However, instead of piling on the pressure, the “it’s good to talk” ethos behind the code is designed to make it easier for broke borrowers to face up to their mounting debts.
The mandatory code, drawn up by the Central Bank and Financial Regulator, has been published in draft form for a consultation period, with all interested parties invited to submit their views by September 3.
It builds on an existing code brought in last year and strengthened earlier this year, which introduced the 12-month moratorium on lenders commencing repossession proceedings.
The proposed changes aim to keep repossessions further at bay by requiring banks and building societies to begin negotiations with financially stressed borrowers before they get into arrears.
They would have to set up a five-step Mortgage Arrears Resolution Process (MARP) to handle both arrears and “pre-arrears“, with a strong emphasis on communication throughout.
Lenders should communicate “promptly and clearly” with the borrower and handle genuine arrears cases “positively and sympathetically” the code says.
They would also have to explore alternative repayment arrangements and allow the lender exhaust an appeals process before starting a countdown on the 12-month period.
However, it doesn’t want the lenders talking too much: it also proposes limiting the number of times they contact a defaulting borrower to three unsolicited communications in any given month.
“There have been reports that the level of contact by some lenders with borrowers in arrears is excessive,” it says.
There are complaints that repeated calls and letters only create stress without contributing to a solution.
The MARP would include information booklets for all borrowers, setting out “in a clear and consumer friendly manner” all the processes, alternative repayment arrangements and internal and external supports available to those who have difficulties making their repayments.
In return for this new pro-active approach, borrowers at risk of falling into arrears or already behind in their repayments will be expected to remain in communication with their lender and be honest about their financial situation.
Among other issues addressed in the code is the need for a clear definition of what a “primary residence” is, as there is confusion over whether a mortgage holder who rents out their house and moves in with their parents to make some income loses the protections normally afforded the home.
It also wants a standardised definition of when arrears begin – whether it is on the day a repayment is missed, anytime in the month a repayment is due or 30 days from a missed repayment.
All the main political parties welcomed the code yesterday, but said there were further measures that could be taken.
Fine Gael housing spokesman Terence Flanagan said an independent body should be involved in working out alternative repayment arrangements.