2011 Code of Conduct on Mortgage Arrears

Code of Conduct on Mortgage
Arrears

CHAPTER 1
SCOPE
INTRODUCTION
This Code sets out how mortgage lenders (referred to in this document as “lenders”) must treat borrowers in or facing mortgage arrears, with due regard to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits. This Code sets out the framework that lenders must use when dealing with borrowers in mortgage arrears or in pre-arrears. All such cases must be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his/her mortgage obligations. This Code acknowledges that it is in the interests of both the lender and the borrower to address financial difficulties as speedily and as effectively as circumstances allow. LEGISLATIVE BASIS This Code is issued under Section 117 of the Central Bank Act 1989. The Central Bank has the power to administer sanctions for a contravention of this Code, under Part IIIC of the Central Bank Act 1942. Lenders are reminded that they are required to comply with this Code as a matter of law. This Code is effective from 1 January 2011. This Code replaces the previous Code of Conduct on Mortgage Arrears issued by the Central Bank of Ireland on the 19 February 2010. Any right acquired, or obligation or liability incurred, in respect of a contravention of, or act of misconduct under, the previous code survives the replacement of the previous code with this Code. Therefore, any legal proceedings, investigation, disciplinary or enforcement action in respect of a contravention of, or act of misconduct under, the provisions of the previous code in force at the time the contravention or act of misconduct occurred, may be instituted, continued or enforced, and any sanction or penalty in respect of such contravention or act of misconduct may be imposed by the Central Bank of Ireland as if the provisions of the previous code had not been replaced.

Where a provision of this Code is amended or deleted, any legal proceedings, investigation, disciplinary or enforcement action in respect of a right acquired, or obligation or liability incurred, in respect of a contravention of, or act of misconduct under, the provision in force at the time may be instituted, continued or enforced, and any sanction or penalty in respect of such contravention or act of misconduct may be imposed by the Central Bank of Ireland as if the provision had not been amended or deleted. APPLICATION OF THIS CODE This Code applies to the mortgage lending activities of all regulated entities, except credit unions, operating in the State, including:

• a financial services provider authorised, registered or licensed by the Central Bank of
  Ireland; and
• a financial services provider authorised, registered or licensed in another EU or EEA
  Member State and which has provided, or is providing, mortgage lending activities in the State. This Code applies to the mortgage loan of a borrower which is secured by their primary residence. In addition, lenders must apply the protections of the Code to borrowers in the following circumstances:
  (i) Borrowers in arrears and in pre-arrears; and (ii) In the case of joint borrowers, who notify the lender in writing that they have separated or divorced, the lender should treat each borrower as a single borrower under this Code. When dealing with borrowers in arrears or in pre-arrears, mortgage lenders are not required to comply with the following provisions of the Consumer Protection Code:
  Chapter 2, Common Rules: Provisions 46, 47 and 48 (Complaints Handling); and
  Chapter 4, Loans: Provision 4 and Provision 11.
  EXISTING ARREARS CASES
  From 1 January 2011, this Code applies to all existing arrears cases falling within this Code. While lenders’ attention is specifically brought to provisions 21, 35, 47 and to steps 3 and 4 of the Mortgage Arrears Resolution Process, lenders must ensure that they comply with all provisions of this Code from 1 January 2011.

CHAPTER 2
DEFINITIONS
The following are defined for the purposes of this Code:
Arrears: Arrears arise on a mortgage loan account where a borrower has not made a full mortgage repayment, or only makes a partial mortgage repayment, as per the original mortgage contract, by the scheduled due date. Borrower: includes all parties named on the mortgage loan account. Business day: means any day except Saturday, Sunday, bank holidays and public holidays. Not co-operating: A borrower can be considered as not co-operating with the lender when any of the following apply to their particular case:
a) the borrower fails to make a full and honest disclosure of information to the lender, that would have a significant impact on their financial situation; b) the borrower fails to provide information sought by the lender relevant to the borrower’s financial situation ; or c) a three month period elapses during which the borrower:
(i) has failed to meet his/her mortgage repayments in full as per the mortgage contract or has failed to meet in full repayments as specified in the terms of an alternative repayment arrangement; and (ii) has not made contact with, or responded to, any communications from the lender or a third party acting on the lender’s behalf. Pre-arrears: A pre-arrears case arises where the borrower contacts the lender to inform them that he/she is in danger of going into financial difficulties and/or is concerned about going into mortgage arrears. Primary Residence: means a property which is:
(i) the residential property which the borrower occupies as his/her primary residence in this State, or (ii) a residential property in this State which is the only residential property owned by the borrower.

Record: means any document, file or information (whether stored electronically or otherwise) and which is capable of being reproduced in a legible form. Repossession: means any situation where a lender takes possession of a property either by way of voluntary agreement with the borrower, through abandonment of the property by the borrower without notifying the lender, or by Court Order. Unsolicited Communication: includes any communication that has not been requested by, or agreed in advance with, the borrower. Such communications include those instances where contact is not made with the borrower.

CHAPTER 3
PROVISIONS
GENERAL

1. Each branch (or office of a lender in the case of a lender who does not operate a
   branch network), must have at least one person with specific responsibility for dealing with arrears and pre-arrears cases and for liaising with the lender’s Arrears Support Unit (ASU) in respect of these cases.

2. A lender must draw up and implement procedures for dealing with each of the
   following types of borrowers - those in mortgage arrears, those in pre-arrears and those which fall under the Mortgage Arrears Resolution Process (MARP). Such procedures must:
   a) allow for a flexible approach in the handling of these cases; b) be aimed at assisting the borrower as far as possible in his/her particular circumstances; c) set out the how the lender will implement the five steps of the MARP; and d) set out how the ASU will assess cases referred to it, including the types of alternative repayment measures or any other relief method that may be offered to borrowers by the lender.

3. A lender must have in place management information systems to capture information
   on its handling of arrears, pre-arrears and MARP cases, including all alternative repayment arrangements put in place to assist borrowers.

4. A lender must provide appropriate training for frontline staff dealing with borrowers
   in arrears or in pre-arrears. All other frontline staff must be made aware of the lender’s policy for dealing with arrears and pre-arrears cases and the relevant contact persons and process.

5. A lender must assist borrowers by ensuring that all requests from borrowers for
   documentation and information required for the purposes of applying for State supports in relation to mortgages, are processed within ten business days of receipt of the request.

6. At the borrower’s request and with the borrower’s written consent, the lender must
   liaise with a third party nominated by the borrower to act on his/her behalf in relation to his/her arrears situation. This does not prevent the lender from contacting the borrower directly, in relation to other matters.

7. As soon as a borrower goes into arrears, a lender must communicate promptly and
   clearly with the borrower to establish in the first instance why the repayment
   schedule as per the mortgage contract, has not been adhered to.

8. A lender must pro-actively encourage its borrowers to engage with them about
   financial difficulties which may prevent them from meeting their mortgage repayments.

9. Lenders are restricted from imposing charges and/or surcharge interest on arrears
   arising on a mortgage account in arrears to which this Code applies and in respect of which a borrower is co-operating reasonably and honestly with the lender in the Mortgage Arrears Resolution Process. (Lenders will have been notified individually of the charges to which this applies.) PROVISION OF INFORMATION

10. A lender must ensure that all communications about arrears and pre-arrears are
    provided to the borrower in a timely manner. All information relating to a lender’s handling of arrears and pre-arrears cases must be presented to the borrower in a clear and consumer friendly manner. The language used in communications must indicate a willingness to work with the borrower to address the situation and must be in plain English so that it is easily understood. Legal jargon must be avoided, where possible.

11. A lender must ensure that all meetings with borrowers in relation to arrears or pre￾arrears are conducted with utmost privacy.

12. A lender must prepare and make available to borrowers, an information booklet
    providing details of its MARP, which must be drafted in accordance with the requirements set out in provision 10 above and must include:

a) an explanation of its MARP, including the alternative repayment measures available to borrowers and outline in general terms, the lender’s criteria for assessing requests for alternative repayment measures; b) a statement that the borrower will not be required to change from an existing tracker mortgage to another mortgage type; c) information about the potential availability of relevant State supports such as mortgage interest relief or Mortgage Interest Supplement; d) relevant contact points (i.e., the dedicated arrears contact points not the general customer service contact points); and e) reference to relevant website(s) operated by the Money Advice and Budgeting Services (MABS).
13. A lender must have a dedicated section on its website for borrowers in, or concerned
about, financial difficulties which must include:
a) the information booklet required under provision 12; b) information on the level of charges that may be imposed on borrowers that do not co-operate with the lender; and c) a link to any website operated by the MABS that contains information about mortgage arrears. The information on the web-site must be easily accessible from a prominent link on the lender’s home page.
14. At the borrower’s request, the lender must confirm the time period remaining during
which the lender may not commence legal action for repossession of the borrower’s primary residence. MORTGAGE ARREARS RESOLUTION PROCESS (MARP) GENERAL
15. A lender must ensure that it has in place a Mortgage Arrears Resolution Process as a
framework for handling cases as specified in provision 17 below. The MARP must incorporate the steps set out in this Code, i.e.:
Step 1: Communication with borrowers;
Step 2: Financial information;
Step 3: Assessment;
Step 4: Resolution; and
Step 5: Appeals.

16. A lender must establish a centralised and dedicated Arrears Support Unit (ASU), which
    must be adequately staffed, to manage cases under the MARP.
17. A lender must ensure that the MARP framework is applied to the following cases:
    a) a mortgage account where arrears have arisen on the account and remain outstanding, 31 days from the date the arrears arose; b) a pre-arrears case; c) where an alternative repayment arrangement put in place breaks down; and d) where the term of an alternative repayment arrangement put in place expires.
18. In relation to pre-arrears cases, a lender must apply provisions 19, 20, 21, and 23 of
    Step 1 and all of Steps 2 to 5 of the MARP to such cases.
    STEP 1: COMMUNICATION WITH BORROWERS
19. A lender must inform the borrower, in writing, when it has appointed a third party to
    engage with the borrower in relation to his/her case and must explain the role of the third party.
20. A lender must ensure that the level of contact and communications from the lender,
    or any third party acting on its behalf, is proportionate and not excessive.
21. Each calendar month, a lender, and/or any third party acting on its behalf, may not
    initiate more than three unsolicited communications, by whatever means, to a borrower in respect of his/her mortgage arrears or pre-arrears situation. The unsolicited communications do not include any communications to the borrower regarding his/her arrears or pre-arrears situation, which are required by this Code or other regulatory requirements.
22. When arrears arise on a borrower’s mortgage loan account and remain outstanding
    31 days from the date the arrears arose, a lender must:
    a) inform each borrower and any guarantor on the mortgage, unless the mortgage loan contract explicitly prohibits such information to be given to the guarantor, of the status of the account in writing, within 3 working days. The letter must include the following information:
    i) the date the mortgage fell into arrears; ii) the number and total amount of full or partial payments missed; iii) the monetary amount of the arrears to date;

iv) confirmation that the lender is treating the borrower’s situation as a MARP case; v) the importance of the borrower co-operating with the lender during the MARP process and notification that, if co-operation ceases, the protections of the MARP no longer apply and that the lender may start legal proceedings for repossession; vi) a statement that fees, charges and surcharge interest in relation to the arrears will apply, where the borrower does not co-operate with the lender; vii) details of any fees and charges in relation to the arrears that may be applied if the borrower does not co-operate with the lender; viii) a general statement about the impact of missed mortgage repayments and repossession on the borrower’s credit rating, and b) provide the borrower with the information booklet required under provision 12.
23. When a lender is contacted by a borrower in pre-arrears, the lender must provide the
borrower with the information booklet required under provision 12.
24. Where arrears exist on a mortgage loan account, an updated version of the
information specified in provision 22(a) above, must be provided to the borrower in writing, every three months.
25. When a third full or partial mortgage payment as per the original mortgage contract is
missed and remains outstanding and an alternative repayment arrangement has not been put in place, the lender must notify the borrower, in writing, of the following:
a) the potential for legal proceedings for repossession of the property, together with an estimate of the costs to the borrower of such proceedings; b) the importance of taking independent advice from his/her local Money Advice and Budgeting Service (MABS) or an appropriate alternative; and c) that irrespective of how the property is repossessed and disposed of, the borrower will remain liable for the outstanding debt, including any accrued interest, charges, legal, selling and other related costs, if this is the case. STEP 2: FINANCIAL INFORMATION
26. A lender must use a standard financial statement to obtain financial information from
a borrower in arrears or in pre-arrears.

27. In relation to all MARP cases, a lender must:
    a) ensure the borrower understands the MARP process; b) provide the borrower with a standard financial statement; c) inform the borrower that he/she may wish to seek independent advice to assist with completing the standard financial statement, e.g., from MABS or an appropriate alternative.
28. The lender must pass the completed standard financial statement to its ASU.
29. The lender may require the borrower to provide supporting documentation to
    corroborate the information provided in the standard financial statement. STEP 3: ASSESSMENT
30. A completed standard financial statement must be assessed by the lender’s ASU.
31. A lender’s ASU must examine each case on its individual merits.
32. A lender’s ASU must base its assessment of the borrower’s case on the full
    circumstances of the borrower including:
    a) the personal circumstances of the borrower; b) the overall indebtedness of the borrower; c) the information provided in the standard financial statement; d) the borrower’s current repayment capacity; and e) the borrower’s previous payment history. STEP 4: RESOLUTION
33. A lender must explore all options for alternative repayment arrangements, when
    considering a MARP case, in order to determine which options are viable for each particular case. Such alternative repayment arrangements must include :
    a) an interest-only arrangement for a specified period; b) an arrangement to pay interest and part of the normal capital element for a specified period; c) deferring payment of all or part of the instalment repayment for a period; d) extending the term of the mortgage; e) changing the type of the mortgage, except in the case of tracker mortgages; f) capitalising the arrears and interest; and

g) any voluntary scheme to which the lender has signed up e.g. Deferred Interest Scheme.
34. A lender must document its considerations of each option examined under provision
32 above and also the reasons why the option(s) offered to the borrower is appropriate for his/her individual circumstances.
35. For MARP cases, the lender must not require the borrower to change from an existing
tracker mortgage to another mortgage type, as part of any alternative arrangement offered to the borrower.
36. For MARP cases on an existing tracker mortgage, where an alternative repayment
arrangement that is put in place includes a fixed interest period, the borrower must be permitted to revert to an interest rate that corresponds to the margin over the prevailing ECB rate or other tracked rate as specified in the original mortgage contract, at the end of the fixed interest period.
37. Where an alternative repayment arrangement is offered by a lender, the lender must
provide the borrower with a clear explanation, in writing, of the alternative repayment arrangement, including:
a) the new mortgage repayment amount; b) the term of the arrangement; c) the implications arising from the arrangement for the existing mortgage including the impact on:
(i) the mortgage term,
(ii) the balance outstanding on the mortgage loan account, and (iii) the existing arrears on the account, if any; d) details of how interest, will be applied to the mortgage loan account as a result of the arrangement; e) how the alternative repayment arrangement will be reported by the lender to the Irish Credit Bureau and the impact of this on the borrower’s credit rating; f) information regarding the borrower’s right to appeal the lender’s decision, including the procedure and timeframe for submitting an appeal, and g) the borrower must be advised to take appropriate independent legal and/or financial advice.
38. The lender must monitor the arrangement that is put in place for a MARP case, on an
ongoing basis and formally review the appropriateness of that arrangement for the borrower, at least every six months. As part of the review, the lender must check with the borrower whether there has been any change in his/her circumstances in the

period since the arrangement was put in place, or since the last review was conducted.
39. If a lender is not willing to offer a borrower an alternative repayment arrangement,
for example, where it is concluded that the mortgage is unsustainable and an alternative repayment arrangement is unlikely to be appropriate, the reasons must be given in writing to the borrower. In these circumstances, the lender must make the borrower aware of:
a) other options open to the borrower, including voluntary surrender, trading down or voluntary sale, and the implications of each option for the borrower; and his/her mortgage loan account; and b) the borrower’s right to make an appeal to the lender’s Appeals Board in relation to any of the following:
(i) the decision of the ASU;
(ii) the lender’s treatment of the borrower’s case under the MARP process; or (iii) the lender’s compliance with the requirements of this Code, including the procedure for making an appeal and the relevant time allowed to the borrower to consider submitting an appeal.
40. If a borrower is not willing to enter into an alternative repayment arrangement
offered by the lender, the lender must inform the borrower in writing of the following:
a) other options open to the borrower, including voluntary surrender, trading down or voluntary sale, and the implications of these for the borrower and the borrower’s mortgage loan account; b) the borrower’s right to make an appeal to the lender’s Appeals Board in relation to any of the following:
(i) the decision of the ASU;
(ii) the lender’s treatment of the borrower’s case under the MARP process; or (iii) the lender’s compliance with the requirements of this Code, and c) should the borrower decide not to make such an appeal, that the twelve month moratorium on taking legal action, no longer applies to the borrower’s case.
41. Where a borrower ceases to adhere to the terms of an alternative repayment
arrangement, the lender’s ASU must formally review the borrower’s case, including the standard financial statement, immediately.

STEP 5: APPEALS
42. A lender must establish an Appeals Board to consider any appeals submitted by
borrowers and to independently review any of the following:
a) the decision of the lender’s ASU, b) the lender’s treatment of the borrower’s case under the MARP process, or c) the lender’s compliance with the requirements of this Code.
43. The Appeals Board must be comprised of three of the lender’s senior personnel, who
have not been involved in the borrower’s case previously. At least one member of the Appeals Board must be independent of the lender’s management team and must not be involved in lending matters, for example, an independent member of the lender’s Audit Committee.
44. A lender must have in place a written procedure for the proper handling of appeals.
At a minimum, this procedure must provide that:
a) The Appeals Board will only consider written appeals; b) The lender must acknowledge each appeal in writing within 5 business days of the appeal being received; c) The lender must provide the borrower with the name of one or more individuals appointed by the lender to be the borrower’s point of contact in relation to the complaint, until the Appeals Board adjudicate on the appeal; d) The lender must provide the borrower with a regular written update on the progress of the appeal , at intervals of not greater than 20 business days; e) The lender must consider and adjudicate on an appeal within 40 business days of having received the appeal. The lender must notify the borrower in writing, within 5 business days of the completion of the consideration of an appeal, of the decision of the Appeals Board and explain the terms of any offer being made. The lender must also inform the borrower of his/her right to refer the matter to the Financial Services Ombudsman and must provide the borrower with the contact details of that Ombudsman.
45. A lender must allow the borrower a reasonable period of time to consider submitting
an appeal to the Appeals Board, which must be at least 20 business days from the date he/she received notification of the decision of the lender’s ASU.

RESPOSSESSIONS
46. The lender must not apply to the courts to commence legal action for repossession of
the borrower’s primary residence, until every reasonable effort has been made to agree an alternative arrangement with the borrower or his/her nominated representative.
47. Where a borrower co-operates with the lender, the lender must wait at least twelve
months from the date the borrower is classified as a MARP case (i.e. day 31), before applying to the courts to commence legal action for repossession of a borrower’s primary residence. The twelve-month period commences on day 31 but does not include:
 any time period during which the borrower is complying with the terms of any alternative repayment arrangement agreed with the lender;  any time period during which an appeal by the borrower is being processed by the lender’s Appeals Board;  any time period during which the borrower can consider whether or not they wish to make an appeal on the decision of the ASU;  any time period during which a complaint against the lender regarding any aspect of this Code, is being processed by the Financial Services Ombudsman’s office; and  for pre-arrears cases, the time period between the first contact by the borrower in relation to a pre-arrears situation and an alternative repayment arrangement being put in place.
48. Where a borrower is in mortgage arrears, a lender may commence legal action for
repossession of the property without the 12 month period applying, only in the following circumstances:
a) where the borrower does not co-operate with the lender; b) in the case of a fraud perpetrated on the lender by the borrower; or c) in the case of breach of contract by the borrower other than the existence of arrears.
49. A lender, or its legal advisors on its behalf, must notify the borrower in writing
immediately before it applies to the Courts to commence legal action for the repossession of the primary residence.

50. In cases where legal action to obtain an Order for Possession has commenced, a
    lender must endeavour to maintain contact with the borrower or his/her nominated representative. If an alternative repayment arrangement is agreed between the parties before an Order for Possession is granted, the lender must put the legal proceedings on hold, for the period during which the borrower adheres to the terms of the alternative repayment arrangement.
51. Where a lender has disposed of a property which it has repossessed, the lender must
    notify the borrower in writing, of the following information and of his/her liability for:
    a) the balance outstanding on the mortgage loan account; b) details and amount of any costs arising from the disposal which have been added to the mortgage loan account; and c) the interest rate to be charged on the remaining balance. The information specified above must be provided to the borrower in a timely manner following the completion of the disposal. DEMONSTRATING COMPLIANCE
52. A lender must be able to demonstrate to the Central Bank of Ireland that it is in
    compliance with the requirements of this Code.
53. A lender must maintain full records of all the steps taken, and all of the considerations
    and assessments required by this Code, and must produce all such records to the Central Bank of Ireland upon request.
54. A lender must maintain records of all communications with borrowers in mortgage
    arrears and in pre-arrears. Such records must be readily accessible and capable of being reproduced in legible form and in a timely manner. Such records may include contemporaneous notes of meetings and telephone calls.
55. A lender must maintain an up-to-date record of all appeals considered by the Appeals
    Board. This record must contained the details of each appeal, a record of the grounds on which the appeal was considered and the decision of the Appeals Board.
56. All records required by, and demonstrating compliance with this Code, must be
    retained by the lender for 6 years. In addition, all records relating to a borrower must be retained for 6 years from the date the relationship with the borrower ends.

Bosca PO 559, Sráid an Dáma, Baile Átha Cliath 2, Éire PO. Box No 559, Dame Street, Dublin 2, Ireland