Code of Conduct on Mortgage Arrears

What is the Code of Conduct on Mortgage Arrears?

The Code of Conduct on Mortgage Arrears (“CCMA”) issued by the Central Bank sets out the manner in which banks must deal with borrowers who are either in arrears with the mortgage on their family home, or are faced with the prospect of entering mortgage arrears.

There was a new CCMA which came into effect on 1st July 2013. The objective of the CCMA is ultimately for the lender to assist the borrower in meeting his or her mortgage obligations.

The CCMA specifically applies to mortgages secured on a property that is the primary residence (family home) of the borrower – it does not apply to residential investment properties. Lenders are expected to deal sympathetically with borrowers and the CCMA explicitly recognises that each case of mortgage arrears is unique and needs to be considered on its own merits.

The CCMA is a mandatory process that lenders must engage with, as it is issued under Section 117 of the Central Bank Act 1989. The CCMA imposes the following obligations on lenders:

  • Each lender must establish an Arrears Support Unit.
  • Must draw up and implement procedures.
  • Must have in place management information systems.
  • Must train its staff
  • There are restrictions from imposing charges and/or surcharges.
  • Must have in place a Mortgage arrears Resolution Process

What is the MARP?

The Mortgage Arrears Resolution Process (“MARP”), set out in the CCMA, is a process whereby lenders and borrowers are expected to work together to come to an alternative payment arrangement when a borrower is in default of his/her mortgage repayment and has accrued arrears.

MARP applies in three instances: (1) when a borrower is in pre-arrears, (2) already in arrears or (3) when an existing alternative payment arrangement breaks down. Its aim is to provide an alternative solution to the lenders enforcing their security through taking possession of the property and subsequently selling it.

Whilst a borrower is engaged in the MARP and the process is on-going, the lender may not issue legal proceedings for possession.

Once the borrower has exited the MARP the lender must give the borrower 3 months’ notice that they will be issuing legal proceedings for possession, except where the borrower has been deemed not co-operating in which case the borrower may issue proceedings immediately.

How does the MARP work?

There are four stages to the MARP: Communication, Financial Information, Assessment and Resolution.

Once a borrower finds himself or herself in arrears with his/her mortgage payments the MARP process will begin by the lender communicating with the borrower about this.

The lender will ask the borrower to complete a Standard Financial Statement (“SFS”) form outlining the borrower’s financial position (average income and expenditure).
The lender will assess the SFS provided by the borrower and on that basis determine whether an alternative payment arrangement may be entered into and if so, what form of alternative payment arrangement is best suited to the borrower’s particular circumstances. The lender must assess the SFS in a timely manner and each case on its individual merits.

Once a suitable alternative payment arrangement has been decided on the basis of the assessment this arrangement will be put in place. Any legal proceedings for possession will be put on hold while the terms of this arrangement are respected.

There is also an appeals process for borrowers to appeal decisions of the lender; however, under the new CCMA this is not included as part of the MARP.

When does the MARP no longer apply?

The MARP does not apply in the following circumstances:

  • The borrower is deemed non co-operative.
  • The MARP comes to an end, for example if an agreed alternative payment arrangement is no longer possible.

Once the MARP no longer applies the lender may commence legal proceedings to recover possession of the mortgaged property. This can be either three months from the borrowers exiting from the MARP, or eight months from the date the arrears rose, whichever is later.

According to the CCMA a borrower can only be considered as not co-operating with the lender when:

  • The borrower fails to make full and honest disclosure of information that would have a significant impact on his/her financial situation or fails to provide information which is relevant to his/her financial situation within a given time.
  • A 3 month period elapses and the borrower has not entered into an alternative payment arrangement and has failed to meet his/her mortgage repayments or meets his/her mortgage repayments but has an arrears balance. (It is important to note that this only in cases where there has been no alternative payment arrangement entered into.)
  • A 3 month period elapses where the borrower has entered into an alternative payment arrangement and fails to meet full repayments according to the terms of the arrangement and has also failed to make contact or communicate with the lender or has made contact and communicated with the lender but has not engaged in a way which enables the lender to assess his/her circumstances.
  • A 3 month period elapses where the warning letter has been issued (in accordance with provision 28) but the actions specified therein have not been carried out. According to provision 28, prior to classifying the borrower as not co-operating, the lender must write to the borrower informing him/her that they must take specific actions in order to enable the lender to complete an assessment of the borrower’s circumstances. The lender must stipulate that the borrower has 20 business days to carry out these action to avoid being classed as not co-operating. The lender must outline the consequences for the borrower of being classified as not co-operating.

When a borrower has been classified as not co-operating, the lender must inform the borrower of the following:
a) that legal proceedings can commence immediately;
b) that the borrower is now outside of the MARP and the protections of the MARP will no longer apply;
c) other options that may be available to the borrower, such as voluntary surrender, trading down, mortgage to rent or voluntary sale and the implications of each option for the borrower and his/her mortgage loan account, including:
d) an estimate of the associated costs or charges, where known, and where it is not known, a list of the associated costs or charges;
e) the requirement to repay outstanding arrears, if this is the case;
f) the anticipated impact on the borrower’s credit rating; and
g) the importance of seeking independent advice in relation to these options;
h) the borrower’s right to appeal the lender’s decision, including that the borrower must make the appeal in writing and set out the grounds for the appeal; and
i) the borrower’s right to consult a Personal Insolvency Practitioner, notwithstanding the fact that the classification as not co-operating may impact on the borrower’s eligibility for a Personal Insolvency Arrangement.

The lender must not apply to the courts to begin legal proceedings for repossession until every reasonable effort has been made to agree an alternative payment arrangement or the borrower has been classified as not co-operating.

Where a borrower is co-operating with the lender the lender must wait for at least 3 months from the end of the MARP or 8 months from the commencement of the arrears, whichever is later, to bring legal proceedings for repossession of a borrower’s primary residence.

Where legal action to obtain an order for possession has commenced the lender must try to maintain contact with the borrower periodically and if an alternative repayment arrangement is agreed between the parties before an Order for Possession is granted, the lender must seek an Order from the Court to put the legal proceedings on hold.

It is important that if you are unable to meet the full mortgage payment amounts that you contact the lender as soon as possible and engage and co-operate with your lender to work out an alternative payment arrangement with them.

APPEALS

A lender must have an appeals process to enable a borrower to appeal in relation to a decision of the lender, including:
a) where an alternative repayment arrangement is offered by a lender and the borrower is not willing to enter into the alternative repayment arrangement;
b) where a lender declines to offer an alternative repayment arrangement to a borrower; and
c) where a lender classifies a borrower as not co-operating,

and for this purpose must establish an Appeals Board to consider and determine any such appeals submitted by borrowers.

The Appeals Board must be comprised of three of the lender’s senior personnel, who have not been involved in the borrower’s case previously. At least one member of the Appeals Board must be independent of the lender’s management team and must not be involved in lending matters, for example, an independent member of the lender’s Audit Committee or an external professional such as a solicitor, barrister, accountant or other experienced professional.

A lender must have in place a written procedure for the proper handling of appeals. At a minimum, this procedure must provide that:
a) The Appeals Board will only consider written appeals;
b) The lender must acknowledge each appeal on paper or another durable medium within five business days of the appeal being received;
c) The lender must provide the borrower with the name of one or more individuals appointed by the lender to be the borrower’s point of contact in relation to the appeal, until the Appeals Board adjudicate on the appeal;
d) The lender must provide the borrower with a regular written update on the progress of the appeal, at intervals of not greater than 20 business days;
e) The lender must consider and adjudicate on an appeal within 40 business days of having received the appeal;
f) The lender must notify the borrower on paper or another durable medium, within five business days of the completion of the consideration of an appeal, of the decision of the Appeals Board and explain the reasons for the decision and the terms of any offer being made; and
g) The lender must also inform the borrower of his/her right to refer the matter to the Financial Services Ombudsman and must provide the borrower with the contact details of that Ombudsman.

A lender must allow the borrower a reasonable period of time to consider submitting an appeal to the Appeals Board, which must be at least 20 business days from the date of notification of the decision of the lender’s ASU.

Interaction with the Personal Insolvency Act 2012

In order to be eligible to apply for a Personal Insolvency Arrangement (PIA), the borrower must have been considered to be co-operating, and have participated in the MARP for a minimum of 6 months.

For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or by email: jim.stafford@frielstafford.ie, tom.murray@frielstafford.ie

Jim Stafford and Tom Murray are authorised to act as Personal Insolvency Practitioners by the Insolvency Service of Ireland.

© Friel Stafford 2013. All rights reserved.