Non-bank entities must offer forbearance to mortgage holders under new EU directive, committee told

AN EU DIRECTIVE requires Ireland to oblige non-entity banks and credit purchasers to start offering forbearance to mortgage holders, Master of the High Court Edmund Honohan has told an Oireachtas committee. 

Speaking to committee members today, he said the public have a right to be informed about the EU Directive on Credit Servicers and Credit Purchasers, which contains new guidelines for forbearance, including, where possible, partial debt forgiveness.  

The Europe-wide process for dealing with mortgage indebtedness is due to be signed into Irish law by 29 December of this year.

EU member states have an element of discretion in terms of transposing the directive, but Honohan states Ireland should transpose it in full.

The directive sets out that EU Member States should have appropriate forbearance measures in place at national level.

When deciding which forbearance measures to take, creditors should take into account the individual circumstances of the consumer, the interest rate they are paying and the ability to repay, it states. 

The directive sets out that forbearance measures should be able to consist of certain concessions to the consumer, “such as a total or partial refinancing of a credit agreement, or a modification of its existing terms and conditions”, which includes:

• the extension of the loan term
• a change of the type of credit agreement
• a deferral of payment of all or part of the instalment repayment for a period
• a change of interest rate
• an offer of a payment holiday
• partial repayments, currency conversions
• partial forgiveness and debt consolidation. 

Non-bank entities hold around 112,000 mortgages in Ireland, many of which were sold on from retail banks.

While the perception is that these are non-performing loans in arrears, the committee was told that is not the case with many mortgage holders having never missed a payment with their commercial bank before being sold on. 

Edmund Honohan at the Oireachtas Finance Committee today.

The purpose of the directive is to promote a governing framework and provide for a new EU wide authorisation for credit servicers to be overseen by national competent authorities, which in Ireland’s case will be the Central Bank.

Honohan said it is a “bit of good news” that should be put out there, in the hope that it can get “enough momentum behind it” that mortgage holders who are in distress in the run up to Christmas “would stay the course”. 

He told the committee that his chief concern with the new EU directive is that judges will not know the detail of the new legal position it creates.

There is an “information deficit in how judges are operating now”, he said, stating that it shouldn’t fall on the lay person to have to explain the new position to the courts. 

It is his concern that the changes “will not be picked up on”, he stated. 

Honohan said an “obligation arises now on the Central Bank in keeping the public informed on forbearance”. 

Describing it as a significant change in the law, it specifically mentions debt forgiveness, he told committee members. 

Sinn Féin’s Pearse Doherty and other committee members said they had been dealing with a multitude of cases of people having their loans and mortgages sold on to non-entity banks.

Fianna Fáil’s John McGuinness said he knows many families who have had their lives destroyed dealing with vulture funds and credit servicers, stating that he hoped this new framework would make a difference. 

One of the “great benefits” of the directive, is it states that forbearance should happen before court proceedings commence, said Honohan. 

Doherty asked if it is is Honohan’s view that a reasonable offer from a lender cannot be classed as reasonable offer if it doesn’t offer partial forgiveness, as set out in the directive. 

“Yes, that is it,” he said. 

Honohan said the directive says this system should be in operation and says the state should oblige lenders to offer forbearance. 

“That is hard law, there is no way of getting around that,” he said.