Strict guidelines in mortgage arrears code

The new code of conduct on mortgage arrears contains strict new guidelines on how banks communicate with distressed customers and how tracker mortgages in arrears are treated.

The Central Bank has been in talks with different lobby groups over the past few months in an effort to come up with a code that was fit for purpose in view of the escalating mortgage crisis.

If a bank proves that a customer is not co-operating, then that customer is not protected by the code and legal proceedings for repossession can start immediately.

The code is aimed at giving greater certainty to customer that are co-operating with their bank.

According to clause 14, a bank must outline very clearly what sort of behaviour constitutes cooperation and what are the implications for non-co-operation.

There is a huge incentive for banks to switch customers who are currently on tracker mortgages to a different type of mortgage if they fall into arrears. Tracker mortgages are mostly loss making.

According to the code: “In the case of an existing tracker mortgage, if, following consideration of the options in accordance with Provision 39, in conjunction with Provision 41, the lender concludes that none of the option(s) that would allow the borrower to retain his/her tracker interest rate is/are appropriate and sustainable for the borrower’s individual circumstances, the lender may offer the borrower an alternative repayment arrangement which requires the borrower to change from an existing tracker mortgage to another mortgage type, if that alternative repayment arrangement: a) is affordable for the borrower, and b) is a long-term sustainable solution which is consistent with Central Bank of Ireland policy on sustainability.”

There has been an increase in the number of confidentiality agreements between banks and customers whose accounts have been restructured. The code says these confidentiality agreements have to be fair and the restructuring terms have to be sustainable.

Under Central Bank targets, the banks must have offers in place for sustainable solutions to 20% of its customers in arrears by the end of June with the balance by the end of the year.

Then over the course of 2014, the banks must put the restructuring terms in place.

Constantin Gurdgiev from the Irish Mortgage Holders Organisation said it is not satisfactory that the banks decide what is a sustainable solution.

Moreover, if a bank decides that a customer cannot meet the terms of a sustainable solution and that customer appeals the decision, then it is the bank that presides over that appeal.

Mr Gurdgiev says this process should be handed over to an independent adjudicator.