The Central Bank has issued a Dear CEO Letter arising from its thematic review of early mortgage arrears supports, the outcome of which was published by the Central Bank on 24 April 2024.

As part of the thematic review, the Central Bank engaged with seven in-scope retail banks, retail credit firms and credit servicing firms who, in total, hold c90% of all PDH mortgage accounts in early arrears.

As highlighted in the Central Bank’s latest Residential Mortgage Arrears & Repossessions Statistics (published in March 2024 for Q4 2023), Q4 2023 saw a slight uptick in PDH mortgage accounts in early (< 90 days’) arrears.  Balanced against that, the number of PDH mortgage accounts in long-term mortgage arrears had fallen by 11% year-on-year, and 3% quarter-on-quarter.  So we can expect the management of early arrears to feature prominently on the Central Bank’s supervisory agenda over the coming months.

The Dear CEO Letter noted that, when properly applied, the “Code of Conduct on Mortgage Arrears (CCMA) is well positioned to support borrowers in or facing financial difficulty”.  That tallies with the Central Bank’s comments as part of its ongoing Consultation on the Consumer Protection Code (CPC) (CP158) (which closes for feedback on 7 June 2024) that the CCMA is functioning well.  While the CCMA will be incorporated into the new set of retail conduct regulations that will replace the CPC, the Central Bank has not proposed large-scale changes to the CCMA as part of the CPC review.  However, the changes that the Central Bank has proposed are quite aligned with key findings from the recent thematic review.

The thematic review highlighted issues relating to late, incomplete and unclear information, and issues with how regulated firms engage with and support borrowers facing early mortgage arrears. It also identified limited take-up of temporary alternative repayment arrangements (ARAs) prior to the full assessment of a borrower’s standard financial statement (SFS) being carried out – it has asked firms to consider making more effective use of temporary ARAs while a borrower’s circumstances are being assessed. A number of positive practices were also identified by the Central Bank in its letter, and the Central Bank will continue to engage with the firms involved (in some cases, tailored risk mitigation programmes have been put in place).

The CCMA-related changes proposed by the Central Bank as part of the CPC review cover similar themes (providing information, and giving proper consideration to ARAs): giving borrowers additional information on what ARAs are available; including present and future repayment capacity as part of an assessment of potential ARAs; providing information on the sale of a property on foot of a repossession order; a 12-month validity period for an SFS; further limitations on unsolicited visits; and a requirement to give further and regular information to borrowers in arrears on the impact of a personal insolvency arrangement.  Reflecting the focus on ARAs, the Central Bank also plans to publish updated guidance on what is meant by ‘appropriate’ and ‘sustainable’  in the context of a range of ARAs.

For more information on the Central Bank’s CPC review, supervisory priorities and other developments in the NPL space, read more of our recent insights here:

Central Bank publishes Supervisory Outlook, highlighting priorities, activities and risks for the year ahead

Consumer Protection Code Reform: Central Bank launches 3-month consultation

NPL Update: EU Credit Servicing Directive transposed into Irish law

Individual Accountability Framework: Central Bank consults on Business Standards as part of CPC review