Monday 20 November 2017

Fitch praises new law that gives banks power to repossess homes

Rating agency sees draft bill as a way of targeting so-called 'strategic' defaulters

Donal O'Donovan

Donal O'Donovan

Rating agency Fitch has praised proposed laws that will make it easier for banks to repossess houses.

New rules contained in the draft Land and Conveyancing Law Reform Bill 2013 could lead to a levelling off in mortgage arrears next year, the agency said.

Fitch described the move to toughen repossession rights for lenders as "repairing the gap in the law".

"The draft bill, together with central bank-imposed targets to reduce arrears through providing sustainable solutions, could help the banks to bring the high level of mortgage arrears under control," analysts Denzil De Bie and Cynthia Chan said.

It suggests the rating agency sees so-called "strategic defaults", where people who can repay their debt opt not to in the hope of a debt write-off down the line, as a significant factor in the record high rates of arrears.

"The authorities have made it clear that large-scale debt relief will not be forthcoming, and the new bill supports this," Fitch said.

The planned legal changes will give back to banks the power to recover debt through repossession and will help resolve some long-term mortgage arrears, the agency added.

Fitch says that would be good for the banks.

ARREARS

The agency thinks repossessions rates will rise from the low level of just one out of every 300 homes in deep arrears recorded last year, according to IMF statistics.

However, the rate of foreclosure may be slow at first, it said.

That's because banks that want to repossess a property from a defaulting borrower will have to start what will still be a lengthy legal process from scratch if they want to take an action under the planned new laws

It will take time to clear the backlog that has built up of cases that were previously taken and adjourned, a situation that may raise the costs involved, the agency said.

Fitch said the introduction of the personal insolvency regime would also affect the rate of repossessions, but does not think it will be widely used by borrowers because of the power that banks have to block debt deals under the new system.

The new laws on repossession are due to come into force between now and the end of September. It will end the period of uncertainty for banks that have struggled to repossess houses since the so-called Dunne judgment in 2011, which found a technical flaw in the old legal regime that blocked repossession in almost all cases.

Irish Independent

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