Regulator proposes second grace period for mortgage arrears
DEBT-stricken homeowners who fall behind in revised repayment arrangements with their banks will be given a second chance to save their homes.
New proposals by the Financial Regulator will allow mortgage-holders to renegotiate a second payment schedule with their lenders, even if they have failed to honour an original agreement. And the new rules will also force banks to engage with borrowers at risk of falling into arrears.
This means that tens of thousands of mortgage-holders -- many of whom face interest rate hikes on tracker mortgages later this year or early in 2011 -- can begin tackling their financial problems before they threaten their home.
The new rules on repossession are part of proposed reform of a code of conduct for lenders that are currently dealing with more than 32,000 homeowners in arrears.
But the regulator warned that borrowers would only benefit from the revised code of conduct if they co-operated "honestly".
"Where borrowers are co-operating reasonably and honestly with lenders, lenders must wait at least 12 months before applying to the courts to commence enforcement of any legal action on repossession of a primary residence," Matthew Elderfield stated.
Under the old regime, introduced last February, debt-hit mortgage-holders were granted an automatic year-long moratorium on repossession after falling into arrears.
The regulator said court action should be put off for 12 months if struggling borrowers agreed and adhered to a revised repayment scheme.
The new system will allow borrowers who get into further difficulties to agree a second payment schedule and get another 12 months grace. Borrowers who fail to co-operate will not be protected.
Other proposals, which will be finalised in November, include: l An appeals process must be set up to allow customers to challenge a bank's decision on repayments.
- Borrowers must be allowed keep their tracker mortgages, and cannot be ordered to switch to another product.
- Banks cannot contact stressed borrowers more than three times a month.
- Banks must look at all the repayment options. These could include paying 'interest-only' for a period of time, extending the length of the mortgage to reduce monthly repayments, or introducing a 'payment pause'.
The proposed new code contains all of the key recommendations made by the Government's Mortgage Arrears and Personal Debt Expert Group.
It also states that banks should not impose arrears charges or penalty interest on customers who have signed an agreement to deal with their mortgage arrears.
Banks who contravene the binding code, assuming it comes into effect, will face sanctions from the Financial Regulator.
The code was welcomed by the Irish Banking Federation, while the Money Advice and Budgeting Service (MABS) said it was good news for customers, but that a code of conduct to address credit card and personal debt was needed.
Housing association Respond called for all mortgage lenders to accept and implement the proposals.
The MABS helpline can be contacted at 1890 283 438, with advice at www.keeping yourhome.ie