With effect from 1 January 2011 the Central Bank’s Code of Conduct on Mortgage Arrears applies to all regulated mortgage lenders operating in Ireland (excluding Credit Unions) and sets out the framework to be followed for dealing with borrowers in mortgage arrears or in pre-arrears.

Lenders are not only required to comply with the code but to also demonstrate compliance and to maintain records evidencing compliance for a minimum period of six years.

Under the code, lenders are obliged to establish:

• A Mortgage Arrears Resolution Process (MARP) incorporating each of the following 5 stages:
  • Communication with the Borrowers
  • Financial Information
  • Assessment
  • Resolution
  • Appeals
• An Arrears Support Unit to assess arrears and pre-arrears. Each branch or office of a lender is also required to have at least one person specifically responsible for dealing with arrears and pre-arrears cases and for liaising with the support unit. Borrowers are entitled to appeal a decision of the support unit and/or the lender’s treatment of the borrower’s case under the MARP process, to the lender’s internal Appeals Board.

Lenders must prepare and make available an information booklet to borrowers, in a timely manner, containing details of its MARP.

Lenders cannot impose charges/surcharge interest on borrowers who are in arrears and are co-operating with the MARP process with effect from 1 January 2011.

Lenders cannot apply to the Courts for repossession of a borrower’s primary residence until every reasonable effort has firstly been made to agree an alternative arrangement with the borrower.

Further, where a borrower is co-operating, lenders are obliged to wait at least 12 months from the date the borrower is classified as an MARP case (i.e. usually day 31 after default of payment) before initiating repossession of the borrower’s primary residence. Repossession steps are only permitted within this 12 month period where borrowers are not co-operating, or if a fraud is perpetrated by the borrower, or where borrowers are in breach of contract (other than a payment arrear).

Lenders are allowed a six month period (ending 30 June 2011) to put in place the systems and associated staff training requirements required for the code. Failure to comply with the code thereafter may result in sanctions under the Central Bank’s Administrative Sanctions Framework.

Contributed by Delia McMahon, Fergus Doorly.