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 or building society) 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 (see 'Consumer protection codes' below).

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.

MABS and the Irish Banking Federation 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.

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

There are two statutory codes of conduct for mortgage lenders when dealing with mortgage arrears. They are the Financial Regulator's consumer protection code, which has been in force since 2007, and the Financial Regulator's Code of Conduct on Mortgage Arrears, which came into effect in February 2009, and was amended in February 2010.

In addition, the Irish Banking Federation has issued a formal Statement of Intent, indicating that its members will not initiate legal action against customers who engage with their lenders and keep to an agreed arrangement.

This means that the customer should talk to the lender at the earliest opportunity to agree a mutually acceptable arrangement. Once agreed, the arrangement can be implemented, and then reviewed every six months.

Financial Regulator's Consumer Protection Code

The Financial Regulator's Consumer Protection Code (pdf) applies to all home loan providers operating in Ireland. 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 it detects 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.

Financial Regulator Code of Conduct on Mortgage Arrears

The Financial Regulator Code of Conduct on Mortgage Arrears (pdf) came into effect on 27 February 2009, and an amended version (pdf) came into effect on 17 February 2010. The code builds on the Regulator's Consumer Protection Code (described above) and on a voluntary code that had been developed by the Irish Banking Federation. It applies to all mortgage lenders, not just banks. Its main requirement is that lenders must wait for a specified period from the time mortgage arrears arise before taking any legal action. Initially they had to wait at least 6 months but since 17 February 2010 they have to wait at least 12 months from the time the arrears arise.

However, the twelve-month requirement does not apply if a borrower is deliberately not engaging with the lender.

If you feel that your mortgage lender has failed to follow these codes, and if you have exhausted the lender's complaints mechanism, you can complain to the Financial Services Ombudsman.

Separately from this code, the two banks which were recapitalised by the Government - AIB and Bank of Ireland - agreed in 2009 not to start court proceedings for repossession of a principal private residence (your main home) until after 12 months of arrears, provided you continue to cooperate reasonably and honestly with the bank.

In addition, the Irish Banking Federation has formally stated that its members will not initiate legal action against customers who engage with their lenders and keep to an agreed arrangement, subject to a six-monthly review.

The Financial Regulator Code of Conduct on Mortgage Arrears applies to mortgages on principal private residences only (your main home). It requires that mortgage lenders adopt flexible procedures for the handling of arrears cases. Such procedures must be aimed at helping you as far as possible in your own particular circumstances.

The procedures that lenders must follow under the code:

A 'mortgage arrears problem' arises as soon as you fail to make a repayment on the date it is due. As soon as this happens, the lender must contact you in order to find out why the repayment has not been made and how the situation can be rectified. You and the lender can then come to an agreement about how the arrears will be paid. The arrangements that are made must take account of your individual circumstances.

If you miss a third repayment, the lender may issue a formal demand. This demand may be for the full amount due on the mortgage or for possession of the property. You must be told the following in writing:

• The total amount of arrears
• Where it applies, any excess interest that may continue to be charged and the basis on which this will be charged
• Any charges that may be payable
• The consequences of failing to respond, that is, the potential for legal proceedings and loss of your property, and an estimate of the costs to you of such proceedings .

If the arrears continue to build up, the lender may enforce the mortgage agreement but must wait 12 months from the time arrears first arise before starting legal action. Your lender must:

• Not look for repossession until every reasonable effort has been made to agree an alternative repayment schedule. However, if you do not engage with the lender, repossession may be sought.
• Notify you when it starts the enforcement of any legal action on repossession.

Your property may be repossessed either by voluntary agreement or by court order. Even if court proceedings are started, the lender must still try to maintain contact to see if an agreement on repayments can be 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.

Status of these codes

The Financial Regulator Consumer Protection Code and the Financial Regulator Code of Conduct on Mortgage Arrears are statutory codes.

The Irish Banking Federation's formal Statement of Intent is voluntary. The following are the members of the Federation who have agreed to and support the statement of intent: ACC Bank, AIB, Bank of Ireland, Bank of Scotland (Ireland), Educational Building Society, Irish Nationwide, KBC Bank Ireland, National Irish Bank Permanent TSB, and Ulster Bank.

Non-members of the Irish Banking Federation can also choose to abide by the Statement of Intent if they wish.

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

You may wish to get legal advice on your options and on what happens if the mortgage lender takes steps to repossess your home.

Future plans

Programme for Government

The Renewed Programme for Government published in October 2009 provides that the Government will "introduce new measures to protect families having difficulties with their home mortgage payments".

The programme goes on to state:

"The existing statutory Code of Conduct on Mortgage Arrears and the recently agreed protocol between the Irish Banking Federation (IBF) and the Money Advice and Budgeting Service (MABS) on debt default will be further reviewed with a view to expanding the options available for dealing with debt situations, including for example, the use by banks and lenders of more flexible mechanisms to avoid foreclosure in appropriate circumstances. These could include:

• reduced rates
• longer maturity dates
• rolling-up of outstanding interest
• bank taking equity in the house
• bank taking ownership and leasing back the property to the resident with rent payments coming off the loan.

With reference to the measures adopted in other jurisdictions, the Government will examine ways of expanding its own mortgage-support measures."

The Minister for Finance has stated that: "It is a particular priority of the Government to ensure as far as possible that difficulties in relation to mortgage arrears do not result in legal proceedings for home repossession. Home repossession should be and generally is the last resort for the lender. The preferred method of dealing with cases of arrears should be early intervention and engagement."

Mortgage Arrears and Personal Debt Expert Group

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

On 6 July 2010 the Expert Group on Mortgage Arrears and Personal Debt published its interim report. The group makes a number of recommendations, including that:

• all lenders should put in place a Mortgage Arrears Resolution Process (MARP). The MARP should include the options available (for example, payment holidays or interest only payments) and the procedures involved. Each lender should publish its MARP.
• a Standard Financial Statement (SFS) should be developed for use by all lenders and by the Money Advice and Budgeting Service (MABS). This should be used to assess a borrower's financial position and assess the best course of action.
• all lenders should establish a centralised Arrears Support Unit (ASU) to manage pre-arrears and arrears cases under the MARP.
• lenders should not apply penalty interest or arrears charges to borrowers who take part in the MARP. Lenders should also not encourage lenders to change mortgage products if it is not to the borrower's advantage and the MARP should not be used to transfer borrowers to less favourable terms.
• both lenders and borrowers are encouraged to make contact before an arrears problem develops (pre-arrears) and to work together to find a solution under MARP.
• lenders should have a dedicated section of their website for borrowers in financial difficulty, and keepingyourhome.ie should serve as the main information portal on arrears.
• the system of credit reporting in Ireland should be revised, as should the way the Financial Regulator reports mortgage arrears.
• the Mortgage Interest Supplement (MIS) scheme should be revised, including a change to the qualifying conditions that will allow you to claim MIS if your partner is in full-time employment, provided you pass a means test. The Department of Social Protection has also published a report on revising the terms of this scheme. Legislation will be required to implement changes to MIS.

It is intended that many or all of the Group's recommendations will be incorporated into the Financial Regulator's Code of Conduct on Mortgage Arrears as soon as possible. A consultation document will be published proposing new regulations in August 2010.

Cabinet committee

The Government has set up a special Cabinet committee to address the problems of personal debt and mortgage arrears. It includes the Ministers for the following departments: Finance; Justice, Equality and Law Reform; Enterprise, Trade and Innovation; and Social Protection. The committee will examine details from MABS about cases of people struggling with personal debt.

Indebtedness generally

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

The renewed Programme for Government proposes to reform debt enforcement in the light of the deliberations of the Law Reform Commission. It also proposes the regulation of debt collection agencies, a new system of personal insolvency regulations allowing for a statutory non-court-based debt settlement system, and the establishment of a central debt enforcement office to remove as many debt enforcement proceedings from the courts as possible.

An inter-Departmental Working Group on Personal Debt Management and Enforcement has been established to consider appropriate measures.

The Joint Oireachtas Committee on Social and Family Affairs has published a report entitled "High Levels of Indebtedness in Irish Society".

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.