The ‘vast majority’ of borrowers are servicing their mortgages and other loans despite the difficult economic circumstances, said Mr Matthew Elderfield, Deputy Governor this week.
Speaking to the Association of Compliance Officers in Ireland, he noted that he was taking the opportunity to speak about the difficult issue of mortgage arrears which is a top priority for the Central Bank. “Earlier this week I met with the Senior Management at the main mortgage lenders where the Central Bank set out very clearly to them our expectations of them,” said Mr Elderfield.
According to the Deputy Governor, the ’sharp increase‘ in unemployment, against the background of the heavy indebtedness built up in previous years, has led to an ’exceptional increase in the number of households who have missed payments on their mortgages.’
Mr Elderfield expects that for some borrowers this is a ’transitory' situation and in due course they will find themselves in a position to resume full servicing of their commitments. However, for others, circumstances have deteriorated severely and perhaps they will never be able to fully repay their mortgage loans. “This is the difficult situation to which the lenders, the government and other stakeholders must try to find equitable solutions.”
Mr Elderfield added that following the banks’ recapitalisation this year they now should have more capacity to ‘address individual arrears cases.’ “It is important to be very clear that neither the banks nor the taxpayer have unlimited financial resources,” stated Mr Elderfield.
Treating Customers Fairly
“At the Central Bank we have a statutory duty to protect consumers in addition to safeguarding the stability of the financial system,” said Mr Elderfield, who also noted that at the heart of the Central Bank’s customer protection strategy is the need to make sure that regulated firms treat their customers fairly. “Getting it right for consumers is at the centre of what we do and the area of mortgage arrears is an important priority for us.”
This is why in February 2009 the Code of Conduct on Mortgage Arrears (CCMA) was introduced. It set a moratorium of six months before a lender could commence legal action against a homeowner who was in arrears on their mortgage.
Mr Elderfield said that he now works closely with organisations such as the Money Advice and Budgeting Service (MABS) to develop mechanisms to help distressed borrowers.
“Where a borrower is co-operating with their lender, the lender must wait at least twelve months before applying to the courts to commence enforcement of any legal action on repossession of a primary residence … We are determined to ensure that we have the necessary measures in place to protect distressed and vulnerable mortgage customers who are trying to meet their commitments.”
“I would like to send a message directly to worried homeowners who feel they are at risk of getting into arrears – we have put the measures in place to protect you, for your part what you need to do is to come forward and engage with your lender to find a workable arrangement to deal with your loan,” said Mr Elderfield.
Interest Rates
According to Mr Elderfield, traditionally, standard variable rates (SVRs) were understood to adjust in line with competitive market conditions. He believes that at present some institutions may be using SVR increases to help compensate for bank losses on tracker mortgages.“The increases in SVRs implemented by some banks may thus be going beyond the traditional passing-through of the cost of funds, instead seeking to make up for what has proved to be an inadequate spread on trackers.”
“The Central Bank does not have the power to set standard variable rates or other interest rates – nor does the government,” said Mr Elderfield.
“We are looking closely at this issue, and we do have a statutory responsibility so far as it concerns the soundness of banks. Accordingly, we have decided to require any bank that has received government capital support, to provide an impact analysis of any proposed standard variable rate increase in terms of the implications for its arrears position and future capital requirements, and that the bank’s Board of Directors be required to review and approve this analysis to ensure that proper attention is given to the costs of such actions.”
Leader’s Questions
During leader’s questions this week Mr Gerry Adams from Sinn Fein asked the Taoiseach, Mr Enda Kenny, if legislation would be brought in to force banks to pass on European Central Bank (ECB) interest rate cuts? Mr Kenny said that “if the regulator sought extra powers from the government in respect of his position as regulator that the government would engage and respond to him. The regulator has written to me and said that at this time he does not seek powers to regulate interest rates.”
