Report on the effectiveness of mortgage arrears code published

• Code of Conduct on Mortgage Arrears provides statutory protections for vulnerable, financially distressed borrowers in arrears, or at risk of falling into arrears.
• Protections remain with the loan where the loan has been sold to an unregulated firm.
• Report finds that, for borrowers who engage with the process, the Code is working effectively and as intended in the context of the sale of loans by regulated lenders.

The Central Bank of Ireland has published the Report on the Effectiveness of the Code of Conduct on Mortgage Arrears (PDF 1.1MB) (the Code) in the context of the sale of loans by regulated lenders. The report finds the Code is working effectively and as intended where borrowers engage with the process.

The report was prepared at the request of the Minister for Finance and Public Expenditure and Reform, who requested a review of the Code to ensure it remains as effective as possible in the context of the sale of loans by regulated lenders.

The Code provides statutory legal protections for vulnerable, financially distressed borrowers in arrears or at risk of falling into arrears. It requires lenders to have a fair and transparent process in place for dealing with them. The protections provided remain with the loan in all cases, including when the loan is sold to an unregulated loan owner. The law requires that where loans are sold to an unregulated loan owner, these loans are managed by a regulated firm on behalf of these owners, which includes credit servicing firms.

The report examined whether the protections are still effective in the context of loan sales. To inform the report, inspections were carried out of credit servicing firms and other firms dealing with borrowers in arrears. The Central Bank also consulted with consumer representatives and advocates, many of whom deal directly with borrowers in mortgage arrears, as well as other stakeholders.

The findings are based on a point in time analysis and informed by various strands of work undertaken by the Central Bank. The report has confirmed that:

• For borrowers who engage with the process, the Code is working effectively and as intended where loans are sold by regulated lenders.
• There is no evidence that the credit servicing firms inspected did not seek to engage with borrowers in arrears. The inspected firms have frameworks in place to support engagement with borrowers in arrears, as required by the Code. The Central Bank did not identify any material breaches of the requirements by these firms.
• Existing arrangements are honoured by credit servicing firms (acting on behalf of unregulated loan owners) when a loan is sold by a regulated lender. There is no evidence that borrowers, whose circumstances are unchanged, are being moved off existing arrangements by credit servicing firms during the term of the arrangement.

Director of Consumer Protection, Gráinne McEvoy, said:

‘The protection of borrowers in arrears continues to be a key priority for the Central Bank. From the introduction, and subsequent strengthening of the Code, our aim was to ensure those facing mortgage difficulties were covered by robust, statutory protections. The Code is delivering for borrowers in difficulty - more than 116,000 mortgages are currently classified as restructured with 87% meeting the terms of their new arrangement.’

‘We assertively supervise compliance with the requirements of the Code and will continue to do so. While the range of arrangements offered is a matter for lenders, we will be engaging directly with industry on providing fuller information to borrowers on why particular arrangements may not have been offered in their case.’

‘The Code is part of the national policy framework of supports and protections available to assist borrowers in financial difficulties. We are conscious that the use of personal insolvency measures for borrowers has been lower than expected. In the context of a holistic national mechanism for dealing with personal debt, the Central Bank encourages exploring enhancements to this regime, including exploring additional ways to increase usage of debt resolution mechanisms where appropriate.’