Mortgage debt and consumer protection codes

Introduction

The mortgage on your house, flat or apartment is probably the biggest and most important financial commitment that you have. If you cannot keep up your mortgage repayments, your lending institution (bank, building society or local authority) may eventually seek to repossess your home.

If you are having difficulties paying your mortgage, you should talk to the lending institution as soon as possible. Your lender must must take certain steps to deal with any problems you have in paying your mortgage. Repossessing your home should be the lender's last resort.

Lending institutions such as banks and building societies are bound by codes of conduct in relation to people who are having difficulties paying the mortgage. Local authorities operate under similar guidelines.

See 'Consumer protection codes' below for more information.

Other loans and debts

Even if you have no mortgage on your home, it could be in danger of repossession if you have other debts. If you build up other debts and are unable to repay them then the people to whom you owe money may register that debt as a 'judgment mortgage' against your home and seek to recover their money in that way (see our document on repossession).

Difficulty paying the mortgage

A residential mortgage is a loan from a lending institution to help you buy a house, flat or apartment. When you get a mortgage the lending institution gets a claim on your property. If you have, or are likely to have, a problem paying your mortgage, you should talk to the lending institution as soon as possible. Consumer protection codes provide that your lender must take certain steps to deal with any problems you have in paying your mortgage before attempting to repossess your property.

Delaying and allowing arrears of payment to build up will make the problems worse. Lending institutions do not want to repossess your home. They want you to continue your payments.

If you are in debt or starting to have financial difficulties you can get help from the Money Advice and Budgeting Service (MABS). MABS provides a free service to help you deal with your debt and make a budget based on your income. It has also published advice on mortgage arrears (pdf)

MABS and the Irish Banking Federation (IBF) have developed a joint protocol (pdf) setting out how MABS money advisers can work together with creditors to help people to address and manage debt problems, including problems with mortgage debt. There is also a guide (pdf) to how the Protocol works.

The IBF has also developed a Guide to Dealing with Mortgage Repayment Difficulties (pdf) in consultation with MABS. The Guide is available on the dedicated website helpinghomeowners.ie.

If you are having difficulty paying your mortgage because you are unemployed or are working under 30 hours per week you may be entitled to Mortgage Interest Supplement.

FLAC (the Free Legal Advice Centres) have published a useful set of guidelines on mortgage arrears (pdf).

Four important steps

As soon as you realise that you may have a problem paying your mortgage, you can start to take action to deal with the situation. A MABS adviser can help you to do this, either face-to-face or via the helpline. You can also follow the 4-step self-help path that is described in detail on the MABS website. The 4-step path can be summarised as follows:

1. Assess your situation. Make a list of all your debts. Check that each debt is in your name. Identify the debts needing immediate attention - for example, your mortgage arrears (pdf). Get in touch with the lenders immediately - preferably in writing. There are sample letters on the MABS website.
   
2. Make out a budget. List how much money is coming into your household each week (or month) and how much is going out. You can then work out how much you can afford to offer towards paying your debts and how you can best plan your spending in the future. You can get blank budget sheets and spending diaries from the MABS website or through the helpline.
   
3. Deal with the debt. Write to the lender, making an offer of the amount you can afford to pay and explaining your financial situation. The MABS website has sample letters and blank financial statements.
   
4. Organise a method of paying the agreed amount. You can do this in various ways, such as direct debit, internet banking or a MABS Budget Account.

Consumer protection codes

The Central Bank of Ireland has two statutory codes of conduct that govern how mortgage lenders should deal with mortgage arrears. The Consumer Protection Code (pdf) has been in force since 2007 and an Addendum for Retail Credit Firms and Home Reversion Firms (pdf) was published in May 2008.

The Code of Conduct on Mortgage Arrears (CCMA) came into effect in February 2009 and was amended in February 2010. Major revisions to the Code (pdf) took effect on 1 January 2011.

For people having difficulty repaying local authority loans, two pieces of legislation, along with recently issued guidelines, provide for the local authority to make arrangements to deal with the situation (see 'Local authority loans' below).

Status of these codes

The Central Bank's Consumer Protection Code and Code of Conduct on Mortgage Arrears (CCMA) are statutory codes. The CCMA is being imposed under Section 117 of the Central Bank Act 1989.

Consumer Protection Code

The Central Bank's Consumer Protection Code (pdf) applies to all home loan providers operating in the State. The code provides that the lending agency must:

• Contact you as soon as it becomes aware that your mortgage account is in arrears even if the arrears are quite small
• The lending agency must have in place a procedure for handling accounts which are in arrears.

This means that lenders are required to agree a remedial action plan with you as soon as they detect arrears starting to emerge and to try to assist you to manage your financial commitments and not allow the situation to worsen.

This Consumer Protection Code also applies to personal loans and credit cards as well as mortgages; it does not apply to loans provided by credit unions or by moneylenders.

Some provisions of the Consumer Protection Code as regards mortgages are superseded by the revised Code of Conduct on Mortgage Arrears (see below). These provisions relate to complaints handling (now replaced by the CCMA appeals process), notification to a guarantor when loan terms change and notification to a borrower when a mortgage is in arrears.

The Central Bank has published several documents dealing with the Consumer Protection Code.

Code of Conduct on Mortgage Arrears

The Code of Conduct on Mortgage Arrears (CCMA) is the main code of relevance to people whose mortgage is in arrears or in danger of slipping into arrears. The original CCMA came into effect in February 2009 and required lenders to wait 6 months before taking legal action about mortgages in arrears. This was extended to 12 months in February 2010 (the 12-month requirement does not apply if a borrower is deliberately not engaging with the lender).

The Expert Group on Mortgage Arrears and Personal Debt reported in August 2010. Its recommendations included extensive changes to the CCMA. The code was revised in the light of these recommendations and the revised code (pdf) came into force on 1 January 2011.

(Some mortgage lenders have signed up to one of the Expert Group's recommendations that was not incorporated in the Code. The Group recommended that a Deferred Interest Scheme should be introduced for borrowers who can pay at least 66% of the interest. This would give borrowers up to 5 years to get back on their feet. Six such schemes are already in operation and a further 4 are to be implemented by the end of 2011.)

The CCMA builds on the Consumer Protection Code and on a voluntary code developed by the Irish Banking Federation. It applies to all mortgage lenders operating in the State, apart from credit unions.

If you feel that your mortgage lender has failed to follow either of these codes, and if you have exhausted the appeals process, you can complain to the Financial Services Ombudsman.

The Central Bank has published a booklet for consumers 'Mortgage Arrears – A Consumer Guide to Dealing with your Lender' along with a set of FAQs.

The Free Legal Advice Centres (FLAC) have published a guide to the revised CCMA (pdf).

Scope of revised Code of Conduct on Mortgage Arrears

The CCMA applies to mortgages on primary residences only. The revised Code defines primary residence to include 'a residential property in this State which is the only residential property owned by the borrower' as well as the more common definition of 'the residential property which the borrower occupies as his/her primary residence in this State' (your main home).

The purpose of this wider definition is to apply the protections of the CCMA to people who are trying to maximise their income to help pay the mortgage on their main residence/home, whether or not they actually live in it.

The revised Code now also covers borrowers in pre-arrears. It defines pre-arrears as follows: 'A pre-arrears case arises where the borrower contacts the lender to inform them that he/she is in danger of going into financial difficulties and/or is concerned about going into mortgage arrears'.

The CCMA requires mortgage lenders to adopt specific procedures when dealing with borrowers experiencing arrears and financial difficulties. Such procedures must be aimed at helping you as far as possible in your own particular circumstances.

Requirements of revised Code of Conduct on Mortgage Arrears

The Code sets out the framework that lenders must use when dealing with borrowers in mortgage arrears or in pre-arrears. It requires lenders to handle all such cases sympathetically and positively, with the objective at all times of helping people to meet their mortgage obligations.

Under the revised CCMA, lenders must set up the following:

• A Mortgage Arrears Resolution Process (MARP) to be used when dealing with arrears and pre-arrears customers. The 5 steps for the MARP are covered in detail below. They are: communication; financial information; assessment; resolution and appeals.
• An Arrears Support Unit (ASU) to assess arrears and pre-arrears cases
• An internal Appeals Board to consider appeals from borrowers in relation to ASU decisions and the lender’s treatment of the borrower’s case under the MARP. This appeals process replaces the complaints process under the Consumer Protection Code

Lenders must also:

• Ensure that communications with borrowers are presented in a clear and consumer-friendly manner
• Make an information booklet available to borrowers in arrears (or pre-arrears) including details on the MARP, relevant contact points for arrears issues and details of websites with mortgage arrears information, such as mabs.ie and keepingyourhome.ie
• Provide a dedicated section on their website for borrowers who are in or facing financial difficulties. This section must include the above booklet and links to the above websites.

Lenders must not:

• Initiate more than 3 unsolicited communications with a borrower, by whatever means, in a calendar month other than correspondence required by the CCMA or other regulatory requirements
• Require a borrower to change from an existing tracker mortgage to another mortgage type, as part of an alternative arrangement offered to the borrower in arrears or pre-arrears.

Mortgage Arrears Resolution Process (MARP)

Communication

A mortgage arrears problem arises as soon as you fail to make a full repayment on the date it is due.

If the arrears remain outstanding 31 days from this date, the lender must inform you in writing of the status of the mortgage account. This letter must include full details of the payment(s) missed and the total amount now in arrears. It must also explain that your arrears are now being dealt with under the MARP; the importance of cooperating with the lender; the consequences of non-cooperation; and the impact of missed repayments/repossession on your credit rating.

The lender must also send you the information booklet described above. (You must also get this if you are in pre-arrears.)

For as long as you are in arrears, the lender must give you a written update of the status of your account every 3 months.

If an alternative repayment arrangement has not been set up, and you miss a third repayment (full or partial), the lender must tell you the following in writing:

• The potential for legal proceedings and loss of your property, and an estimate of the costs to you of such proceedings
• The importance of taking independent advice from MABS or an appropriate alternative
• That even if your property is sold, you will remain liable for any outstanding debt, including any accrued interest, charges, legal, selling and other related costs

Financial information

Lenders must provide a standard financial statement to obtain financial information from a borrower in arrears or in pre-arrears, so that they can assess your financial position and identify the best course of action. The Central Bank has developed an industry standard format (pdf) for the standard financial statement (SFS). With effect from 1 July 2011, all lenders must use this SFS. The Central Bank, together with MABS, has also developed a consumer guide (pdf) to completing an SFS.

When providing the financial statement, the lender must ensure that you understand the MARP process. They must tell you about the availability of independent advice (from MABS, for example) to help in completing the standard financial statement.

The lender must pass the completed standard financial statement to its Arrears Support Unit (ASU) for assessment.

Assessment

The lender’s ASU must assess the completed standard financial statement and examine your case on its individual merits. The ASU must base its assessment of your case on your full circumstances. These include your personal circumstances; overall indebtedness; information provided in the standard financial statement; current repayment capacity; and previous payment history.

Resolution

The lender must explore all options for alternative repayment arrangements. These options must include:

• An interest-only arrangement for a specified period
• An arrangement to pay interest and part of the normal capital element for a specified period
• Deferring payment of all or part of the instalment repayment for a period
• Extending the term of the mortgage
• Changing the type of the mortgage, except in the case of tracker mortgages
• Capitalising the arrears and interest, and
• Any voluntary scheme to which the lender has signed up, e.g. a Deferred Interest Scheme

The lender must not require you to change from an existing tracker mortgage to another mortgage type as part of any alternative arrangement being offered.

When the lender is offering an alternative repayment arrangement, they must give you a clear written explanation of the arrangement. As well as the basic details of the new repayment amount and the term of the arrangement, the lender must explain its impact on the mortgage term, the balance outstanding and the existing arrears, if any.

The lender must also give details of: how interest will be applied to your mortgage loan account as a result of the arrangement; how the arrangement will be reported to the Irish Credit Bureau and the impact of this on your credit rating; and information on your right to appeal the lender’s decision, including how to submit an appeal.

The lender must also advise you to take appropriate independent legal and/or financial advice. The lender must monitor the arrangement on an ongoing basis and formally review its appropriateness for you at least every 6 months. This review must include checking with you whether your circumstances have changed since the start of the arrangement or since the last review.

If an alternative arrangement is not agreed

It may not be possible for you and your lender to agree on an alternative repayment. If the lender is not willing to offer you an alternative repayment arrangement, they must give the reasons in writing. If they do offer an arrangement, you may choose not to accept it. In both of these cases, the lender must inform you in writing about other options, including voluntary surrender, trading down or voluntary sale, and the implications for you of each option. They must also inform you of your right to make an appeal to their Appeals Board about the ASU’s decision, the lender’s treatment of your case under the MARP, or their compliance with the requirements of the Code.

The lender must also inform you that the 12-month moratorium on taking legal action will no longer apply to your case if you do not make an appeal.

If you breach an alternative arrangement

If you cease to adhere to the terms of an alternative repayment arrangement, the lender’s Arrears Support Unit must formally review your case, including the standard financial statement, immediately.

Appeals

The lender’s Appeals Board will consider any appeals that you submit and will independently review the ASU’s decision, the lender’s treatment of your case under the MARP and the lender’s compliance with the requirements of the Code.

The lender must allow you a reasonable period to consider submitting an appeal. This must be at least 4 weeks from the date you receive notification of the ASU’s decision.

The Appeals Board will be made up of three of the lender’s senior personnel who have not yet been involved in your case. At least one member of the Appeals Board must be independent of the management team and must not be involved in lending matters.

There must be a written procedure for handling appeals, to include:

• Only written appeals will be considered
• Appeals will be acknowledged in writing within a week of being received
• The lender must give you the name of one or more people who will be your point of contact in relation to the complaint until the Appeals Board has ruled on it
• The lender must give you written updates on the progress of the appeal at 4-weekly intervals or more often
• The appeal must be decided within 8 weeks of being received. The lender must write to you within a week of this, to convey the decision of the Appeals Board and explain the terms of any offer being made. The lender must also inform you of your right to refer the matter to the Financial Services Ombudsman and must give you that Ombudsman’s contact details.

Repossession proceedings

The lender must not apply to the courts to commence legal action for repossession of your property until every reasonable effort has been made to agree an alternative arrangement. If you are cooperating with the lender, they must wait at least 12 months from the date your arrears were classified as a MARP case (31 days after the first missed repayment) before applying to the courts.

When a lender is calculating the 12-month period, it must exclude any period during which you are complying with the terms of an alternative repayment arrangement, appealing to the Appeals Board or complaining to the Financial Services Ombudsman under the Code. It must also exclude the period during which you can consider making an appeal.

For pre-arrears cases, the 12-month period must exclude the period between your first contact about the pre-arrears situation and the setting up of an alternative repayment arrangement.

The 12-month period does not apply if you do not cooperate with the lender; or if you perpetrate a fraud on the lender; or if there is a breach of contract by you other than the existence of arrears.

The lender must notify you in writing before it applies to the Courts to start any legal action on repossession.

Your property may be repossessed either by voluntary agreement or by court order - see our document on repossession. Even if court proceedings are started, the lender must still try to maintain contact with you to seek an agreement on repayments, and must put legal proceedings on hold if agreement is reached.

The lender must explain to you that, if the property is sold and the sale price does not cover the amount you owe, you are still liable for the rest of the amount you owe.

If your property is repossessed and sold, the lender must write to you promptly with the following information:

• Balance outstanding on your mortgage loan account
• Details and amount of any costs arising from the disposal which have been added to the account
• Interest rate to be charged on the remaining balance

Local authority loans

Section 11 of the Housing (Miscellaneous Provisions) Act 1992 provides that the local authority may make such monetary arrangements with you as it considers equitable to take account of your particular circumstances. In effect, this means that, if you are having problems making your repayments, you should approach the local authority to see if you can make an arrangement to facilitate you paying over a longer term or to restructure the repayments in some other way. Guidelines have been issued to local authorities on how to deal with such cases. These are based on the Central Bank's Code of Conduct on Mortgage Arrears, described above.

The Housing (Miscellaneous Provisions) Act 2009 provides that where you owe money to a local authority either for rent or loan repayments and the local authority is satisfied that you would otherwise suffer undue hardship, it may make an arrangement with you to repay by instalments. This section (Section 34) is in effect with respect of loan repayments since 14 June 2010 but not in respect of rent.

Legal advice

You may wish to get legal advice on your options and on what happens if the mortgage lender takes steps to repossess your home. The Free Legal Advice Centres (FLAC) provide free legal advice from a nationwide network of voluntary advice centes, some of which are based in Citizens Information Centres. The Legal Aid Board also provides legal advice, but there is a means test for this. If you are threatened with repossession, you may be able to get free legal representation from New Beginning, a voluntary service which aims to represent people in this situation.

See 'Where to apply' below for contact details for these organisations.

Where to apply

Find your nearest MABS office or ring the helpline at Lo-call 1890 283 438 (9am - 8pm, Monday - Friday) or email: helpline@mabs.ie

To access free legal advice, you can ring the FLAC helpline at Lo-call 1890 350 250 (9.30 am - 5.30 pm, Monday - Friday). They can tell you where your nearest Free Legal Advice centre is located.

You may also be able to access legal advice from the Legal Aid Board, if you fulfil the criteria.

You can find contact details for New Beginning on their website.

Further information

Expert Group on Mortgage Arrears and Personal Debt

A group of experts was established in February 2010 to work with the Government on its response to the issue of indebtedness.

In November 2010 the Expert Group on Mortgage Arrears and Personal Debt published its final report (pdf), building on an interim report of July 2010. Many of the recommendations have been incorporated into the revised Code of Conduct on Mortgage Arrears, described in detail above.

The remaining additional recommendations of the Expert Group are listed in the table below, along with developments and proposals to date, including the recommendations of an InterDepartmental Mortgage Arrears Working Group.

InterDepartmental Mortgage Arrears Working Group

An InterDepartmental Mortgage Arrears Working Group, in a report (pdf) dated 30 September 2011, dealt with most of the remaining recommendations of the Expert Group. These responses are summarised under “Developments and proposals” in the table below.

In addition, the Group recommends the establishment of an independent mortgage support and advice function, operating in regional “mortgage support clusters”. This function would be linked with MABS but the Group recommends that it be funded by mortgage lenders.

Indebtedness generally

The Law Reform Commission has published a report on Personal Debt Management and Debt Enforcement (pdf). Its recommendations include several possible changes to the law on the enforcement of debt.

The Civil Law (Miscellaneous Provisions) Act 2011 (Section 30) (pdf) updates some of the rules on bankruptcy. Subsection 30(g) of the Act implements Law Reform Commission recommendations by providing:

• For the automatic discharge of a bankruptcy after 12 years and
• For a bankrupt to apply for a discharge after 5 years.

This subsection of the Act came into force on 10 October 2011.