The Central Bank of Ireland (CBI) recently published its latest residential mortgage arrears and repossession figures, which unfortunately revealed that arrears have significantly grown since 2009.
At the end of September 2009, principal dwelling house (PDH) accounts in arrears of more than 90 days represented 3.3 per cent of total PDH accounts. The outstanding combined balance for these mortgages was €4.8 billion, or 4.1 per cent of total account balances.
By comparison, as of the end of June 2013, mortgages in this arrears category had quadrupled to €18.6 billion – 19 per cent of total PDH account balances.
Interestingly, the percentage of Irish PDH mortgages in difficulty in 2009 (4.1 per cent) was similar to that of the UK and US, which stood at just under 4 per cent. Worryingly for Ireland is that by the end of March 2013, distressed PDH mortgages in the UK and US had declined and accounted for 2.4 per cent and 2.1 per cent respectively of total account balances.
We can see from these statistics that the problem of mortgage arrears is getting significantly worse in Ireland. The one piece of positive news from the CBI report is that the numbers of new accounts falling into arrears is declining. This may be due to an improvement in the labour market, or that borrowers and lenders are engaging earlier and addressing the issues by restructuring to prevent the account from falling into arrears.
On the other hand, there may not be long-term sustainable solutions for many of these homeowners in arrears other than the option of voluntarily surrendering the property back to the lender or the lender taking the necessary legal steps available to them to take possession of the property. This allows the matter to reach a conclusion, rather than lingering on for years whilst the problem becomes dramatically worse.
The issue of increasing arrears and a lack of bank-borrower engagement was not helped by the outcome of the case of Start Mortgages Limited and Ors V Gunn and Ors [2011] IEHC 275, where Judge Dunne confirmed that the remedy available to lending institutions to apply to court summarily for possession of registered land had been repealed unless the mortgage and letter calling in the loan pre-dated the 1st December 2009.
The legislation that rectified this position did not become law until the 24th July 2013 (Land and Conveyancing Law Reform Act 2013). This meant that until then, lenders could not apply to court for possession of registered property in the usual way for in excess of two years. This resulted in a number of cases where there was little or no engagement by the borrower, despite repeated requests by the lender. This left the situation in somewhat of a limbo whilst the arrears problem grew worse.
The passing of the Act has not seen a rush to court by lenders to apply for possession of registered property, but rather the opposite, as lenders strive to reach alternative solutions with borrowers. The revised Code of Conduct on Mortgage Arrears (CCMA) which came into effect on the 1st July 2013 (three weeks before the Act did) helped to drive the appetite for sustainable arrears solutions.
It is clear that the Central Bank has brought in codes of conduct to ensure that borrowers are treated fairly and given every opportunity to hold on to their family homes and to come to alternative, sustainable long-term arrangements with their lenders. This, of course, is necessary to protect these families, many of whom fell foul of the recession through unemployment, negative equity and perhaps over-borrowing in the Celtic Tiger era.
However, the rising number of accounts in arrears includes many cases where borrowers are unwilling to engage on any level with their lender, or are unable to offer any sort of alternative payment arrangement to their bank. The lenders have been restrained from bringing those cases to a conclusion due to a limited appetite by the borrowers to voluntarily surrender their properties and until the Act was passed in July, there was no legal remedy to take possession summarily.
Now that the lenders can proceed to court in a direct way, they are facing further challenges in light of certain provisions in the revised CCMA. Additional letters must be sent to all borrowers, including those who have failed to respond to any correspondence issued under the previous two codes. Once lenders have fully complied with their obligations under the revised CCMA, it would appear to me that finally a clear distinction will be drawn between the two categories of borrowers i.e. those who are co-operating and those who are not.
Therefore, it should allow lenders in early course to address the issues with uncooperative borrowers and bring at least those cases to a conclusion for all concerned.
This article was created by Gráinne Dever, Partner and appeared originally as a guest blog post for HML and can be viewed at http://www.hml.ie/latest-thinking/2013/10/guest-blog-gr%C3%A1inne-dever-lavelle-coleman/
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