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FLAC calls for mortgage-arrears overhaul

A group that campaigns for improved access to justice has called for a re-examination of the role of the courts system in mortgage-arrears cases.

The call from FLAC came as it published Ten Years and Counting, a paper that examines the data on mortgage arrears published by the Central Bank over recent years.

From the figures, the paper concludes that the resolution processes put in place after the financial crisis – and the subsequent legislative initiatives introduced to improve those processes – have given lenders too much control, and have not delivered sustainable solutions for many borrowers.

System ‘not working’

The report finds that two in every three borrowers who are currently in arrears, and deemed to be cooperating by their lender, have not been offered a restructure of their debt.

“The figures demonstrate that lenders have failed in many cases to take the opportunity presented by the Mortgage Arrears Resolution Process (MARP), or the Code of Conduct on Mortgage Arrears (CCMA), to put in place an affordable alternative repayment arrangement,” the paper says.

The paper’s main author, FLAC’s senior policy analyst Paul Joyce, said that it was clear that the current system of resolution was not working effectively for borrowers, lenders, or the taxpayer.

He also argued that recourse to the legal system in such cases should be a last resort.

Courts ‘not ideal’

“Passing a case onto the courts to deal with, even though the problem is usually not about determining legal right or wrong (the normal business of the courts), is indicative of a State failure to take responsibility for the outcomes of a lending model that facilitated reckless lending, and ultimately failed many borrowers,” he said.

The paper calls for a “coherent and consistent” system of out-of-court resolution, with enforceable and properly regulated rules.

“The courts are not the ideal place for mortgage-arrears cases, particularly for unrepresented defendant borrowers, unless there is a legal dispute between the parties, and this seldom occurs in family-home mortgage-arrears cases,” the FLAC report says.

Key law ‘unused’

It also refers to “policy confusion” about some of the initiatives aimed at addressing the problem of arrears.

While it describes the Land and Conveyancing Law Reform (Amendment) Act 2019 as “a potentially far-reaching piece of legislation that, in principle, improves the prospects of a borrower successfully defending repossession proceedings”, it adds that the law remains “largely unused and untested”.

Among the paper’s main recommendations is an improvement in the Central Bank’s reporting on all aspects of mortgage arrears and repossessions.

It also calls on the regulator and the Insolvency Service of Ireland (ISI) to provide “more comprehensive” data on the role of personal-insolvency arrangements in arrears cases.

The report is the second of four papers from FLAC, in a series that assesses the difficulties facing consumer borrowers after the pandemic.