Opinion of the European Central Bank of 5 March 2018 on mortgage arrears resolution (CON/2018/13)
Date: 2018-03-05
Institutions: European Central Bank
Subjects: Ireland, civil bankruptcy, financial solvency, financial stability, mortgage, national law, real estate credit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 March 2018  

on mortgage arrears resolution 

(CON/2018/13) 

Introduction and legal basis 

On  29  January  2018  the  European  Central  Bank  (ECB)  received  a  request  from  the  Chairman  of  the 

Oireachtas  (Irish  National  Parliament)  Joint  Committee  on  Justice  and  Equality  for  an  opinion  on  a 

Mortgage Arrears Resolution (Family Home) Bill 2017 (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC1, as 

the  draft  law  relates  to  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the 

stability of financial institutions and markets and to the specific tasks conferred upon the ECB concerning 

policies relating to the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 

In accordance  with the  first sentence  of Article 17.5  of the  Rules of Procedure  of  the European  Central 

Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1  The  draft  law  provides  for  the  establishment  of  a  Mortgage  Resolution  Office  (MRO),  within  the 

existing Insolvency Service of Ireland. The Insolvency Service of Ireland was established under the 
Personal Insolvency Act 2012 (hereinafter the ‘2012 Act’)2. The 2012 Act was further amended by 

the Personal Insolvency (Amendment) Act 2015. 

1.2  The  draft  law  provides  for  the  establishment  of  a  framework  applicable  to  certain  ‘Financially 

Restricted  Mortgagors’.  The  draft  law  provides  that  a  Financially  Restricted  Mortgagor  is  a 

mortgagor  who  resides  in,  and  is  the  registered  owner  of,  a  mortgaged  property  that  is  a  family 

home, and whose disposable income, non-essential assets, and total personal debts are restricted 

below a level to be prescribed by ministerial order. 

1.3  The  draft  law  provides  the  MRO  with  powers  to  make  mortgage  resolution  orders  in  respect  of 

Financially  Restricted  Mortgagors  that  submit  an  application  for  such  an  order  under  certain 

conditions.  These  include  that  the  Financially  Restricted  Mortgagor  has  already  corresponded 

and/or  communicated  with  the  financial  institution  that  provided  the  mortgage  for  the  purpose  of 

1  

2  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

See Opinion CON/2012/70. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

 
 
 
 
                                                 
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seeking  to  renegotiate  or  restructure  their  mortgage.  Moreover,  the  draft  law  will  only  apply  to 

Financially Restricted Mortgagors who were in arrears on or before 1 January 2017.  

1.4  The draft law provides that various types of mortgage resolution orders may be made by the MRO. 

These include, inter alia, an order that (1) the Financially Restricted Mortgagor make interest only 

payments  on  the  mortgage  for  a  period  of  time  that  will  not  exceed  four  years;  (2)  the  mortgage 

period be extended by a period of time that will not exceed 20 years; (3) the mortgage payments 

due  to  be  made  by  the  Financially  Restricted  Mortgagor  be  deferred  for  a  period  that  will  not 

exceed  one  year;  (4)  the  terms  and  conditions  of  the  mortgage  be  amended  so  that  the  interest 

rate can be changed to a fixed or variable interest rate, including a change to the rate itself, that the 

MRO considers appropriate, taking into account prevailing market conditions; (5) the principal sum 

due on the mortgage be reduced in a fair manner, provided that the mortgagee be granted a share 

in  the  Financially  Restricted  Mortgagor’s  equity  in  the  family  home  as  the  MRO  considers 

appropriate; and (6) the principal sum due on the mortgage be reduced in a fair manner, taking into 

account certain factors. 

1.5  The draft law provides that the effect of such orders is to inter alia prevent the financial institution 

that provided the mortgage from commencing any legal proceedings for the recovery of a debt or 

repayment, save in limited circumstances, or to seek to eject the Financially Restricted Mortgagor 

from  their  tenancy  in  the  family  home.  The  financial  institution  may  object  to  the  order,  and  the 

order may be amended or terminated in certain circumstances. 

1.6  The draft law also provides for an independent appeals system, whereby a mortgagor or financial 

institution aggrieved by a decision of the MRO may appeal against that decision. The draft law also 

stipulates  offences  and  penalties  concerning  cases  of  fraudulent  or  dishonest  conduct  by  the 

mortgagor,  and  in  respect  of  circumstances  where  any  person  seeks  to  improperly  influence  an 

Appeals  Officer,  wilfully  neglects  to  attend  oral  hearings  or  interferes  with  documents  relevant  to 

the appeal. 

2. 

Observations 

2.1 

Interaction with existing national measures 

2.1.1  The  ECB  recalls  that  the  introduction  of  the  2012  Act  was  required  by  the  EU-IMF  Financial 

Support  Programme  for  Ireland.  The  ECB  was  consulted  on  the  draft  of  the  2012  Act,  and 

supported  the  aim  of  lowering  the  cost  and  increasing  the  speed  and  efficiency  of  personal 

insolvency  proceedings,  while  at  the  same  time  mitigating  moral  hazard  and  maintaining  credit 

discipline. The ECB considered that the draft of the 2012 Act provided for debt relief in appropriate 

cases  and  contained  provisions  that  aimed  to  protect  the  interests  of  creditors  by  applying  strict 

eligibility  criteria  to  the  availability  of  the  insolvency  arrangements,  providing  for  oversight  by  the 

Insolvency Service and the courts and requiring supermajority creditor  approval of the insolvency 

arrangement  in  appropriate  cases.  The  ECB  considered  that  the  provisions  struck  a  reasonable 
balance between the interests of creditors and debtors in coming to an insolvency arrangement3.  

3  

See paragraph 2.2 of Opinion CON/2012/70. 

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2.1.2  The ECB notes that the 2012 Act was further enhanced by the Personal Insolvency (Amendment) 

Act  2015,  in  particular  by  ensuring  that  a  borrower  whose  proposal  for  a  personal  insolvency 

arrangement is refused by the mortgage lender or other creditors can seek an independent review 

of that refusal by the courts. The courts in turn have power, subject to certain conditions, to impose 

the rejected proposal on the mortgage lender or other creditors. 

2.1.3  Several other measures have also been introduced in Ireland to seek to address mortgage arrears 

and  debt  resolution.  First,  the  Central  Bank  of  Ireland  adopted  a  Code  of  Conduct  on  Mortgage 

Arrears in 2009, in accordance with Section 117 of the Central Bank Act 1989. This Code is binding 

on mortgage lenders, and the Central Bank of Ireland has the power to administer sanctions for a 

contravention  of  the  Code  under  Part  IIIC  of  the  Central  Bank  Act  1942.  Second,  the  Consumer 

Protection  (Regulation  of  Credit  Servicing  Firms)  Act  2015  seeks  to  protect  borrowers  who  are 

parties  to  credit  agreements  in  respect of  which  credit  servicing  firms  undertake  certain  services. 

The ECB welcomed the measures thus introduced, as they aim to strengthen consumer protection 
and  thereby  contribute  to  preserving  confidence  in  the  marketplace4.  Third,  the  Irish  Government 

has  put  in  place  various  measures  to  assist  distressed  borrowers,  including  the  Abhaile  scheme, 

which  is  a  scheme  that  has  been  established  to  allow  homeowners  to  access  independent  legal 

advice  and  support,  and  the  Mortgage  to  Rent  Scheme.  Support  is  also  provided  to  distressed 

borrowers by the Money Advice and Budgeting Service. 

2.1.4  It  is  unclear  how  the  provisions  of  the  draft  law  will  interact  with  these  existing  measures  or  with 

ongoing processes for the resolution of mortgage arrears. This uncertainty could introduce further 

delays  in  ongoing  processes.  In  particular,  unlike  the  2012  Act,  the  draft  law  addresses  only  the 

mortgage debt of the borrower, and does not address the resolution of other, non-mortgage debt. 

In  order  to  ensure  an  efficient  and  effective  regime  for  addressing  personal  insolvency,  a 

borrower’s entire debt should be taken into account.  

2.1.5  Moreover, the draft law does not provide for the publication of relevant data on the functioning of 

the proposed regime or the independent review of the efficacy of mortgage resolution orders and 
their impact on Irish credit institutions and the Irish financial system5. 

2.1.6  It  is  suggested  that  it  would  be  more  appropriate  to  build  on  and  enhance  the  existing  regime, 

rather  than  establish  a  new  regime.  In  that  respect,  the  ECB  notes  that  in  March  2017  the 

Department of Justice and Equality launched a public consultation on the operation of the Personal 

Insolvency  Acts  2012-2015,  as  part  of  the  mandatory  review  of  the  legislation  provided  for  under 

section  141  of  the  2012  Act.  This  review  may  provide  an  appropriate  opportunity  to  address  the 

shortcomings of the existing legislation. 

2.2  Effects on the banking sector 

2.2.1  In the context of its direct responsibility for the supervision of significant banking groups within the 

euro  area,  the  ECB  monitors  closely  the  stability  of  credit  institutions.  The  high  level  of  non-

performing loans in Ireland has brought large credit losses to Irish banks in the recent past. Thus, it 

is important that non-performing loans are dealt with in an efficient and effective manner, balancing 

4 
5  

See Opinion CON/2014/69. 

See paragraph 3.3 of Opinion CON/2013/34. 

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the  need  to  ensure,  on  the  one  hand,  observance  of  the  general  duty  of  debtors  to  meet  their 

payment  obligations  and,  on the  other  hand, the  need to provide assistance  to  individuals in  dire 
financial situations6.  

2.2.2  The draft law is being introduced without the benefit of a thorough economic impact assessment. 

The  mortgage  arrears  resolution  arrangements  and  the  supporting  administrative  infrastructure 

should  above  all  be  workable.  While  partial  write-down  of  debt  can  sometimes  offer  a  solution  in 

special  cases  where  the  borrower’s  solvency  can  be  restored,  and  where  creditor  losses  can  be 

minimised,  it  is  important  to  ensure  that  these  measures  do  not  result  in  blanket  mortgage  debt 

forgiveness and are geared to minimising the risk of abuse. In particular, the draft law may have a 

potential negative impact on credit institutions as well as the functioning of the financial system. It is 

only  by  making  such  a  prior  assessment  that  it  may  be  possible  to  mitigate  such  negative 

implications.  In  turn,  any  reforms  should  be  formulated  in  a  manner  that  safeguards  financial 

stability,  promotes  market  efficiency  and  liquidity  and  supports  the  adequate  flow  of  credit  to  the 

economy. In the absence of an impact assessment, however, it is difficult to be confident that the 
objectives set by the draft law will be achieved7. 

2.2.3  Even though the draft law, if adopted, will only apply to Financially Restricted Mortgagors who were 

in  arrears  on  or  before  1  January  2017,  the  scope  of  possible  mortgage  resolution  orders  is 

extensive,  including  various  forms  of  debt  forgiveness.  The  ability  of  financial  institutions  to 

effectively  manage  credit  risk  depends  on  a  reliable,  predictable  and  stable  legal  framework  that 

adequately  balances  the  interests  of  both  the  creditor  and  the  debtor.  However,  the  draft  law 

introduces  changes  that  may  affect  the  ability  of  lenders  to  give  effect  to  the  agreed  terms  of 

secured credit in Ireland, which could undermine legal certainty and the adequate management of 
credit risk in financial institutions. In this respect, it is important to carefully consider the impact of 

the draft law on credit agreements in order to ensure legal certainty and avoid undue interference 

with  the  contractual  and  property  rights  of  credit  institutions,  and  to  prevent  moral  hazard  from 
arising in the relationship between creditor and debtor8.  

2.2.4  It  is  for  the  Irish  authorities  to  assess  whether  the  draft  law  complies  with  Irish  constitutional  law 

and other applicable legal principles. 

2.3  Effects on financial stability  

Given the scope of the draft law and the importance of mortgage portfolios in total bank assets, the 

draft  law  may  have  a  potential  negative  impact  on  the  credit  institutions  affected,  and  ultimately 

may have implications for financial stability. 

2.4  Effects on the Irish economy 

2.4.1  As noted  above, the  scope  of  possible mortgage resolution  orders is extensive, including  various 

forms of debt forgiveness. Notwithstanding some of the safeguards in the draft law, such provisions 

may adversely affect the future supply of credit and the pricing of mortgages. Banks could respond 

by unduly tightening lending conditions, in particular to compensate for credit losses resulting from 

6  
7  

8   

See paragraph 3.1 of Opinion CON/2013/34. 

See paragraph 2.3 of Opinion CON/2012/40, paragraph 2.3 of Opinion CON/2012/70, and paragraph 2.2 of Opinion 
CON/2010/34. 

See paragraph 2.2 of Opinion CON/2015/56. 

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the  application  of  the  draft  law.  The  implications  for  the  real  economy  are  uncertain,  given  the 

absence of a quantitative impact assessment.  

2.4.2  While  the  draft  law,  if  adopted,  will  only  apply  to  Financially  Restricted  Mortgagors  that  were  in 

arrears on or before 1 January 2017, the potential for interference with the ability of lenders to give 

effect  to  the  agreed  terms  of  secured  credit  in  Ireland  might  nevertheless  render  the  market  less 

attractive and discourage new entrants. This could stifle competition in financial services in Ireland, 
due to a perceived increase in legal uncertainty9. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 5 March 2018. 

[signed] 

The President of the ECB 

Mario DRAGHI 

9  

See  paragraph  3.1.1  of  Opinion  CON/2016/54,  paragraph  3.2.2  of  Opinion  CON/2015/56,  and  paragraph  3.1.2  of 
Opinion CON/2015/32. 

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