In September 2012, I wrote an article explaining the Code of Conduct on Mortgage Arrears and the changes to it since its inception in 2009. The Code of Conduct on Mortgage Arrears (CCMA) is a key part of the Central Bank’s mortgage arrears framework and sets out the requirements for mortgage lenders dealing with borrowers facing or in mortgage arrears. In March 2013, the Central Bank reviewed the protections in place for borrowers under the CCMA with a view to strengthening “these protections, 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 published the Revised Code of Conduct on Mortgage Arrears on the 27th June 2013 and it came into effect on the 1st July 2013. The purpose of this follow up article is to give you a brief summary of some of the main changes to the CCMA as follows;
- There has been much concern about lenders’ failure to deal with the mortgage arrears crisis. It has been argued that the CCMA gave borrowers too much protection and banks were experiencing a high level of non-cooperation from customers. The revised CCMA now provides greater clarity around when a borrower is considered to be cooperating and/or not cooperating. A new provision requires lenders to send a warning letter giving at least 20 business days’ notice to the borrower outlining the implications of being classified as not cooperating. If a bank proves that a customer is not cooperating, then that customer is not protected by the code and legal proceedings for repossession can start immediately.
- One aim of the Code is to try and get borrowers in arrears into the Mortgage Arrears Resolution Process (MARP) as otherwise they could face repossession. The old Code provided that banks could only make three unsolicited contacts with someone in arrears each month. This has been replaced by a requirement that lenders ensure communications are “proportionate and not excessive”. There is no definition of “proportionate” other than to say that communications should not be “unnecessarily frequent” or “aggressive, intimidating or harassing”. Borrowers must be allowed sufficient time to complete an action they have committed to before follow up communication is attempted. The lenders must ensure that a board approved communications policy is put in place. According to the Central Bank, this will allow for “an approach to lender and borrower communication that is suited to individual needs and circumstances”.
- Before a bank can make an unsolicited personal visit to the home of a borrower in arrears, all other attempts at contact must have failed and such visit must occur immediately prior to classifying a borrower as not cooperating. The lender must also have given the borrower at least 5 working days’ notice of such visit.
- The revised Code permits lenders to take borrowers off tracker mortgages in certain situations. The move to another mortgage type can only be done in strict circumstances when the lender makes a decision that none of the alternative repayment options that would allow the borrower to retain a tracker are appropriate and sustainable. Lenders must be able to demonstrate that the switch is necessary as the only other option is repossession of the home. The alternative arrangement offered must be a long term, sustainable solution for the borrower.
- The twelve month moratorium on legal action against borrowers in arrears has been removed. Instead, cooperating borrowers will be given eight months from the date the arrears first arose before legal action can be commenced. If the mortgage arrears resolution process concludes and the borrower has not reached an arrangement with the bank, they will be given three months to consider their options e.g. voluntary surrender or an arrangement under the Personal Insolvency Act (once available) before legal action can commence.
- There are increased information requirements for lenders. The new code provides that lenders must publish details of all alternative repayment arrangements available to borrowers, how these arrangements will work and outline their criteria for assessing requests for alternative repayment arrangements. Other information that must be provided to borrower includes explanations of the meaning and implications of not cooperating, summary information on a lender’s potential use of the confidentiality agreements, information on the borrower’s right of appeal and a summary of the lender’s communications policy. In relation to confidentiality agreements, there has been an increase in the number of same between banks and customers whose accounts have been restructured. The Code provides that these confidentiality agreements must be fair and the restructuring terms have to be sustainable.
- There is a new requirement for lenders to provide the Standard Financial Statement (SFS) at the earliest opportunity and to offer assistance to borrowers in completing it.
Figures published by the Central Bank in June 2013 highlighted the scale of the mortgage arrears crisis which does not appear to be reducing. 12.3% or nearly 100,000 mortgages had fallen behind in payments for more than 90 days by the end of March 2013. The total number of home loans in short and long term arrears amounted to over 142,000. The purpose of the revised CCMA is to address the mortgage arrears crisis by enabling mortgage lenders to seek long-term resolutions for distressed borrowers. It remains to be seen if the Revised Code of Conduct on Mortgage Arrears will have the desired effect anticipated by the Central Bank or whether a further revision will be required. The full revised code can be accessed on www.centralbank.ie.