While the level of new mortgage arrears is reducing the existing level of personal debt needs to be addressed and the Central Bank recently announced that it expects the six main banks to tackle 50% of arrears by the end of December 2013 with the balance finished by 2014.
The Central Bank’s statutory Code of Conduct on Mortgage Arrears (CCMA) outlines a framework that lenders must use when dealing with borrowers who are in mortgage arrears or at risk of falling into arrears. The Central Bank is in the process of amending this code to allow the earlier sale of distressed assets and to force the Banks to make long terms arrangements for arrears customers. Under the CCMA the Central Bank introduced a Mortgage Arrears Resolution Process (MARP) and there are five steps lenders must take under this process: communication; financial information; assessment; resolution and appeals.
If you, as a mortgage holder, miss a mortgage repayment, in part or full, on the date it is due, the lender is obliged to contact you in writing if the repayment is outstanding for 31 days. The lender should detail the full amount of arrears, let you know that it is being dealt with under MARP, the importance of liaising with your lender, and the impact it will have on your credit rating. The lender must keep you updated on existing and future arrears.
Lenders must provide you with a standard financial statement (SFS) so that they can obtain financial information from you and assess your situation. The lender then sends your completed financial statement to an Arrears Support Unit.
The Arrears Support Unit will assess the standard financial statement taking into account your personal circumstances such as the level of indebtedness, the information in the SFS, your capacity to repay and your payment history.
The lender must look into alternative repayments such as an interest-only arrangement, deferring payment, extending your mortgage and so on. Schemes have been put in place such as the national mortgage-to-rent scheme and Deferred Interest Schemes. “Trade-down” or “split” mortgages may also be an option for some people.
You may appeal a decision of the Appeals Support Unit within 20 working days to the independent lender’s Appeals Board, which would review the ASU’s decision, the lenders treatment of your case under MARP and whether the lender complied with CCMA.
A recent High Court decision ruled that because the lender had not complied with the Code of Conduct they were not entitled to take possession of a house.
It would be hoped that a similar approach would be taken by the Courts when dealing with Personal Insolvency Arrangements under the new Insolvency Act.
Personal Insolvency Act
In recent articles we have discussed the Personal Insolvency Act 2012, which has a number of mechanisms to deal with varying debt levels for those who simply cannot afford to meet repayments while having a reasonable standard of living.
New arrangements include:
A Debt Settlement Arrangement (DSA) will cover loans with two or more creditors in the amount of €20,000 or more. The borrower will have to pay off a certain amount for up to 5 years and the balance will then be written off.
A Personal Insolvency Arrangement (PIA) will apply specifically to mortgage holders for secured and unsecured debts of €20,000 to €3million. 65% of the lenders must be in agreement for some of the debt to be written down.
Personal Insolvency Practitioner
A key enabler in the system, the personal insolvency practitioner (PIP), will make the proposal on behalf of the borrower provided the borrower themselves satisfy a number of criteria – such as they must be living in the State for a year before the date of application or domiciled here. The PIP will also verify and certify a financial statement prepared by the borrower confirming their financial position.
The Insolvency Service
The body set up to manage the system, the ISI (Insolvency Service of Ireland) will licence the Personal insolvency practitioners, maintain a register of debtors, and manage the various arrangements. The PIP will form the link between the debtor, the Insolvency Service, the creditors and the Courts. The critical element that will have to be assessed in coming to an agreement will be the management of the 65% vote to secure agreement for the debt settlement or personal insolvency arrangement.
The new Insolvency Service hopes to begin accepting applications from borrowers seeking debt relief in June of this year.
Now is the time to prepare the necessary paperwork to be ready for the start-up of this new Regime.