Code of Practice on Mortgage Arrears

• General Principles
• Avoiding a Mortgage arrears problem
• Handling a Mortgage arrears problem
• Addressing a Mortgage arrears problem
• Resorting to repossession proceedings

General Principles

(a) This Code of Practice on Mortgage Arrears has been voluntarily developed by member banks of the Irish Bankers' Federation (IBF) and member institutions of the Irish Mortgage and Savings Association (IMSA) with regard to the provision of finance for the primary residence. This Code represents a framework within which these lenders agree to operate, with due regard to the fact that each lender adopts a different competitive approach to mortgage lending and each case of mortgage arrears is unique and needs to be treated differently. IBF and IMSA mortgage lenders agree to adopt flexible procedures for the handling of arrears cases. Such procedures are aimed at assisting the borrower as far as possible in his/her particular circumstances.

(b) This Code represents what the lender will endeavour to do in normal circumstances. However, the lender reserves its right to enforce the mortgage in circumstances where application of this Code is not appropriate, such as in the case of fraud or breach of contract other than the existence of arrears.

(c) This Code does not relieve the borrower of his/her contractual duties, except where agreed by the lender.

(d) This Code recognises in full the provisions of the Consumer Credit Act, 1995.

Avoiding a Mortgage arrears problem

(a) A mortgage arrears problem arises as soon as the borrower fails to make a mortgage repayment by the due date. The primary responsibility lies with the borrower to advise the lender of any problems with repayments. In this way the problem may be speedily rectified at this stage through prompt action by the borrower and the lender alike. Alternatively, it can be compounded through the borrower's failure to make subsequent mortgage repayments. As soon as an arrears situation develops, the lender will communicate promptly and clearly with the borrower to establish in the first instance why the repayment schedule has not been adhered to and, secondly, how the situation may be rectified.

(b) This Code recognises that it is in the interests of both the lender and the borrower to address a 'missed payment situation' as speedily and as effectively as circumstances allow. Failure to do so could give rise to a more serious arrears problem with negative consequences for both parties: for the lender, amongst other things greater difficulty in normalising the repayment situation; for the borrower, accumulating arrears that will affect his/her credit rating and give rise to the risk of losing his/her home.

Handling a Mortgage arrears problem

(a) Where action taken under Section 2 above is unsuccessful - for whatever reason - and the arrears situation continues, the lender will continue in its endeavours to make contact with the borrower. This can be by way of further correspondence, telephone contact or a meeting with the borrower.

(b) Once contact has been established, and assuming co-operation from the borrower, a plan for clearing the mortgage arrears can be developed that is consistent with the interests of both the lender and the borrower. In this regard, all viable options open to the borrower will be examined during which consideration will be given to his/her repayment capacity, previous payment history and the equity remaining in the property.

(c) If a third repayment is missed, the lender may issue a formal demand. With the issue of a formal demand for either the full amount due on foot of the mortgage or for possession of the property, the borrower will have been advised in writing of the following: (i) the total amount of arrears; (ii) where applicable, any excess interest (expressed as a rate or an amount) that may continue to be charged and the basis on which this will be charged; and/or any charges that may be payable (the basis for which will have been detailed in the original contract documentation); (iii) advice regarding the consequences of failing to respond - namely, the potential for proceedings and loss of his/her property -together with an estimate of the costs to the borrower of such proceedings.

(d) Where the arrears situation persists, the lender reserves the right to enforce the mortgage agreement.

Addressing a Mortgage arrears problem

Lenders recognise the need to distinguish between borrowers who are genuinely unable to pay -because of changed circumstances - and those who could pay some/all of the arrears but will not. All genuine cases will be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his/her obligations. In addressing a mortgage arrears problem, the following considerations will apply.

(a) As each arrears situation is different, the lender will examine each on its individual merits and the outcome is very likely to differ as a result.

(b) The lender will take into consideration the borrower's overall indebtedness in establishing his/her ability to repay. This will include full details of household Income and Expenditure, as advised by the borrower.

(c) The lender will explore with the borrower one or more of the following alternative repayment measures. The appropriateness of these measures will be determined by the factors of each individual arrears case. The borrower should be advised to take appropriate independent advice.

• An arrangement on arrears could be entered into whereby the amount of monthly repayment may be changed, as appropriate, to help address the arrears situation.
• Deferring payment of all or part of the instalment repayment for a period might be appropriate where, for example, there is a temporary shortfall of income.
• Extending the term of the mortgage could be considered in the case of a repayment loan -although this may not make a significant difference to the monthly repayments.
• Changing the type of the mortgage might be appropriate if this could give rise to a reduction in the level of monthly mortgage outgoings (i.e. mortgage and related assurance payments)
• Capitalising the arrears and interest could arise where there is insufficient capacity over the short term to clear the arrears but where repayment capacity exists to repay the capitalised balance over the remaining term of the mortgage. [This measure will be considered only where a pattern of repayment has been established and where sufficient equity exists.]

(d) Whichever of the options outlined in (c) might be pursued, the lender will provide the borrower with a clear explanation of the alternative repayment arrangement that is being agreed, together with details of any additional interest or administration charges that may arise.

(e) The lender will continue to monitor the repayment arrangement. To this end, the borrower will be advised of the relevant contact point.

(f) The lender will advise the borrower that it is in his/her own interests to ensure that his/her income is being maximised and that a budgeted approach to expenditure is maintained. Where circumstances warrant it, consideration will be given to referring the borrower for guidance to his/her local Money Advice and Budgeting Service (MABS) or appropriate alternative.

(g) At the borrower's request and with the borrower's written consent, the lender will liaise with a third party nominated by the borrower.

(h) Where appropriate, the borrower will be made aware of other options such as trading down, voluntary sale or alternative refinancing through another lender.

Resorting to repossession proceedings

(a) Under normal circumstances, the lender will not seek repossession of the property until every reasonable effort has been made to agree an alternative repayment schedule with the borrower or his/her representative.

(b) Repossession of a property may come about by voluntary agreement with the lender, through abandonment of the property by the borrower without notifying the lender, or by Court Order.

(c) Even where action is being taken to obtain an Order for Repossession, the lender will endeavour to maintain contact with the borrower or his/her representative. If agreement can be reached, the lender will enter into repayment arrangements and may put a hold on proceedings in the event of agreed regular repayments being maintained.

(d) Irrespective of how the property is repossessed and disposed of, the borrower will remain liable for the outstanding debt, including any accrued interest, charges, , selling and other related costs.