The debt-management system put in place to deal with the mortgage arrears crisis that followed the 2008 economic crash has failed to deliver for distressed borrowers, lenders or taxpayers, a leading legal advice provider has said.
A report published by the Free Legal Advice Centre (Flac) examines family home mortgage arrears, and describes it as a problem that “continues to have a massive impact on the lives of many Irish families”.
Paul Joyce, Flac's senior policy analyst, said it was "clear that the current system of resolution is not working effectively".
He said an increase in mortgage arrears and general personal insolvency cases as a result of the impact of Covid-19 “may present a significant challenge” but could “also present an opportunity”.
Mr Joyce suggested “treating these new cases with the compassion and decisiveness they deserve given that the ultimate event that gave rise to them – a global pandemic – is outside of the borrower’s control”.
He added: “There is an opportunity to re-examine the legacy cases in a more open and systemic way, and to reach resolutions in as many cases as possible for once and for all.”
Arrears
Flac researchers examined mortgage arrears and restructuring data published by the Central Bank of Ireland over recent years, and concluded that the resolution processes and legal framework put in place following the crash gave lenders "too much control over outcomes and have not delivered sustainable solutions for many borrowers".
The report says a “substantial percentage” of borrowers in arrears who are deemed to be co-operating by their lender – around two in every three – have not been offered a restructured loan by their lender.
It also noted that the options provided to borrowers under the personal insolvency legislation had delivered “insufficient numbers of legally-binding arrangements, and recent reforms to the legislation concerning repossession remain unused”.
“There needs to be a re-examination of the role of the court system in mortgage arrears cases, and a clear route for people to exit the resolution process system,” Mr Joyce said.
“In our view recourse to the legal system in mortgage arrears cases should be a last resort. Passing a case on to 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 concluded.
Repossession data
The Flac paper makes 18 specific recommendations including improvements to the Central Bank’s lender reporting mechanisms when it comes to “all aspects of arrears and repossession data gathering and investigating apparent anomalies in the data provided by the lenders”.
It also recommends that the Central Bank clearly outline the evolving post-Covid debt situation and points to additional measures and supports that are required.
It calls on the Central Bank and the Insolvency Service of Ireland to provide more comprehensive data on the role of personal insolvency arrangements in mortgage arrears cases.
