Pillar to Post from - Paper Two: FLAC
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
from
Pillar to Post
A Series of Papers on issues arising in new and existing
consumer debt cases in light of the Covid 19 pandemic
Paper Two:
Ten Years and Counting
Conclusions from a decade of attempting to resolve
family home mortgage arrears in Ireland
A SERIES OF PAPERS
from
Pillar to Post
Paper Two:
Ten years and counting:
Conclusions from a decade of
attempting to resolve family home
mortgage arrears in Ireland
A Series of Papers on issues arising in new and
existing consumer debt cases in light of the
Covid 19 pandemic
Free Legal Advice Centres,
August 2021
1
TITLES OF THE SERIES OF PAPERS
—Paper One—
Setting the Context: a critical examination of data
relating to consumer debt, welfare, labour market and the
economy
—Paper Two—
ten yearS and Counting: Conclusions from a decade of
attempting to resolve family home mortgage arrears in
ireland
—Paper Three—
aSSeSSing Current reSearCh data on the payment
breaks on credit agreements offered by credit
institutions as a result of the Covid 19 pandemic
—Paper Four—
a review of the debt reSolution meChaniSmS and
the Support ServiCeS: with final
reCommendationS for reform
flac: From Pillar to Post — Paper One About FLAC
— About FLAC —
FLAC (Free Legal Advice Centres) was founded in FLAC reports in the areas of debt and credit:
1969 and is one of Ireland’s oldest civil society
organisations. It is a voluntary, independent,
legal and human rights organisation which for An End Based on Means
AN END
the last fifty years has been promoting access to A Report on how the legal BASED ON MEANS?
justice. FLAC works in a number of ways, it: system in Ireland treats
uncontested debt cases
¢ Operates a telephone information and referral with an examination of A report
Republ on how the
ic
consum of Ireland legal system
of alte er debt cases treats unc in the
line where approximately 12,000 people per
rnative wit ont
s and pro h an examin ested
alternatives and proposals
posals ation
for refo
rm.
annum receive basic legal information. for reform (May 2003) Paul Joyce
¢ Runs a nationwide network of legal advice
clinics in 71 locations around the country
where volunteer lawyers provide basic free
legal advice to approximately 12,000 people To No One’s Credit
per annum. The Debtor’s experience of
Instalment and Committal
2 ¢ Is an independent law centre that takes cases Orders in the Irish legal TO NO ONE’S CREDIT
THE DEBTOR’S EXPERIENCE OF INSTALMENT AND
COMMITTAL ORDERS IN THE IRISH LEGAL SYSTEM
in the public interest, mainly in the areas of system (June 2009)
homelessness, housing, discrimination and
disability.
¢ Operates a legal clinic for members of the
Roma Community.
Redressing the Imbalance
¢ Has established a dedicated legal service for
A study of legal protections
Travellers.
available for consumers of
¢ Operates the public interest law project PILA credit and other financial
that provides a pro bono referral scheme that services in Ireland
facilitates social justice organisations (March 2014)
receiving legal assistance from private
practitioners acting pro bono.
¢ Engages in research and advocates for policy
For more of FLAC’s work in the area of debt law
and law reform in areas of law that most
reform visit https://www.flac.ie/priorityareas/debt-
affect the marginalised and disadvantaged.
law-reform/
FLAC’s vision is of a society where everyone can
access fair and accountable mechanisms to
assert and vindicate their rights. FLAC makes For more of FLAC’s work in the area of
policy recommendations to a variety of bodies consumer credit law reform visit
including international human rights bodies, https://www.flac.ie/priorityareas/consumer-credit-
drawing on its legal expertise and providing a law-reform/
social inclusion perspective.
flac: From Pillar to Post — Paper One About the Authors
— About the Authors —
Paul Joyce, BL, works as Senior Policy Analyst with Free Legal
Advice Centres (FLAC). He is the author of both of FLAC major
reports on debt and the legal system in Ireland, ‘An End based on
Means’ published in May 2003 and ‘To No One’s Credit’ published in
July 2009, and numerous policy reports and submissions. He is a
former member of the Financial Services Ombudsman’s Council and
served as a member of the government-appointed Expert Group on
Mortgage Arrears and Personal Debt in 2010. Paul is also co-author,
with Dr Stuart Stamp, of FLAC’s report, ‘Redressing the Imbalance’,
a study of the legal protections available for consumers of credit
and other financial services in Ireland, published in March 2014. On
behalf of FLAC, he has provided technical legal support and training
to staff of the Money Advice and Budgeting Service (MABS) for over
two decades. He also has extensive experience in the area of
employment rights. Paul is a law graduate of University College
Dublin (UCD) and the King’s Inns.
3
Dr. Stuart Stamp is an Independent Social Researcher and
Research Associate of the Department of Applied Social Studies at
Maynooth University. His main areas of interest are personal over-
indebtedness and financial exclusion from an inequality and human
rights perspective. He has helped to establish services in both
Ireland and the UK to assist people who are over-indebted, and has
worked in casework, co-ordination and support / training capaci-
ties. In recent years, Stuart has focused more on research and
policy analysis on these topics. He has authored/co-authored
studies for the Combat Poverty Agency, Citizens Information Board,
Money Advice and Budgeting Services (MABS), Dublin Region
Homeless Executive, and for the Free Legal Advice Centres (FLAC);
he has further contributed to a number of national and international
conferences, research projects, academic resources and policy
consultations on personal debt issues.
— Paper Two —
Ten years and counting:
Conclusions from a decade of
attempting to resolve
family home mortgage arrears
in Ireland
4
—Paper One—
SETTING THE CONTEXT:
a critical examination of data relating to consumer debt, welfare,
labour market and the economy
Paper One, together with a Foreword and an Introduction to the series, was
published on June 30th, 2021.
Paper One can be accessed and downloaded from: –
https://www.flac.ie/publications/flac-pillar-to-post-paper-one/
flac: From Pillar to Post — Paper Two CONTENTS
paper two:
ten years and counting: Conclusions from a decade of attempting to
resolve family home mortgage arrears in ireland
Contents
reommendations 6-8
1. introduction and overview 10
2. analysis of mortgage arrears data 14
introduction 15
2.1. Headline mortgage arrears figures 16
2.2. Deep arrears cases 17
2.3. Current legal activity 18
2.4. Duration of legal proceedings 19
2.5. The Circuit Court repossession process 20
2.6. ‘Concluded’ legal proceedings 22
5 2.7. Repossession and voluntary surrender 23
2.8. Restructures 26
2.9. Overall performance of restructured mortgages 27
2.10. Unrestructured arrears accounts 29
2.11. “Co-operation” and “Non-cooperation” 31
2.12. Mortgage sales to non-bank entities 33
2.13. Update — Quarter One 2021 mortgage arrears figures 35
2.14. Summary 37
2.15. Update - Mortgage borrowers facing end of term 39
repayment shortfalls
3. mortgage arrears and recent legislative developments 43
3.1. The role of the Personal Insolvency Act 2012 (as amended) 44
3.2. The role of the Land and Conveyancing Law Reform 48
(Amendment) Act 2019
4. review of Central bank of ireland paper: resolving mortgage distress after Covid 19:
some lessons from the last crisis 51
5. Conclusion 57
appendix 60
FLAC analysis of CBI data from 2014-2015 Mortgage Arrears Resolution Process (MARP)
outcomes
flac: From Pillar to Post — Paper Two Recommendations
recommendations
recommendation 1: recommendation 5:
The CBI should carry out an audit of regulated The CBI should explain in relation to these
lenders, retail credit firms and credit servicing datasets to what extent it tests the accuracy of
firms to determine whether they are complying the data provided to it by lenders, for example by
correctly with the data gathering guidelines on way of inspections of the relevant records and
PDH mortgage arrears set out by the Bank documentation, particularly when it shows up
(See Section 2.2. Deep arrears cases) anomalies. (See Section 2.8. Restructures)
recommendation 6:
recommendation 2:
Although the CBI data provides figures for the
The CBI should provide more detail and seek
number of restructures across the arrears
more data from lenders on the various sub-
categories, a breakdown of those restructures
categories it has described in its ‘legal
across those categories is not provided and this
proceedings concluded’ figures. Within this
is a matter that the CBI might remedy. There is a
category are a number of cases that have been
significant difference in effectiveness between
in arrears and in proceedings for some time but
the durability of a short-term and a long-term
do not ultimately result in a Possession Order.
restructure, as the CBI has frequently observed.
(See Section 2.6. ‘Concluded’ legal proceedings)
(See Section 2.8. Restructures)
6
recommendation 3: recommendation 7:
The CBI should require lenders in its data The CBI should investigate the reasons for the
guidelines to provide a quarterly update within reduction of close to 5% in the number of
this ‘legal concluded’ category, of cases where a restructures between Q.3 and Q.4 2021, which
Possession Order has been granted but the were primarily in the area of the long term
lender has yet to execute the order. restructures. Further data would be useful more
(See Section 2.6. ‘Concluded’ legal proceedings and generally on: (i) the factors that bring long term
Section 2.7. Repossession and voluntary surrender) restructures to an end; (ii) the cause(s) of any
failure, and (iii) the context for any such failure.
(See Section 2.9. Overall performance of restructured
recommendation 4: mortgages).
A figure is no longer provided for new
repossession proceedings brought in each
recommendation 8:
quarter. The CBI should remedy this deficiency
and provide quarterly figures of new The CBI should explore with lenders why a
repossession cases both into the future and significant number of less serious arrears cases
retrospectively for 2019 and 2020. (where the borrower is deemed to be co-
(See Section 2.7. Repossession and voluntary operating with the lender) do not currently have
surrender) a restructure in place, and emphasise the need
for early resolution of these accounts. Equally,
there is a very significant number of households
in deep arrears also deemed to be co-operating
with their lender but who do not have a
restructure in place; the reasons for this should
also be explored. (See Section 2.10. Unrestructured
accounts)flac: From Pillar to Post — Paper Two Recommendations
recommendation 9: Conditions)1 would in our view provide insights
not provided by cross-sectional enquiries. The
The CBI should seek to clarify with lenders what
CBI should consider adopting such an approach.
levels of payments are currently being made on
(See Section 2.13. Update — Quarter One 2021
accounts in arrears of over two years where the
mortgage arrears figures)
borrower is deemed to be co-operating but the
account is not classified as restructured.
(See Section 2.10. Unrestructured accounts)
recommendation 13:
The CBI should require the mortgage lenders / loan
recommendation 10: owners that it regulates to provide a greater level
of (verifiable) data that would provide a more
The CBI might seek to investigate what factors
dynamic picture of the evolving arrears situation
caused co-operating borrowers to be in the legal
post-Covid. Clearer questions should be asked of
process and what were the causes of a signifi-
each lender and these might include:
cant decrease in the number of co-operating
borrowers in the legal process between Q.3 and ¢ How many accounts ceased to be in arrears
Q.4 2020. (See Section 2.10. Unrestructured during the quarter?
accounts) ¢ How many accounts went into arrears (either
(Section 2.10. Unrestructured accounts) for the first time or again) during the quarter?
¢ What were the developments upwards and
downwards in the respective categories of
recommendation 11: restructure?
The CBI and the government should ensure that It would also be helpful if the CBI accompanied
7
regulated lenders are obliged to work to find an these data releases with a commentary of its
alternative repayment arrangement with bor- own, indicating what its own analysis might be
rowers whose capacity to repay is impaired by and what additional measures and supports it
loss of income due to Covid or other factors suggests are required.
beyond their control. Further, the sale of such (See Section 2.13. Update — Quarter One 2021
loans to third parties should not be allowed until mortgage arrears figures).
the lender has demonstrated that every effort
has been made to agree a sustainable restruc-
ture. For this purpose, there should at the very recommendation 14:
minimum be a compulsory time period during
The CBI should examine the feasibility of adding
which the existing lender must work with the
extra criteria to the mortgage arrears data to
borrower to reach an accommodation before a
provide greater insight into restructure patterns;
loan can be sold on.
for example, factors such as the borrower’s age
(See Section 2.12. Mortgage sales to non-bank
or the loan to value ratio of the mortgage. If this
entities)
is not feasible, a representative sample might be
drawn.
(See Section 2.14. Summary)
recommendation 12:
The CBI should regularly seek the perspectives
and views of those experiencing mortgage
arrears as a matter of course. This should be a
core component of developing its policy evidence
base in line with its consumer protection remit.
Incorporating a more longitudinal method by
following a representative sample of households
in arrears over time (in line with the ‘panel’ 1
See:
approach incorporated by the Central Statistics https://www.cso.ie/en/releasesandpublications/ep/p-
Office within its Survey on Income and Living silc/surveyonincomeandlivingconditionssilc2019/backgrou
ndnotes/flac: From Pillar to Post — Paper Two Recommendations
recommendation 15: recommendation 18:
In its recently published paper - Behind the Data: It is now almost two years since the Land and
Mortgage borrowers facing mortgage shortfalls Conveyancing Law Reform (Amendment) Act
– the CBI suggested that ‘there was a reporting 2019 was commenced in August 2019, and there
gap for retail credit and credit servicing firms is still no clarity in terms of the procedures that
that hold PDH mortgages’. It would be helpful if apply to the detailed assessment that the Circuit
the CBI clarified both the nature and extent of Court is obliged to make prior to deciding
this reporting gap. whether to grant a Possession Order or not. We
recommend that the Department of Justice and
(See Section 2.15. Update - Mortgage borrowers facing
the Courts Service collectively update the
end of term repayment shortfalls)
position and move urgently to introduce the
necessary regulations and Practice Directions to
enable this legislation to properly function.
recommendation 16:
[See Section 3.2 — The role of the Land and
The data published in ‘Mortgage borrowers Conveyancing Law Reform (Amendment) Act 2019]
facing mortgage shortfalls’ illustrates the need
for further data concerning the viability of split
mortgages. The CBI should seek detail from
lenders/loan owners on (i) the current number of
arrangements where there is agreement in
advance as to how the shortfall will be paid on a
8 split mortgage when the split portion comes to
an end; and (ii) the full profile of existing split
mortgages, identifying items such as the ‘split
portion, warehouse portion’ percentages,
borrower/s age, and other factors affecting
resolution.
(See Section 2.15 Update — Mortgage borrowers
facing end of term repayment shortfalls)
recommendation 17:
The CBI, which regulates mortgage lenders, and
the ISI, which regulates the personal insolvency
legislation, should together conduct an audit of
how many family home mortgage arrears cases
have been resolved through the process of
applying for a Personal Insolvency Arrangements
(PIA), and ongoing quarterly figures should be
provided in this regard.
[See Section 3.1 — The role of the Personal Insolvency
Act 2012 (as amended)]9
1
SECTIONflac: From Pillar to Post — Paper Two 1. INTRODUCTION AND OVERVIEW
1. INTRODUCTION AND OVERVIEW
W
e present, today, 18th August 2020, the dwelling house (PDH) mortgages in arrears in
second paper in this series of papers Ireland, with almost 25,000 of these in deep
intended to assess the difficulties facing arrears i.e. arrears of over two years or more.
consumer borrowers whose payment capacity is According to a recent paper, also from the CBI, a
now or remains impaired following the economic total of over 95,000 PDH mortgage accounts
damage inflicted by the pandemic. The subject (one in eight) are forecast to have a ‘balance
of this paper is the vexed question of mortgage shortfall’ at the end of the mortgage term. It is
arrears, about which there are strong and in likely that this figure of 95,000 includes the
some instances quite polarised views. In our 52,000 accounts in arrears, together with a
view, the recent history of attempts at resolving sizeable number of restructured mortgages that
the mortgage arrears problem in the wake of the are not meeting the terms of the restructure, and
Global Financial Crisis of 2008 can teach us other restructures that may be meeting the
much about how new debt cases that arise from terms but where this will not be sufficient to pay
Covid should be approached, as well as how off the mortgage. Thus, it is important to note
ongoing arrears cases might be better resolved. that some 43,000 accounts (the difference
As a result, this paper looks back as well as between these two numbers) are not classified
forward, and the data produced by the Central as being in arrears but, in many cases, face very
Bank of Ireland (CBI) on a quarterly basis over serious shortfalls at the end of their mortgages.2
recent years provides a detailed source of
10 information upon which to reflect. The ongoing troubles of housing policy in Ireland
have, once again, come prominently to the fore,
Ultimately, it also illustrates that consumer over-
with the realisation that significant tracts of land
indebtedness in a market economy is now a kind
and large numbers of properties are owned by
of continuum,1 with the level of problem debt
“cuckoo funds” and real estate investment
subject to the ebb and flow of economic trends
trusts. These entities have been the beneficiaries
and unforeseen events (Covid serving as the
of generous tax treatment from the State over an
ultimate example of the latter). Thus, to the
extended period, and appear intent on using
mortgage arrears cases that existed prior to the
their superior financial power to acquire more
arrival of Covid will likely be added some new
properties upon which to charge high rents while
‘first time’ cases of arrears and some of the
the opportunity presents. Recent government
existing arrears cases will have worsened. Other
proposals to attempt to remedy this situation
existing arrears cases on the other hand may
have so far been met with mixed reaction, and at
have improved or even been resolved, particu-
the time of writing a new housing strategy plan
larly for those who managed to maintain their
is due to be published.
income while reducing their expenditure during
the pandemic. In short, personal debt difficulty Ironically, it was the proposed publication of an
seems destined to remain a feature of Irish ‘Affordable Housing Bill’ that moved these issues
society and we have to work decisively to resolve back into the spotlight. Public housing has
it. Thus, regardless of the degree of difficulty remained largely on the back foot where it has
experienced, consistency of approach and a dwelled since the boom years, when the State
realistic assessment of what households in poor chose to focus on a private sector construction
financial circumstances can afford to pay should boom lasting in perpetuity at a time when
be the cornerstone of the State’s response. surplus funds were available to facilitate the
building of public housing for a rainy day.
At the time of writing, the latest Q.1 2021 CBI data
tells us that there are over 52,000 principal 2
Duignan, D. and Kearns, A. (2021). Behind the data:
Mortgage borrowers facing end of term repayment shortfalls.
1
This can be defined as ‘a continuous sequence in which Dublin: Central Bank of Ireland, July 2021. This paper is
adjacent elements are not perceptibly different from each discussed in the introduction to Section 2 and it is also
other, but the extremes are quite distinct’. reviewed in detail in Section 2.15 below.flac: From Pillar to Post — Paper Two 1. INTRODUCTION AND OVERVIEW
Meanwhile, two of the five pillar banks have ‘Since 2014, supervision of significant
signalled their intention to withdraw from the institutions in Ireland is a joint
Irish market, citing concerns around profitability. competency of the Single Supervisory
In terms of the first of these, a reported review by Mechanism (SSM) in Frankfurt and the
Ulster Bank’s parent Nat West suggested that ‘it Central Bank of Ireland. An important
innovation of the SSM in recent years has
would not achieve an acceptable level of returns
been the Non-Performing Loan (NPL)
going forward’.3 Further, following the subse-
guidance, the 2018 Addendum to which
quent announcement of KBC’s intended with-
sets out a provisioning “calendar” under
drawal, an article in the Irish Times suggested
which banks must provide for increasingly
that ‘although KBC and Ulster Bank have the large loss levels for each year that NPLs
lowest mortgage rates in Ireland, their rates are are held on their balance sheets. After
still far higher than those charged by their parent seven years as an NPL, provision coverage
groups in Belgium and the UK respectively. for a secured loan should be one hundred
Despite these high rates they can’t generate per cent. This calendar implies that the
sufficient profits, because a significant group of cost of retaining loans that do not return
customers are unable or unwilling to pay their to performing classification will rise with
mortgage and repossessing a home here is a each passing year. Recent IFRS 9
tortuous process.’4 accounting reforms also imply that per-
forming loans with restructuring arrange-
ments in place must carry a higher
There is a big difference between being unable
provision than performing loans with no
and being unwilling, and while there are some
such restructuring’.6
borrowers who may engage in what is described
as ‘strategic default’, there is little evidence that
This means, as we understand it, that the
11 their numbers are significant. As discussed
continued existence of non-performing loans on
below, in our view it is an over-simplification to
a lender’s loan book is penalised in a way that
present “inability” and “unwillingness” as a
reduces the relevant institution’s capacity to
dichotomy, given that both context and
make profits by lending out from its capital. No
circumstance are important nuancing factors. In
doubt the European Central Bank (ECB) can
a helpful contribution to the debate that is now
cogently argue that this is justified in the name
undoubtedly urgently required, not just on how
of both financial stability and consumer
to seek to resolve existing pre-pandemic family
protection. However, it is also worth noting that
home mortgage arrears cases but also new
the institutions of the European Union mani-
cases of such arrears that may arise as a result
festly failed to regulate mortgages at the time
of the pandemic, a further paper recently
that much of the damage was done to borrowers
published by the CBI presents a more balanced
in Ireland in the first decade of the millennium. At
picture of the struggles that many borrowers in
that time, property prices were inflated here – a
mortgage arrears have faced and continue to
trend that has returned – and, in order to get on
face over recent years.5 This paper will be
the housing ladder, people were encouraged to
discussed in greater detail in Section 4. There is
borrow unsustainable multiples of their incomes
also a significant European Union dimension to
to compete with buy-to-let investors. It was not
this discussion and it is well described in that CBI
until 2014 that the EU Mortgage Credit Directive
paper as follows:
was agreed by the Member States to regulate
mortgages for the first time on an EU wide basis,7
citing that ‘a series of problems have been
identified in mortgage markets within the Union
3
‘Ulster Bank confirms exit from Irish market’, RTÉ News, 19th
relating to irresponsible lending and borrowing
February 2021.
4
‘Exits of KBC and Ulster Bank leave other banks free to hike 6
Ibid, p4.
rates: Mortgage market must be more attractive to foreign
lenders’, Irish Times, 19th April 2021.
7
Note that it was transposed in Ireland by secondary, rather
than primary legislation, via the European Union (Consumer
5
McCann, F. and O’Malley, T. (2020). ‘Resolving mortgage Mortgage Credit Agreements) Regulations, SI 142/2016,
distress after Covid-19: some lessons from the last crisis’, thereby depriving the Houses of the Oireachtas of the
Financial Stability Notes, Vol. 2020, No 7, September 2020. opportunity to discuss its terms, including a number of
Dublin: Central Bank of Ireland. discretionary items.flac: From Pillar to Post — Paper Two 1. INTRODUCTION AND OVERVIEW
and the potential scope for irresponsible the efforts of the State at resolution over a
behaviour by market participants including substantial period have been partially successful
credit intermediaries and non-credit but have lacked and still lack a sufficiently
institutions’.8 coherent and decisive approach. Recourse to the
legal system seems to have been a mixed
By putting in place these ‘capital provisioning’
blessing for all parties. It can also be inferred
rules to apply to loans that were drawn down in
from the available data that lenders have failed
a previous era, the ECB exerts a powerful
in some cases to take the opportunity presented
influence on the domestic climate in individual
by the Mortgage Arrears Resolution Process
Member States, leading lenders to offload
(MARP) of the Code of Conduct on Mortgage
impaired loans to third party funds and, perhaps,
Arrears (CCMA) to put in place an affordable
influencing their eventual exit from the market.
alternative repayment arrangement, a view
With our legacy mortgage arrears problem and
backed up to some extent in commentary
our fractured housing market, it is arguable that
provided by the Central Bank itself. As evidence,
this has had a disproportionate influence on a
a substantial percentage of the borrowers
small economy such as Ireland, which was clearly
currently in arrears who are deemed to be co-
targeted by sub-prime lenders during the boom
operating by their lender - around two in every
and an assortment of “vulture” funds and trusts
three — have not been offered a restructure by
thereafter. In our view, there should be more
their lender.
sympathetic treatment for small EU Member
States still trying to recover from the Global There is also some evidence of policy confusion
Financial Crisis (GFC), especially countries that in terms of the array of initiatives that have been
took their medicine when it was far from put in place to attempt to resolve these prob-
palatable. Have successive governments and the lems, and this may to some extent result from
12
CBI lobbied on these issues with the ECB and different views and approaches by an array of
other institutions of the European Union and, if state actors, including successive governments,
so, what has been the outcome? the Departments of Finance and Justice, and the
Central Bank. A notable case in point is the
One way or another, blaming borrowers
passing of the Land and Conveyancing Law
desperately trying to hold onto their homes is
Reform (Amendment) Act 2019 in August 2019, 9
picking on an easy target, especially in a
legislation which has yet to make any noticeable
dysfunctional housing market where accom-
impact. While this remains a potentially far-
modation is in such short supply. And there
reaching piece of legislation that in principle
should be no ambiguity about it – the broader
improves the prospects of a borrower success-
problem of housing supply is a critical context in
fully defending repossession proceedings
terms of the mortgage arrears problem. The
against him / her, it remains to our knowledge
narrative therefore that if only repossession was
largely unused and untested. The arrival of Covid
easier to achieve, many of our problems would be
is one reason why this legislation has not been
solved and new lenders would arrive on our
litigated to any significant extent but there are
shores to offer good value interest rates to new
other significant factors: for example, it was not
borrowers, is a questionable one. Nonetheless,
subject to any detailed debate in the Houses of
with the planned departure of two of the pillar
the Oireachtas before being passed with haste
banks, the refrain has vigorously returned to the
into law. In addition, a failure thus far to put in
agenda, namely that it is too difficult to
place the infrastructural supports that would be
repossess family homes in Ireland.
required to utilise it — for example, regulations on
Under a number of headings that follow below, applicable court procedures and processes, and
we examine in detail current and recent mort- access to civil legal aid for defendant borrowers
gage arrears and restructure data provided by – may result in borrowers being unsure how they
the CBI on a quarterly basis, which is now quite might raise it in their defence and how that might
extensive. In our view, this analysis shows that risk their position, let alone how the provisions
might be interpreted.
8
See Point 4 in the preamble to the Directive – EUR- Lex –
9
32014L0017- EN. No 22/2019, commenced on August 1st 2019.flac: From Pillar to Post — Paper Two 1. INTRODUCTION AND OVERVIEW
The cumulative effect is that a substantial number cases, particularly for unrepresented defendant
of legacy arrears cases remain unresolved and borrowers, unless there is a legal dispute between
un-restructured, despite the borrower’s co- the parties and this seldom occurs in family home
operation with the processes that apply, with a mortgage arrears cases. There may now be a
substantial number remaining mired in the legal strong case for going back to the drawing board,
process. Some new cases of arrears are bound to where the factors that have adversely affected
arise as a result of Covid 19 related financial the borrower’s payment performance can be
difficulties, although on the evidence thus far of examined and a sustainable solution binding on
available payment break data and the high the lender devised, subject to a right of appeal.
percentage of expired payment breaks on family
home mortgages,10 these seem unlikely to be as
10
The next paper in this series – Paper 3 – looks in detail at
numerous as might be envisaged. However, it is the available payment break data.
important not to take these data too much at face 11
For example, the number of accounts in arrears of 0-90
value, as the most recent available data is not days increased by 670 between the end of September and
conclusive.11 Broadly, our review would suggest the end of December 2020, indicating a new arrears cohort.
Between the end of December 2020 and the end of March
that we need to look again at creating a coherent
2021, however, the number of accounts in arrears of 0-90
and consistent system of out-of-court resolution days decreased by 1,776, suggesting the reverse. We suggest
with enforceable and properly regulated rules. The later in this paper – see Section 2.13 – that this may be
indicative of some arrears cases being resolved and a (lower)
courts are not the ideal place for mortgage arrears number of new arrears cases arising during Covid.
1314
2
SECTIONflac: From Pillar to Post — Paper Two 2. ANALYSIS OF MORTGAGE ARREARS DATA
2 . A N A LY S I S O F M O R T G A G E A R R E A R S D ATA
Introduction ¢ 95,000 PDH accounts, equating to 13%
of all PDH loans and representing €14.5
billion in total balance due, are
T
he Central Bank’s Code of Conduct on assessed by the CBI to be facing a
Mortgage Arrears (CCMA)12 defines arrears payment shortfall at the end of the
as follows. ‘arrears: arise on a mortgage mortgage term;
loan account where a borrower has not made a
full mortgage repayment, or only makes a ¢ Some 32,000 of these accounts face a
partial mortgage repayment, in accordance balance shortfall of 10% or less;
with the original mortgage contract, by the
scheduled due date’. ¢ The remainder of 63,000 accounts face
a balance shortfall of greater than 10%;
In principle this looks like a straightforward
definition. Missed or partially missed payments ¢ 54% of the 63,000 accounts (over
mean a family home mortgage goes into arrears 34,000) are not restructured;
and remains so until those arrears are cleared.
Thus, on June 17th 2021, the Central Bank of ¢ 45% of the 63,000 accounts (over
Ireland (CBI), in its routine family home mortgage 28,000) are in arrears for longer than
quarterly arrears data release for the end of Q.1 one year.14
15 2021, records a total of 52,148 principal dwelling
house (PDH) accounts to be ‘in arrears’. The CBI’s
data releases on family home mortgage arrears So although 95,000 PDH accounts face a
also separately provide quarterly updates on the payment shortfall at the end of the mortgage
payment performance of restructured mort- term, only (a maximum of) of just over 52,000 of
gages and the relevant figures are reviewed at these PDH accounts are classified as being in
Section 2.9 below. arrears. by extension therefore, (at least)
43,000 of these 95,000 accounts are not
As this FLAC paper was being finalised, new classified as being in arrears, though they
research data, some pertaining to mortgage debt appear to be in considerable financial difficulty.
and Covid 19, were published by the CBI on 13th thus, a mortgage does not have to be classified
July 2021. One of these pieces, referred to in the as being in arrears to be distressed. further-
introduction to this paper, is entitled ‘Behind the more, a significant number of restructured
Data: Mortgage borrowers facing mortgage accounts, which may have the appearance of
shortfalls’.13 It is not proposed to consider this being resolved, are in fact currently on a path
CBI research piece in any depth at this point — a to a substantial shortfall; this is indicative of
review of it can be found at Section 2.15 below — the limitations even of long term restructures,
but it is important in the context of our analysis where the borrower’s ability to pay has been
of the mortgage arrears data which follows below over-estimated or where further adverse
that we give a basic account of its principal events have impacted on financial capacity.
findings. These are as follows: and this raises an inevitable question: how
many family home mortgages have had any
form of write-down since the global financial
Crisis (gfC) that might enable a long term
restructure to be more sustainable?
12
Central Bank of Ireland (2013). Code of Conduct on
Mortgage Arrears. Dublin: Central Bank of Ireland.
13
Ibid. 14
Extract from CBI guidance to lenders provided to FLAC
on request in November 2020’.flac: From Pillar to Post — Paper Two 2. ANALYSIS OF MORTGAGE ARREARS DATA
2.1 headline mortgage arrears figures In broad terms, it can be said that the figures in
Table 1 above represent significant progress in
attempting to resolve a very deep mortgage
The Central Bank of Ireland (CBI) has been arrears crisis that engulfed borrowers following
collecting and collating detailed data on the Global Financial Crisis (GFC). There has been
accounts in mortgage arrears from the lenders it an apparent reduction of over 86,000 in the
regulates since Q3 2009,15 and has published number of accounts in arrears over the period for
quarterly reports in their current form since example. However, our examination of the CBI
September 2012, albeit with several mortgage arrears data from 2013 to 2020 below
16
modifications over time. The figures on raises serious concerns at a remove of eight
‘Principal Dwelling House’ (PDH) or family home years. A brief summary of these concerns which
mortgage arrears at end December 2020 are developed in more detail in this section
(Quarter 4, 2020), which are based on returns include:
made by lenders and loan owners to their
¢ A significant percentage of long-term
regulator,17 are summarised in the final column of
restructured accounts which are ‘not
Table 1 below.
meeting the terms’ of the restructured
please note that while the analysis below was arrangement (one in seven);
being completed, a further set of mortgage
¢ A number of mortgages classified as
arrears figures (those for Q.1 2021) was
restructured which are still in arrears
published by the Cbi in June 2021. while our
(almost one in five);
review broadly focuses on the position to Q.4
2020, we do provide an update on issues of ¢ Only one in four cases currently
significance arising out of the Q.1 2021 figures classified as being in arrears is
16
below (See Section 2.13). restructured and only 10% of accounts
in the most serious arrears (of over two
years) has a restructure;
¢
TABLE 1: MorTgAgE ArrEArs dATA (PdH): Q3 And Q4 2020
A substantial percentage of the
PdH accounts in arrears Q3-2013 Q3-2020 Q4-2020 borrowers currently in arrears who are
deemed to be co-operating by their
Up to 90 days 42,331 15,531 16,201
lender - two out of every three – are not
91-180 days 16,680 4,159 4,282 in a restructure;
181-365 days 22,665 4,720 4,455 ¢ Although the number of accounts in
arrears has significantly decreased, the
361 -720 days 28,010 5,267 5,067
percentage of accounts in deep
More than 720 days 31,834 25,771 24,981 arrears (of over two years) is now twice
as high as it was at end Q.3 2013 (45%
ToTAL 141,520 55,448 54,986
of the total as compared with 22%);
Source: Central Bank of Ireland
¢ A significant number of households
have lost their family homes as a result
of legal action over the period covered
by the dataset as a whole, namely 2013
to 2020 (an estimated total of well over
15
See:
https://www.bis.org/ifc/events/ws_micro_macro/cassidy
8,000);
_paper.pdf , p3.
Thus, as we await the potential fallout in terms
16
https://www.centralbank.ie/statistics/data-and- of over-indebtedness from Covid 19 (and perhaps
analysis/credit-and-banking-statistics/mortgage-
arrears/previous-statistical-releases Brexit), it is apparent there are a substantial
17 number of close to 25,000 very difficult legacy
Our understanding is that all regulated lenders/loan
owners/loan servicers make specific data returns to the CBI mortgage arrears cases that remain to be
on a quarterly basis according to a set of guidelines drafted resolved, in addition to some 30,000 other
by the CBI that each entity must follow.flac: From Pillar to Post — Paper Two 2. ANALYSIS OF MORTGAGE ARREARS DATA
accounts that are in less serious arrears. The For this section of the return, accounts in
evolution of attempts over the past decade to arrears should be broken down by length
resolve consumer over-indebtedness are well of time in arrears. Classification by length
documented in the mortgage arrears arena and of time in arrears is based on contractual
these can act as an important marker for future payments not made since the inception of
attempts to resolve any spike of debt that Covid the mortgage, i.e. the value of arrears
may bring. Thus, what follows below is a detailed (payments not received by the contractual
assessment of how these matters have been due date) expressed as equivalent days
handled over an extended period and where it past due. For example, if an account is
has brought us to in 2021. classified as in arrears of over 90 days, this
does not necessarily signify that the
borrower has not made any mortgage
2.2 deep arrears cases payments for the last three months. The
borrower could be making partial repay-
Up until Q.2 2020, the ‘two years plus’ arrears
ments on a monthly basis but may still
category had been presented with no further
have an arrears balance equivalent to over
breakdown in terms of the length of arrears,
90 days past due.
though it had always proved to be not only the
deepest category but also the slowest to resolve.
We have known for some considerable time that This guideline is troubling at first glance. It begins
many of these accounts have been in arrears of by stating that ‘arrears should be broken down
over five years and longer, as the arrears problem by length of time in arrears’ but then goes on to
would have begun in many instances in the years somewhat contradict that instruction by
following the Global Financial Crisis (GFC). advising that the measurement is not the actual
17
Ultimately, the Q.2, Q.3 and Q.4 2020 figures have length of time the account has been in arrears
remedied this data deficit and, in so doing, have but the amount of those arrears expressed as the
provided us with a stark illustration of the total cumulative number of contractual
enduring legacy of family home mortgage arrears instalments that are now outstanding.19 Whether
from that recession. Thus, of the 24,981 accounts the reporting lenders are actually clear on this
in question at the end of 2020, the following and always apply this measurement in practice
breakdown is provided (with the Q.3 2020 figures is perhaps a matter for the CBI to test and to
also provided for comparison purposes): clarify, together with other aspects of the data
guidelines provided to lending institutions. we
therefore recommend that the Cbi should
TABLE 2: dEEP ArrEArs cAsEs (PdH): Q3 And Q4 2020 carry out an audit of regulated lenders, retail
credit firms and credit servicing firms to
PdH accounts in arrears Q3-2020 Q4-2020
determine whether they are complying
2-5 years 9,268 8,926 correctly with the data gathering guidelines on
pdh mortgage arrears set out by the bank.
5-10 years 11,489 10,789
What this means, for example, is that an account
More than 10 years 5,014 5,266
said to be in arrears of five years may have
ToTAL 25,771 24,981 actually first gone into arrears a full ten years
Source: Central Bank of Ireland ago, if, for example, the borrower has been
paying on average half the monthly contractual
It may be useful at this juncture to set out the instalment over that ten year period. Equally,
working definition that the CBI provides to where an account is said to be in arrears of five
lenders in terms of assessing the length and/or
19
the amount of arrears, which states as follows:18 In our experience, there are few borrowers in financial
difficulty who pay nothing at all over long periods, especially
clients of the Money Advice and Budgeting Service (MABS),
given that the core task of money advice staff is to assess
18
current payment affordability and to work towards
Extract from CBI guidance to lenders provided to FLAC improving the borrowers’ financial circumstances and those
upon request in November 2020. payments over time.flac: From Pillar to Post — Paper Two 2. ANALYSIS OF MORTGAGE ARREARS DATA
years and the borrower has been paying on TABLE 3: currEnT LEgAL AcTiviTy (PdH): Q4 2020
average one-quarter of the monthly contractual
current legal activity Q4-2020
instalment since the arrears began, those arrears
would have first begun some 6.66 years (or 80 No ‘formal demand’ 23 34,275
months) ago.20
‘Formal demand’ but legal proceedings
The critical point here is that these data are yet to issue 6,418
indicative of widespread and long-term struggle
Legal proceedings in progress 7,301
to hold on to family homes. Ultimately, the toll
that these late stage arrears cases has taken on Legal proceedings issued, concluded and
the mental and physical health of family arrears still outstanding 6,992
members and in terms of the welfare, personal
ToTAL 54,986
development and lost opportunities for young
adults and children can be very significant,21 and Source: Central Bank of Ireland
the overarching financial costs to society - in
Perhaps the most telling statistic here is that
terms of healthcare, disability payments and
almost three-quarters (over 40,000) of the
education costs for example - are likely to be
accounts that are currently in arrears are not the
considerable were they ever to be subjected to
subject of legal proceedings and it is likely that
an objective and detailed assessment.
this number incorporates the significant majority
With public housing options in limited supply and of the less advanced arrears cases. It is possible
subject to substantial waiting lists, and private that new cases may be added to this category
rented accommodation both limited and through the second half of 2021 given a
expensive and an increasing amount of it now in combination of the conclusion of payment
18 the control of real estate investment trusts breaks, the tapering of income supports such as
(REITs), people in longer-term arrears have little the Pandemic Unemployment Payment (PUP),
choice. And for the many who diligently paid their and the longer term economic effects of Covid 19
mortgages until the Crash impacted negatively on borrower payment capacity.24
on their payment capacity, a sense of deep
It is important to emphasise here that these
injustice still endures in taking the personal fall
figures are expressed in terms of the number of
for global financial practices that were both
accounts, not the number of dwellings. Thus,
irresponsible and poorly regulated.22
where reference is made to 7,301 accounts at
end Q.4 in respect of which legal proceedings
were in progress for example, this does not mean
2.3 Current legal activity
7,301 individual Civil Bills for Possession. Many
Table 3 below sets out the position in relation to borrowers will have topped up their mortgage at
the occurrence of repossession proceedings in some point and will therefore have two (or
terms of each account in arrears at the end of perhaps even more) accounts on the one
Q.4 2020. dwelling. On this matter the CBI has informally
estimated that ‘in broad terms, for mortgage
20
Neither of these very basic calculations take into account accounts in arrears there is an average of 1.2
any additional interest that might be potentially be charged
by the lender on those arrears. accounts per underlying property’.25 It may
21 therefore be estimated that 7,301 accounts
‘Life with mortgage arrears in Ireland: I had ‘seizures from
stress’, Irish Times, 2nd February 2019. where legal proceedings are in progress relates
https://www.irishtimes.com/life-and-style/homes-and-
property/life-with-mortgage-arrears-in-ireland-i-had- 23
Defined in the release as ‘the issuing of a legal letter for
seizures-from-stress-1.3777654. Some three years into the demand’ and generally understood as a notification that a
post GFC crisis, a piece of MABS research identified a lender will send as a formal matter of course to a borrower
number of emerging personal and familial impacts of prior to issuing any legal proceedings to repossess a
mortgage arrears: Norris, M. and Brooke, S. (2011). Lifting property’.
the Load: Help for people with mortgage arrears. Dublin:
24
Citizens Information Board, MABS NDL and Waterford The next paper – Paper 3 - in this series will examine
MABS, p.86-91. available payment break data in detail.
25
22
See: Downey, D. (2013) Irish Housing and the Global See https://www.centralbank.ie/statistics/statistical-
Financial Crisis of Urbanisation, PhD thesis, Department of publications/behind-the-data/understanding-long-term-
Geography. Dublin: Trinity College. mortgage-arrears-in-ireland - September 2020.flac: From Pillar to Post — Paper Two 2. ANALYSIS OF MORTGAGE ARREARS DATA
to some 6,084 discrete households/sets of “Legal proceedings have been issued:
repossession proceedings (7,301 divided by 1.2),
Means that a formal application has been
since lenders do not bring separate repossession
made to a court to begin repossession
cases on each account but rather one Civil Bill for
proceedings, or that legal proceedings are
Possession on the relevant property secured by
currently ongoing. This includes:
the loans.
¢ Civil Bill lodged/entered at Circuit Court
The release also provides a detailed breakdown or High Court: accounts where a Civil Bill
of legal activity within the respective arrears has been lodged or entered at the Circuit
categories and logically one would expect that Court or High Court. This is the first time
very few proceedings would have been issued in the Bill has been lodged for a particular
respect of accounts that have been in arrears for account, and has been assigned a unique
a relatively short period of time. To begin with, case number.
the lender has in principle to adhere to the
¢ Court Hearings in progress (at least 1
processes and timelines in the Code of Conduct
court hearing has taken place): is the
on Mortgage Arrears (CCMA)26 before declaring a
number of accounts where at least one
borrower in arrears to be outside the terms of its
court appearance has occurred. Fre-
Mortgage Arrears Resolution Process (MARP),
quently, the first hearing and in some
and must then wait at the very least another
cases the first number of hearings will
three months before initiating any legal action.27
result in an adjournment. In cases where
The data shows that the accounts that have
the first hearing be adjourned, this will
been in the deepest arrears for the longest
still count as a hearing for the purposes
period of time are generally the ones most likely
of this statistical collection.”
to be the subject of litigation, which is as we
19
would expect.
The reference here to the High Court in addition
to the Circuit Court is somewhat concerning.29
The legal proceedings here exclusively concern
dwellings which are the family home (or ‘principal
private residence’) of the borrower/s. In principle
therefore, due to the current applicable legisla-
tive framework which provides that repossession
proceedings on family homes must be brought in
the Circuit Court area where the borrower
resides, there should be very few, if any, of these
2.4 Duration of legal proceedings
repossession cases before the High Court at this
The CBI’s explanatory notes that accompany the point, unless they are the subject of an appeal.30
data release in terms of court proceedings state The data in Table 4 below are compiled from excel
as follows:28
29
Repossession proceedings in the High Court are actually
brought by way of a ‘Special Summons’ not a Civil Bill.
30
Section 101 (5) of the Land and Conveyancing Law Reform
Act 2009 provides that an application by a mortgagee
(lender) for an order for possession and/or an order to
26
exercise the power of sale in relation to a ‘housing loan
See: https://www.centralbank.ie/docs/default- mortgage’ must be brought to the Circuit Court. However,
source/Regulation/consumer-protection/other-codes-of- this obligation only applied to mortgages issued after 1st
conduct/24-gns-4-2-7-2013-ccma.pdf December 2009 when that Act was commenced.
27
Unless the borrower is deemed by the lender to be not Subsequently, Section 3 of the Land and Conveyancing Law
co-operating. Reform Act 2013 retrospectively corrected this error and
provided that proceedings in relation to the principal private
28
Central Bank of Ireland (2020). Residential Mortgage residence of the mortgagor (borrower) where the mortgage
Arrears and Repossessions Statistics Explanatory Notes, was created before 1st December 2009 must also be brought
December 2020. Dublin: Central Bank of Ireland. in the Circuit Court.flac: From Pillar to Post — Paper Two 2. ANALYSIS OF MORTGAGE ARREARS DATA
statistical tables published and updated by the 2.5 The Circuit Court repossession
Central Bank to accompany its quarterly process
mortgage arrears reports. This Table demon-
strates the increasing percentage of cases where
a Non-Bank entity is the applicant seeking repos- Proceedings to seek the repossession and sale of
session, now almost equal with Bank cases. What family homes involve the service of a Civil Bill for
leaps out thereafter from this data is the length Possession on the defendant borrower and are
of time that cases have been in the system conducted in accordance with legislative
without a finite outcome. Thus, in respect of 40% provisions and detailed Circuit Court rules.31 As
of the accounts affected, it is between 2 and 5 provided for under s.100 (4) of the Land and
years since the first hearing of the case took Conveyancing Law Reform Act 2009, applica-
place. In respect of 30% of accounts, it is over five tions for a Possession Order and an Order for Sale
years and counting. And this does not appear to may be made simultaneously. Two specific
include the length of time that pre-court pro- ‘Practice Directions’ have also been issued by the
cesses from the first occurrence of arrears – the President of the Circuit Court that are also
various steps of the MARP engagement – took, relevant to these proceedings.32 The first of these
nor the time lag between the service of legal pro- (CC11) provides that there must be a minimum of
ceedings and when the case was first reviewed eight weeks between the date the Civil Bill is
by the relevant Circuit Court County Registrar. issued in the relevant Circuit Court office and the
‘return date’ when the matter first comes before
the County Registrar, the court official who is
TABLE 4: durATion of LEgAL ProcEEdings By LEndEr TyPE
responsible for the administration of the case.
Time since first hearing Bank non-Bank Total
In practice, this time period may be longer,
20
Less than one year 918 333 1,251 depending on how busy the civil proceedings
lists are in the relevant circuit. This Practice
1-2 years 430 525 955
Direction goes on to state that, unless the
2- 5 years 1,120 1,794 2,914 defendant borrower consents, no Possession
Order shall be made on the return date and that
Over 5 years 1,499 682 2,181
on that date the County Registrar shall adjourn
ToTAL 3,967 3,334 7,301 to such later date as s/he ‘considers just in the
(54%) (46%) circumstances’ and this is generally called a
Source: Central Bank of Ireland, mortgage arrears statistics, December 2020. ‘Practice Direction’ adjournment. The effect of
this is that there may be an interval of a number
In respect of the lengthy timeframes suggested of months from the date the Civil Bill is served to
by these figures, these reflect two main factors: the date that the case will be properly considered
(i) the large number of repossession cases for the first time.
amongst an array of other civil business being
As noted in the overview to this paper, concern
dealt with by the relevant Circuit Court County
is often expressed by lenders, regulators and
Registrars and; (ii) the extreme seriousness and
indeed the European Central Bank (ECB) that it is
implications of the application, which may see
too difficult to obtain a Possession Order in the
the eviction of a household from its home, with
legal system in Ireland, but nonetheless many
all the adverse future consequences that this
entails for the members of that household and
for broader housing, social and economic policy. 31
See Circuit Court Rules (Actions for Possession and Well-
Before attempting to make sense of these data, Charging Relief) Statutory Instrument No. 264/2009 as
some explanation concerning the procedures amended by SI’s 358/2012; 346/2015 and 171/2016. SI
499/2017 – Circuit Court Rules (Jurisdiction) - sets out the
that apply in family home repossession cases is
relevant legal documents used for this procedure.
required. These procedures and the perceived 32
These are CC11 - Actions for Possession (12/11/2009) and
delays that they may give rise to, are not CC17 – Proceedings for possession or sale on foot of a
contextualised within the CBI release. Thus, while mortgage (10/08/2015). Practice Directions are intended to
complement the rules of court and are issued to inform
the dataset may document, it does not always
parties what the court expects of them in respect of
explain. the practice and procedure of the courts.You can also read
