Banks have also been told they must cut down on the amount of correspondence they can send to customers in difficulty, according to new Central Bank rules.
Banks have also been forbidden from forcing people in arrears to change from a tracker mortgage to another mortgage type.
The Central Bank announced details of the Mortgage Arrears Resolution Process (MARP) yesterday and it comes into effect on January 1. It was published as part of the Central Bank’s revised Code of Conduct on Mortgage Arrears (CCMA). The original CCMA was published in February last year.
Lenders have been directed not to impose arrears charges or surcharge interest on borrowers who are in trouble and who are co-operating with the MARP.
The rules have been introduced in light of the recommendations of the Government’s Expert Group on Mortgage Arrears and Personal Debt.
The new code will also apply to people who tell banks they could be at risk of falling into arrears.
Lenders cannot initiate more than three unsolicited communications with a borrower in a calendar month other than correspondence required by the CCMA or other regulatory requirements. The banks are also required to set up an Arrears Support Unit (ASU) to assess arrears and pre-arrears cases.
Managing director of the Irish Mortgage Corporation, Frank Conway said the new code represents a much more pragmatic approach by the authorities to assist mortgage holders who are financially vulnerable.
“Mortgage holders who are not currently in arrears but are in a high risk of becoming so are now being catered for. This is a key decision by the authorities as the approach to dealing with debt is shifting to arrears avoidance as opposed to arrears resolution.
“It is important that mortgage holders who are suffering a financial hardship are managed much earlier in the process, which up to now was not always the case, this new code is a big step in the right direction and it will benefit both lenders and mortgage holders alike.”
The Professional Insurance Brokers Association (PIBA) said, while overall the code is positive, it is disappointing the appeals process lacked independence.
Director of PIBA mortgage services, Rachel Doyle said: “Under this revised code a borrower appealing a decision is merely dealing with different people within the same institution.”
Ms Doyle welcomed the provision that lenders must look at the overall indebtedness of the borrower.
The Law Reform Commission is scheduled to deliver its final report on the issue of debt next week.