A revised Code of Conduct on Mortgage Arrears (the “CCMA”) came into effect on 1 July 2013. The revised CCMA was published against the backdrop of measures introduced by the Central Bank to address mortgage arrears, including the publication of performance targets for the main mortgage banks in Ireland.
In March 2013, the Central Bank announced targets (end June, end September and end December) for banks offering sustainable long term solutions for mortgage arrears customers. The Central Bank also said at the time that specific and more detailed targets would be set for banks, based on their capacity, systems, and processes, principally focusing on the handling of early arrears.
The Central Bank, in agreement with the Troika, has now set its expectations of the banks in this regard and requires banks to have concluded arrangements with 15 per cent of their over 90-day mortgage arrears customers by end of December 2013.
Furthermore, the Central Bank is now also setting expectations, for end March 2014, for sustainable solutions offered to customers to reach 70 per cent of over 90-day arrears and for concluded solutions to reach 25 per cent. The overall aim of the revised CCMA and the performance targets is to ensure banks offer and conclude sustainable solutions to borrowers in arrears and to facilitate and promote the resolution of such cases.
Some of the main changes and new features of the revised CCMA include:
- An amendment to the definition of “Non-Cooperating Borrower” to include a number of clarifications as well as the introduction of safeguards to ensure that borrowers are given advance warning before being classified as not co-operating and the opportunity to avoid being treated as such.
- The 12 month moratorium on legal proceedings for repossession no longer exists.
- Under the revised CCMA, once a lender has made every reasonable effort to agree an alternative arrangement with a borrower, and where an alternative arrangement is deemed to be unsustainable or the borrower refuses to enter into the alternative arrangement, legal proceedings for repossession may commence three months from the date the alternative arrangement is deemed to be unsustainable or refused by the borrower, or eight months from the date the arrears arose, whichever date is later.
- The limit of three unsolicited contacts a month has been removed and now contact with borrowers must be “proportionate”. Also, a lender may make an unsolicited personal visit to a borrowers primary residence where all other attempts at contact have failed and just prior to a borrower being classified as non-cooperating.
- Borrowers may be switched from tracker mortgages but only where none of the options that would allow the borrower to retain a tracker interest rate are appropriate and sustainable for the borrower’s individual circumstances. In such instances where the lender offers the borrower an alternative repayment arrangement which requires the borrower to change from an existing tracker mortgage to another mortgage type, it must be affordable for the borrower and be a long-term sustainable solution which is consistent with Central Bank’s policy on sustainability. In order to be able to offer such a solution, however, lenders must engage with the Central Bank in advance.
- An Industry Standard Financial Statement has also been included in the revised CCMA.
Where a provision of the revised CCMA requires a lender to make changes to their systems, procedures, documents or to provide staff training, the Central Bank has said that it expects mortgage lenders to take immediate steps towards implementing the necessary changes. However, up until 31 December 2013, the Central Bank will be cognisant of issues relating to systems developments and staff training when monitoring compliance with the revised CCMA.
The importance of complying with codes issued by the Central Bank should not be underestimated.
On 31 May 2013, the High Court granted two borrowers, Anthony and Miriam Freeman, permission to challenge the validity of the appointment of a receiver by Bank of Scotland over several properties they owned on the basis that Bank of Scotland Ireland may have breached the Central Bank Code of Practice on the Transfer of Mortgages (the “Code”). The Code states that:
“A loan secured by the mortgage of residential property may not be transferred without the written consent of the borrower. When seeking consent from either an existing or a new borrower, the lender must provide a statement containing sufficient information to enable the borrower to make an informed decision.”
At the moment, the High Court has only granted the Freemans leave to challenge the appointment of a receiver, however, if this case is successful and credit institutions are deemed to have not complied with the Code, some loan management companies to whom mortgages have been transferred may not have legitimate grounds to bring cases against defaulting borrowers. The relevant challenge is expected to be brought by the Freemans against Bank of Scotland the coming weeks.