bank particularly welcomed the plan's emphasis on the need for customer engagement with banks.
Personal debt-focused non-profit group New Beginnings said the measures should mark a significant step in the country's economic recovery.
In a statement, barrister and group founder Vincent P Martin said that resolving the mortgage issue was "key to the recovery of the Irish economy".
However the Irish Mortgage Holders' Organisation described the plans as "a sad extension of the failed policies of the past that have allowed Irish mortgages crisis to spin out of control".
The organisation said the plan allows banks to determine the nature, extent and application of solutions without any supervision.
Elderfield stresses importance of early engagement with banks
''The resolution of mortgage arrears is a key priority for the Central Bank and is important for the restoration of the banking system and economic and financial stability, as well as the fair treatment of borrowers,'' commented the Central Bank's deputy Governor Matthew Elderfield.
''We are therefore setting performance targets for the banks to end the impasse on arrears and to ensure that sustainable solutions are put in place for borrowers. These targets will be backed by rigorous new provisioning standards and the possible imposition of higher capital requirements. Now is the time to see real delivery from the banks' on this critical issue,'' he added.
He stressed that ''early and on-going engagement between the borrower and lender is critical to ensure a resolution of each case'' in arrears.
Mr Elderfield warned that borrowers who do not co-operate with their bank are liable under the revised code to immediate starting of legal proceedings. They will ''rule themselves out of possible participation in the new personal insolvency arrangement,'' he said.
Speaking at a press conference at the launch of the new arrears measures, Finance Minister Michael Noonan said that the vast majority of families falling behind in their mortgage repayments will be offered sustainable solutions to fit their needs.
The Minister said that repossession of a family home ''is at the end of a long sequence'', but that repossessions are a necessary part of the scheme to ensure new mortgages are available.
He said he would not be as reluctant to use repossession in the case of buy to let mortgages.
Mr Noonan said that the banks have enough capital to deal with their mortgage arrears.
Mr Elderfield also told the press conference that he expects repossessions to "rise significantly". He said that ''some form of debt relief makes sense but it is up to each bank."