Banks, Mortgages, Moratorium.

Moratorium on Banks Repossessing Homes Should be Increased from 12 to 24 Months-Oireachtas Committee Report

16 Feb 2010

The current moratorium imposed on lending institutions from repossessing homes of people who have defaulted on their mortgage payments needs to be extended from 12 to 24 months, a report published today by the Oireachtas Committee on Social and Family Affairs has found.

This is one of more than twenty recommendations contained in a report which examines the high level of debt in Irish society, considers how best to protect those at risk of defaulting on mortgages and advises on how to manage high levels of personal debt caused by the economic downturn.

Committee member and report co-author Olwyn Enright TD said;
“The rapid decline in the economy and the unfortunate loss of employment has now fundamentally changed the ability of people to repay their debts. Accordingly, there must be changes in policy and practices to help people cope with this new reality.

Mortgage holders are particularly vulnerable, with an estimated 35,000 people now in arrears and repossession orders soaring by almost 100% last year. For this reason, as a first step, the Committee is recommending that the current arrangement which obliges the capitalised banks (BOI and AIB) to wait twelve months before it can initiate legal action against homeowners who fall into arrears, be extended to all the financial institutions.

However, ultimately the Committee believes that twelve months is not an adequate timeframe and advises that the Government immediately work with the banks to extend the moratorium to two years. This measure will give homeowners the much needed breathing space to try and arrange their financial affairs and will mean they won’t loose their homes.

In addition, when homeowners do encounter genuine difficulty in meeting mortgage repayments there needs to be a strong incentive for them to engage with the lender in order to reach some accommodation. For this reason we are recommending that those who do avail of the 1Financial Regulator’s Code of Practice do not have their credit rating damaged.

To inform the report, the Committee conducted extensive research and held hearings with a range of agencies including; Irish Banking Federation, Monetary Advice and Budgeting Service (MABS), Central Bank, Community Welfare Officers and Irish Financial Service Regulatory Authority.

Some of the other key recommendations of the report include:

There needs to be a radical overhaul of the Mortgage Interest Supplement Scheme2. There is currently a lack of consistency and fairness in administering the programme.
Special assistance should be provided for those who are in mortgage arrears. One such scheme, operated in Scotland, allows the State to take a financial stake in a home at risk of repossession. The State makes financial payments to the lender but the mortgage holder retains ownership.
The practice of charging penalty interest on arrears should be banned.
The Financial Regulator needs to draw up a short, readable document on the rights of mortgage holders in difficulty and the options open to them.
Where lending practices have been reckless, responsibility should not rest with the borrower but liability proportioned to the financial institution.
Utility companies should refer customers to MABS prior to disconnection.
An alternative dispute resolution system should be developed so that borrowers can avoid the costly and intimidating adversarial court system.
Those who avail of the Financial Regulator’s Code of Practice on Mortgage Arrears should not have their credit rating damaged as a result.

Committee member and report co-author Thomas Byrne TD added;
“In our analysis of best international practice we examined procedures in different countries for best coping with mortgage default. We established that possibly the most effective model is an equity sharing arrangement.

Such a system currently exists in Scotland, which incorporates the State taking a financial stake in the at-risk home. The mortgage holder still owns the home and continues to have responsibility for maintaining and insuring it. However, the Scottish government makes payments to the lender allowing the homeowner to reduce their own monthly payments.

The Committee believes this is a good approach and one that could work well in this jurisdiction.”

The report is entitled “High Level of Indebtedness in Irish Society."

During its hearings the Committee met with the Irish Banking Federation, Monetary Advice and Budgeting Service (MABS), Central Bank, Community Welfare Officers and Irish Financial Service Regulatory Authority, Free Legal Advice Centres, Mr Liam Croke, Financial Advisor and the Educational Building Society.