Mortgage arrears code good news for investors, says S&P

The new code for mortgage arrears is good news for investors in residential mortgage-backed securities, or bond holders, according to the ratings agency Standard & Poor’s.

In an analysis of the new regulations introduced by the Central Bank on Jul 1, Standard & Poor’s (S&P) said it expected to see an increase in repossessions.

“In our view, the code could potentially slow the increase in mortgage arrears in Ireland, and may allow lenders to start repossession proceedings sooner.

“We view this as credit positive for the senior notes in outstanding residential mortgage-backed securities, and broadly neutral for junior residential mortgage-backed securities notes.

“However, we don’t foresee any immediate impact on our Irish residential mortgage-backed securities ratings,” a note from the ratings agency said.

According to S&P’s analysis, by allowing banks to repossess homes quicker, borrowers won’t dither and thus will engage with banks to resolve their outstanding payments.

“Importantly, the revised code potentially lowers the grace period before lenders can start repossession proceedings.

“The clarifications around the definition of uncooperative borrowers, along with the warning letter which borrowers will now receive before the lender classifies them as “not co-operating”, could also prompt faster responses from borrowers, accelerating the arrears resolution process.

“In some cases, this could also lead to speedier repossessions,” the note said.

The S&P analysis comes the day before the Seanad is due to pass the Land and Conveyancing Law Reform Bill 2013 which will overturn Justice Dunne’s judgement and strengthen the powers of the banks to evict home owners.

David Hall of the home owners group New Beginnings said the assessment by S&P shows the new code of conduct for what it really is, a charter for banks to repossess homes.

“Some politicians had the neck to stand up in the parliament and say that this (code) was good for homeowners. It is clearly only in the banks’ interests,” he said.

Mr Hall said that the code and the overturning of the Dunne ruling hand two major weapons to the banks to repossess homes.