The Minister for Social Protection, Joan Burton, has launched a new Mortgage Forbearance Advice Scheme (MFAS) to help homeowners who cannot cope with their repayments.
The Department of Finance and the Central Bank are involved in the scheme which is forcing banks to come up with viable alternatives for customers with impaired home loans. If the lender offers an alternative, it is required to get the borrower to seek advice from a qualified practising accountant. The bank will pay a fixed fee of €250, plus VAT, to the accountant. The customer pays nothing. The borrower can choose an accountant from a panel which can be accessed through www. keepingyourhome.ie website.
No sooner had the scheme been published than vested interests were squabbling over the spoils. Some lawyers and financial professionals claim that accountants are not the right people for the job. As a chartered accountant I think the Government has got it right. I don't sell mortgages, I don't make money from litigation, and I don't profit from conveyancing or selling people's homes. Accountants are more independent than most to make the scheme work and they have the skills to do it.
A typical financial consultation might cost €250 to €500 (plus VAT), outside this scheme. Some vested interests wanted a panel of advisers who would be paid by the hour. The MFAS ensures the Government doesn't open another can of worms that will have us paying for the rest of our lives.
The Government is holding the line on debt-forgiveness. It's not part of the deal. But that doesn't mean the banks will not be forced to write off debts in certain cases. What they are being forced to do, and they are now working out the finer details with the Central Bank, is offer long-term financial solutions to distressed borrowers that were not there until now. These may include split mortgages, term extensions, interest-only arrangements for longer terms, conversion of mortgage arrangements into rental or leaseholds, trade-down forbearance, equity participation, voluntary-sale forbearance and repossession.
The accountant's role would include: obtaining customer due diligence documentation as required by anti-money-laundering rules, agreeing what advice will be given, obtaining from the client a copy of their standard financial statements and details of the lender's proposed long-term forbearance arrangement(s), explaining technical terms and language, advising on the implications of the advanced forbearance options (in terms of the revised monthly/weekly cash cost of debt servicing compared to net wages, the new term of the loans, the new interest rate, what's left after expenses, other ongoing financial implications and practical implications if the client defaults).
This is a lot of work to undertake for a relatively small fee. The accountant will not make the decision for the client under this arrangement. But there is no reason why the advice should not result in the client being fully capable of making that decision after the work is done. It does not create legally binding obligations for the client who is free to do whatever they choose.
I've been openly critical of banks and the Government for their mismanagement of the financial crisis but in this case, Ms Burton has shown that she is qualified for the job at hand; it's no secret that she is a qualified accountant herself. This is not the only solution to our problems, but it is a move in the right direction. Only time will tell if it works. For now, it's time to let accountants play their part in getting the country solvent. The Government could have set up a new State agency at God knows what cost, but instead it chose to use the resources we have.
At the end of June nearly 170,000 homeowners were experiencing mortgage difficulties, and the number is rising. If they all availed of the scheme it would cost about €42.5m. The experts think it could cost €10m. That would be a small price to pay to find viable options for the majority and restore consumer confidence to the rest. The scheme will be under constant review.
Not everyone wants to walk away from their financial obligations as so many experts say they should. They just want financial solutions that work for them. For many customers it will be their first encounter with a qualified accountant or financial adviser. Most would have dealt only with solicitors and estate agents when buying a home. Hopefully the experience will be beneficial. I am certain it will. It won't cost the borrower anything, and it won't break the rest either.
If you are in trouble with your home loan, now is the time to engage with your lender. The new options may be just what you need.
James Fitzsimons is a chartered accountant and qualified financial adviser