A group of experts, commissioned by the government to review instances of mortgage arrears, has requested the abolishment of the present €3 million collateral debt limit for individuals looking to secure insolvency agreements. This is in response to the more than 20,000 longstanding arrears cases in the nation.
At present, a debtor with secured debts exceeding €3 million isn’t able to make a proposal for a personal insolvency arrangement (PIA) unless all secured creditors concede to ignore the limit. “Expanding access to this legal debt solution would benefit a greater breadth of borrowers struggling with unmanageable debt,” said the report, unveiled on Tuesday by the Minister for Finance, Jack Chambers.
The expert panel, comprised of representatives from various Government departments and State agencies, also advocated that the Insolvency Service of Ireland (ISI) be authorised to grant certificates safeguarding insolvent individuals from creditors’ legal action whilst applying for a PIA.
Presently, only courts have the authority to issue such certificates, valid for up to 70 days and extendable by a further 40 days under specific circumstances. The ability to delegate this task to the ISI could “hasten and streamline” the process, it was suggested.
The authors of the report also proposed that the courts, charged with validating PIAs created by insolvency practitioners, should have the capacity to recommend modifications to the proposals for the purpose of improving the efficiency of the process.
The report concluded that the framework established to address mortgage arrears following the property market crash in 2008 – which comprised of a Central Bank arrears resolution code and the establishment of the ISI– has been effective. The rate of Irish arrears cases has declined from its height of roughly 18% in 2013 to 6.8% as of the end of March.
The mortgage measures and the modifications made to the prudential frameworks of retail banks after the Great Financial Crisis are said to be effective. These bolstered frameworks were able to prevent a possible crisis on the rise of early mortgage arrears observed from the middle of 2022. This is a stark contrast to the systemic issues that the mortgage market experienced in 2008.
Nonetheless, the report points out that approximately 20,000 mortgages are still in arrears beyond a year. Around 6,000 of those have been in arrears from five to ten years, and roughly 5,000 have remained in arrears for over ten years.
A study by the Central Bank in 2021 revealed that a mere 45 percent of borrowers in long-term arrears had taken steps to sort out their issues with their lenders. Among them, a majority of 57 percent were able to pay over half of their lingering mortgage balance.
The Arrears Review Group exhorted banks and firms that manage loans for nonbank lenders to step up their customer service standards where needed. This is with the intention of increasing client engagement levels. The group emphasized the necessity of improving borrower engagement. It added that inferior customer service, especially for vulnerable borrowers, would only magnify the challenge of generating the necessary response from the borrower.
Minister Chambers gave his endorsement of these suggestions and rolled out plans to establish a Mortgage Arrears Forum. This forum will be responsible for the orchestration of implementing all proposed recommendations.