Patrick Honohan: Progress and developments in relation to implementing
the mortgage arrears resolution targets
Speech by Mr Patrick Honohan, Governor of the Central Bank of Ireland, to the Joint
Committee on Finance, Public Expenditure and Reform, Dublin, 30 April 2014.
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Accompanying data tables can be found on the Central Bank of Ireland website.
Thank you for inviting me to discuss the progress and developments in relation to
implementing the mortgage arrears resolution targets. I welcome the opportunity to discuss
the issue and I am also happy to discuss other matters the Committee may wish to raise.
When I was last before the Committee in September I noted that there were indications the
mortgage arrears resolution process was working and, while there was still some way to go,
momentum was building. Based on the evidence of recent months it is evident that the
momentum has been established and we are starting to see progress by all banks in working
to address mortgage arrears issues. Although it is still fair to say that the full resolution
across the system will take a significant amount of time.
As you are aware under the Mortgage Arrears Resolution Targets imposed by the Central
Bank last year the banks are required to meet quarterly targets on the resolution of mortgage
arrears. To date we have received returns from the banks for three quarters and we reported
the outcomes of our first assessment in November.
We have recently concluded our audit and assessment of a sample of the banks' end 2013
target returns, which you discussed recently with the various institutions. Based on the
information submitted the banks have proposed sufficient numbers of solutions to meet the
targets of proposing solutions to 50 per cent of those in arrears and concluding 15 per cent of
these cases.
The audit effort this time was channelled towards what we viewed as the highest risk areas.
We focused on examining the areas and issues which have caused us most concern and
areas which the banks must address now if they are to build a sustainable, long-term
process to deal with arrears. The audit process involved examinations of individual loan files,
based on institution-specific samples, distinguishing for example between situations where a
bank could be perceived as still relying on short-term solutions, and where a bank seemed to
be relying on what might be called "bulk campaigns" (offering similar solutions across the
board to a range of cases).
All in all, I would summarise our findings by saying that although we have noted, in the
course of the audit, a number of areas of deficiency (as I will mention below), by and large,
the evidence is consistent with a process which is working more or less to target.
A number of key issues emerged in our latest audit, all of which have been communicated to
the banks to address. The main issues include:
• In some banks, communications with borrowers on proposed sustainable solutions
were too frequently verbal in nature, and they did not provide sufficient clarity to
borrowers on what the ultimate solution proposed was.
• There is evidence that despite the requirements for proposed solutions to be
sustainable in the long-term, short-term loan modifications are still too prevalent in
some banks.
• Affordability assessments were often not evident on files reported as sustainable.
• In a limited number of cases, we found issues of potential breaches of the Code of
Conduct on Mortgage Arrears (CCMA) relating to the timing of the letters in advance
of legal proceedings for repossessions commencing. The Central Bank will
commence a review of CCMA compliance in the second half of the year and these
findings will be taken into account as part of this review.
We are communicating the specific issues and actions identified for each bank, including the
actions arising in from our wider insights into the effectiveness of the specific banks'
strategies to resolve mortgage arrears.
While these issues are significant, and it is important that action is taken to address them,
they should not impede progress on dealing with arrears cases. We expect the banks to
continue to progress cases to sustainable and long-term solutions.
We will continue to review the banks' operations and strategies and where there are
deficiencies or we think things should be done better we will let them know.
Addressing mortgage arrears was never going to be a short-term issue. We have always
believed it was going to take time to tackle the issues and take a number of years to work
out. We are now at a point were progress is evident and, notwithstanding specific areas for
improvement by banks, we are moving along the right path. Mortgage arrears remain a
significant priority for the Central Bank and we will continue our programme of intensive
oversight of the banks' progress.