Business Property & Mortgages

Monday 15 September 2014

Credit unions told: don't lend to struggling homeowners

Charlie Weston and Maeve Dineen

Published 21/02/2013 | 04:00

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Young couple calculating their domestic bills
Young couple calculating their domestic bills

CREDIT unions and credit-card companies are to be told by regulators to stop giving out loans to people who are in mortgage arrears.

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The move comes as banks have started to ramp up their efforts to get financially distressed households to prioritise paying their home loans.

Central Bank officials are concerned that credit unions, in particular, are extending loans to people who are months in arrears on their mortgages.

A letter is to be sent out in the coming days telling all lenders not to provide additional lending to customers in mortgage arrears where they do not have a repayment agreement in place with the mortgage bank.

Regulators are concerned that credit unions are supporting long-standing customers even though these people have stopped paying their mortgages.

Subprime lenders, banks and credit-card providers will also be told to be more prudent in their lending.

"If someone is 12 months in arrears on their mortgage, should they be getting a new loan?" one source asked.

Unsecured loans are being repaid ahead of mortgage debt as some of those in arrears think they cannot lose their homes because of the provisions of the Central Bank's mortgage-protection code and a High Court judgment by Ms Justice Elizabeth Dunne that has blocked repossessions.

But this action is putting the ownership of the house at risk.

One regulatory source said: "Credit unions, in particular, are increasing lending to customers in arrears, so are putting the house at risk."

There is huge concern that arrears here are far higher than in most other countries experiencing a financial crisis. Some 11.2pc of residential mortgage accounts are 90 days, or more, in arrears.

In Spain, 3.5pc of accounts are in arrears, despite unemployment of 26pc.

One source said borrowers are benefiting from a lack of operational capacity in banks for dealing with mortgage arrears. This has meant many people in trouble have been left on interest-only deals for a long time.

The Government has promised the troika that it will produce legislation to overcome the Dunne judgment by the end of March.

And a review of the Central Bank's mortgage-arrears code is expected to remove protections from repossessions for those who are not co-operating with their mortgage lender.

Repossess

This is likely to see banks moving to repossess homes of those who not co-operating with mortgage lenders.

Financial adviser Karl Deeter of Irish Mortgage Brokers accused lenders of acting irresponsibly by giving loans to those who are over-indebted.

"It is a shocking example of mis-selling to put insolvent people deeper into debt." he said.

In the past fortnight banks agreed a new protocol that will see them temporarily reduce mortgage payment for a while to allow families get back on track. In return, some unsecured debt could be written off.

Irish Independent

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