Mortgage holders in arrears deserve ‘fresh start’
The regulator warned, however, that the introduction of a debt forgiveness scheme for mortgage holders in arrears would pose “grave difficulties”.
Addressing the Association of Compliance Officers in Ireland in UCC, Mr Elderfield went on to warn any such scheme would create perverse incentives and make the arrears problem worse by encouraging some borrowers to stop making payments.
Mr Elderfield said “reform of our bankruptcy laws and procedures is necessary, overdue and now urgent”.
He said the imminent final report of the Law Reform Commission on Personal Debt Management and Debt Enforcement is expected to lay the foundations for the redesign of the personal insolvency process, including the development of a non-judicial debt settlement system.
“Reform of the current bankruptcy regime to a non-judicial procedure could, for example, allow borrowers to earn a fresh start by discharging their debt over a reasonable period of time,” he said.
Mr Elderfield said no jurisdiction simply provides for debt forgiveness for customers in arrears. He promised the reforms being developed by the Expert Group on Mortgage Arrears will help to deliver a better process of resolving arrears, immediate relief from penalty charges, pragmatic arrangements to help borrowers stay in their home, and appropriate assistance to those borrowers who have unsustainable mortgages.
He said one conclusion of the Expert Group is that some mortgages are simply unsustainable for some borrowers.
“The amount of debt is too great to make it realistic to work through the problem for some borrowers, even with forbearance and rescheduling improved. We heard this not just from the financial institutions who gave evidence to us, but from consumer groups and government agencies. The difficult message from everyone was that, in some cases, it is better to look at the alternatives such as selling the house, voluntary surrender or social housing.
“Two important conclusions flow from this. First, this may result in an increased demand for social housing support at a time when housing need is already high and rising, and, the level of resources available is under greater pressure than ever.
“Second, where voluntary surrender does occur, borrowers are likely to face a shortfall as a result of the sale of the house and therefore a continuing debt.”
Mr Elderfield said his message to borrowers who are in arrears, or think they are at risk, is to contact their bank as soon as possible.
