The much-anticipated code of conduct on mortgage arrears which is published by the Central Bank this morning makes significant changes to the existing three-year-old code.

The code outlines how lenders must treat borrowers who are in or facing mortgage arrears.

The limit of three unsolicited contacts a month by a financial institution is gone and has been replaced by a requirement that lenders ensure communications are “proportionate and not excessive”. The code does not, however, offer a definition of “proportionate” other than to say it should not be “unnecessarily frequent” or “aggressive, intimidating or harassing”.

It also calls on borrowers to be given “sufficient time to complete an action they have committed to before follow-up communication is attempted”; although, again , it does not clearly define what it means by sufficient .

For the first time banks will be allowed to make unsolicited personal visits to the home of a borrower in arrears once other attempts at contact have failed and just ahead of classifying them as not co-operating.

Legal proceedings
Once a borrower is classified as such, legal proceedings aimed at repossession can begin. If a lender does make such a visit they must give the borrower at least five days' notice and specified timeframe within which the visit will take place.

During such visits, lenders must offer to explain the standard financial statement to a borrower and offer to assist them in completing it but they can not compel anyone to fill in any forms.

Other controversial changes outlined in the code say that lenders can require a borrower to change from an existing tracker mortgage to another mortgage type. This is the first time lenders have been given this power although they can only move against a borrower’s tracker in strict circumstances when the lender decides that none of the alternative repayment options that would allow the borrower to retain a tracker are appropriate and sustainable.

In such a circumstance the bank “may offer the borrower an alternative repayment arrangement which requires the borrower to change from an existing tracker mortgage to another mortgage type, if that alternative repayment arrangement is affordable for the borrower is a long-term sustainable solution”.

Last resort
The Central Bank said yesterday that such deals would have to be clearly advantageous to the borrower in arrears and would have to be used as a last resort ahead of repossession.

The new code also states that lenders must publish details of all alternative repayment arrangements they have available to borrowers, how these arrangements will work and outline their criteria for assessing requests for alternative repayment arrangements.

It outlines 12 alternative arrangements banks can put on the table, including interest-only repayments, permanently reducing the interest rate, extending the term, adding arrears and interest to the principal, warehousing part of the mortgage through a split mortgage and debt write-off.

Under draft proposals that were published last week, a moratorium of two months had been proposed before a lender could begin repossession proceedings against a non-cooperating borrower in arrears. This has now been extended to three months for those in existing arrears and eight months for anyone who is in “new arrears”.