The Government set up a group to look at the issue of mortgage arrears and personal debt in February 2010. This group was chaired by Hugh Cooney, a partner in KPMG. The group has just published an interim report dealing with mortgage arrears. The problem that this group looked at is immense. Enormous numbers of families bought homes during the period 2002 to 2008, at prices that were significantly higher than their homes are now worth.

Irish house prices peaked at an average of € 323,000 in 2007. Prices have fallen by about 40 per cent since 2007. This means that virtually all new houses bought between 2003 and 2008 are now worth less than the buyers paid. There were about 450,000 new homes sold in Ireland over the period 2003 to 2008, so there are at least 450,000 families in financial trouble.

The really unlucky families are the 300,000 families who bought in the period 2005 to 2008 at peak prices.

These families, who have homes worth less than they paid for them, are mostly young couples, without any savings, many with young children and almost all suffering a decline in income.

Not all the 450,000 are suffering from negative equity. Negative equity means that the mortgage on the house is larger than the market value of the house. The Economic and Social Research Institute has estimated that there are around 250,000 families suffering from negative equity.

Not all those who are in negative equity are in arrears with their mortgages but there are now 32,000 families more than three months in arrears.

The Financial Regulator issued a code of conduct on mortgage arrears in February 2009. This code of conduct on mortgage arrears (CCMA) applies to all the banks and building societies and these organisations 'are required to comply with this code as a matter of law'. The code only applies to loans given to purchase the 'principal private residence in the state'.

The existing CCMA directs the lenders not to seek repossession of the property 'until every reasonable effort has been made to agree an alternative repayment schedule' and lenders must wait at least six months from the time that arrears first arise before applying to the courts for repossession of the property.

The banks and building societies, however, operate a voluntary 12-month moratorium on legal proceedings for repossession of family homes.

The report of the Cooney Group recommends that the existing code of conduct on mortgage arrears be modified and a mortgage arrears resolution process (MARP) be established.

The MARP involves a five-step process. The five steps are Communication, Financial Information, Assessment, Resolution, and Appeal Mechanism.

Step one involves the lenders communicating effectively with the persons who are having difficulties with their repayments or are likely to have difficulties. This communication should involve letters, staff training to deal with queries from borrowers,

Tand an easily accessible section on their website.

Step two involves the lenders meeting with the borrower who is in trouble and filling out a standard information statement which will bring together all the relevant financial information. This standard information statement will detail all income, expenditure, assets and liabilities of the borrower.

Step three involves the lender giving the information gathered in the standard information statement to a single group within the bank and this group following an agreed procedure which will be monitored by the Financial Regulator.

Step four involves the lender attempting to agree a solution to the mortgage arrears problem with the borrower. This may involve what are called 'forbearance measures'.

The forbearance measures may involve changing the monthly repayments, deferring payment, extending the mortgage period or changing the payment to interest only.

All lenders will be requires to publish the forbearance measures that they are going to apply to the borrower. Where the mortgage is unsustainable the resolution may involve an arrangement for the sale of the property.

Where the borrower cooperates with the resolution process the lender cannot apply penalty interest charges. Where the borrower does not cooperate the lender will not have to wait for 12 months to take legal action to get control of the property. Step five involves the right of the borrower, if he or she does not agree with the proposed approach, to go to a separate unit within the bank. This unit will involve senior personnel within the bank who will be required to carry out an independent review of the decision. If the borrower is still unhappy with the independent review he or she can then make a further appeal to the Financial Services ombudsman. The Cooney Group recommended that the mortgage interest supplement scheme, operated by the Department of Social Protection, be revised as quickly as possible to allow the subsidy to be paid where one member of the household is working. he Government has accepted the recommendations of the Cooney Group and the Financial Regulator has committed himself to changing the existing Code of Conduct on Mortgage Arrears to take account of the report.

The new Mortgage Arrears Resolution Process will not be a major help to the hundreds of thousands of families who are in financial difficulties but at least, when it is introduced, it will ensure that these families have a clear and standard process by which they can attempt to solve their mortgage problems.

- FELIM O'ROURKE