ANALYSIS:Indefinite moratoriums and costly retraining of staff are among the fears of financial experts, writes CAROLINE MADDEN
BANKS WILL be hit with higher operating costs and find it harder to repossess homes if new measures to assist distressed borrowers come into force.
The Financial Regulator yesterday proposed a set of requirements for dealing with borrowers who have fallen into arrears on home loans. If these proposals are implemented, banks will have to retrain staff, adjust internal processes, redeploy resources and upgrade information systems to comply with new requirements. All of these changes will have a knock-on effect on internal costs.
Under the new regime envisaged by the regulator, the existing moratorium on home repossession could be extended beyond its current 12 months. According to one industry expert, an extension of the moratorium would hit lenders’ balance sheets, as they would have to provide for higher levels of mortgage arrears.
The regulator has recommended that if borrowers are “co-operating reasonably and honestly” the lender must allow them a 12-month stay before taking legal action. This year-long grace would begin when the borrower first falls into arrears or when they stop complying with a revised payment plan. The latter part appears to open up the possibility of availing of a moratorium multiple times.
Michael Quirke of AIB said greater clarification is required, as it could potentially mean a moratorium “could go on forever”, depending on how it is interpreted. When this scenario was put to a spokesman for the regulator, he said it represented an “exaggerated view” of how it is intended to work in practice.
However, the consultation paper issued yesterday by the regulator contains another provision that could be a further obstacle for lenders trying to go down the repossession route. Under the new system, banks would have to hold off on legal action if a customer has lodged a complaint with the Financial Services Ombudsman, even if it takes longer than 12 months (from the time the borrower fell into arrears) for the complaints process to be completed.
The ombudsman does not yet have responsibility for complaints about arrears. However, the bureau has built up a backlog. Consequently some market commentators predict struggling mortgage holders could extend their grace period even further by lodging a complaint or appeal.
However, a spokesman for the Irish Banking Federation (IBF) said many of the regulator’s recommendations on moratoriums are already being practised by members. “The notion that any changes in the Code of Conduct on Mortgage Arrears would bring about significant changes in practices is misplaced,” he said.
Even if a customer has already benefited from a 12-month moratorium, IBF members will do “everything possible” to facilitate a repayment arrangement, if the customer “genuinely engages”. The regulator’s requirements would simply put these practices on a statutory footing, he said.
The IBF is fully supportive of the broad substance of the recommendations. It will be focusing on the “practical implications” of any changes.
It was also proposed lenders should be required to train all frontline staff to deal with borrowers experiencing financial difficulties, while each branch would have to have at least one person responsible for dealing with arrears.
Séamus Sheils of the Irish Bank Officials Association said frontline staff are already overstretched: “They’re now in situations where they are almost operating with a skeleton staff.”