Resolving The Mortgage Arrears Crisis

On 13 March 2013, the Government issued its statement on "Resolving the Mortgage Arrears Crisis". This coincided with the publication, by the Central Bank of Ireland (the "Central Bank"), of: (a) a "Review of the Code of Conduct on Mortgage Arrears" (Consultation Paper CP 63, which will lead to a revised Code of Conduct on Mortgage Arrears (the "New CCMA")) and (b) its "Mortgage Arrears Resolution Targets".

These developments follow various steps taken by the Government and the Central Bank in the areas of mortgage arrears and bankruptcy, including a revision of the previous Code of Conduct on Mortgage Arrears (the "CCMA") in January 2011, the publication of the report of the Inter-Departmental Mortgage Arrears Working Group (the "Keane Report") in October 2011, the signing into law of the Personal Insolvency Act 2012 (the "PIA 2012") on 26 December 2012, the establishment of the Insolvency Service of Ireland (the "ISI") on 1 March 2013 and the development by the leading banks (in conjunction with the Central Bank) of Mortgage Arrears Resolution Strategies ("MARS").

Statistics published by the Central Bank on 7 March 2013 indicated that, of the 792,096 mortgages over primary residences in Ireland, 143,851 were in arrears on 31 December 2012, with 94,488 (11.9%) being over 90 days in arrears (the 90+ days figure being an 11.5% increase since the end of Q3 2012). A further 28,421 mortgage loans secured on buy-to-let properties were also 90+ days in arrears on 31 December 2012, representing 18.9% of all residential mortgage loans secured on buy-to-let properties. Further, the types of mortgage restructuring arrangements agreed to date by banks with distressed borrowers have largely been of a short-term nature, with almost half being 'interest-only' or 'less than interest only'.

Publication of draft legislation intended to remedy the legal issues surrounding the ability of banks to seek Court Orders for Possession in respect of registered land which came to light as a result of the decision of Dunne J. in Start Mortgages Ltd & Ors v Gunn & Ors [2011] IEHC 275 is also expected very shortly.

The developments of 13 March 2013 represent the Government's and Central Bank's latest proposals to address the issue of mortgage arrears. The intention is that there will then be a comprehensive legal and regulatory regime in place to facilitate resolution of the mortgage arrears crisis in Ireland.

The New Mortgage Arrears Resolution Targets

The Central Bank has highlighted its concerns regarding whether, due to (a) the lack of sustainable solutions, (b) the cost of supporting substantial mortgage arrears and (c) possible deficiencies in lenders' credit risk management processes, the requirements of Regulation 16 of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 (the "1992 Regulations") are being met by the lenders (Regulation 16 implements the risk management and internal control requirements of the Capital Requirements Directive). As a result, it has published its new Mortgage Arrears Resolution Targets (the "Targets").

Application of the Targets

Lenders: ACC, AIB (including AIB Mortgage Bank, EBS and EBS Mortgage Finance), Bank of Ireland (including Bank of Ireland Mortgage Bank and ICS Building Society), KBC, Permanent TSB and Ulster Bank (the "Affected Lenders"). Properties: primary residences and buy-to-let properties. The Affected Lenders are being set both common public targets and institution-specific...