Review of the Independent Financial Advice Service

Transcription

1 Review of the Independent Financial Advice Service Report: December 2013

2 CHAPTER 1 EXECUTIVE SUMMARY Introduction Independent Financial Advice Service Approach to the review Main issues arising in the review The lack of awareness about the Independent Financial Advice Service Small number of users of the service The limited scope of the advice The implementation of the operating protocol by lenders The timeliness of the service Possible extension of the panel of participating accountants to include other professionals Summary of the main recommendations Information about the service to be made available to borrowers The implementation of the operating protocol by the lenders The scope of advice covered by the protocol The timeliness of the advice The possible extension of the panel to include other financial advisors 8 CHAPTER 2 GOVERNMENT STRATEGY TO ASSIST THOSE IN MORTGAGE DIFFICULTY Resolving the mortgage arrears crisis Progress to date 9 CHAPTER 3 MORTGAGE ARREARS INFORMATION AND ADVICE SERVICE Introduction Mortgage Arrears Information and Advice Service Website Mortgage arrears information helpline Independent Financial Advice Service 12 CHAPTER 4 REVIEW OF THE INDEPENDENT ADVICE SERVICE FOR BORROWERS AVAILING OF LONG TERM MORTGAGE FORBEARANCE Approach to the Review Terms of Reference Consultation Process 14 2

3 CHAPTER 5 MAIN ISSUES ARISING IN THE REVIEW The lack of awareness about the Independent Financial Advice Service Small numbers availing of the service The scope of advice is too limited The implementation of the protocol by the lenders The timeliness of the service The extension of the panel of advisors 18 CHAPTER 6 REVIEW RECOMMENDATIONS Information about the service to be made available to borrowers The implementation of the protocol by the lenders The scope of advice covered by the protocol The timeliness of the advice The possible extension of the panel to include other financial advisors Review existing panel Continued monitoring of the service Further review in quarter APPENDIX 1 PROTOCOL FOR INDEPENDENT FINANCIAL ADVICE TO BORROWERS AVAILING OF LONG TERM MORTGAGE FORBEARANCE 25 APPENDIX 2 MORTGAGE ARREARS INFORMATION AND ADVICE SERVICE LEAFLET 29 APPENDIX 3 SUGGESTED STANDARD LETTER FOR BORROWERS OUTLINING THE PROVISION OF THE INDEPENDENT FINANCIAL ADVICE SERVICE APPENDIX 4 CONSULTATION PAPER - REVIEW OF THE INDEPENDENT FINANCIAL ADVICE SERVICE APPENDIX 5 LIST OF ORGANISATIONS WHICH RESPONDED TO THE CONSULTATION PAPER APPENDIX 6 SUMMARY OF SUBMISSIONS RECEIVED 41 3

4 Chapter 1 Executive Summary 1.1 Introduction The Mortgage Arrears Information and Advice Service was launched in September The purpose of the service is to provide information and advice to mortgage holders in arrears or pre-arrears in assessing their options. The service was set up as part of the Government s response to the Interdepartmental Mortgage Arrears Working Group (referred to as the Keane group) report, published in September 2011 which recommended that an independent mortgage support and advice service be established to advise mortgage holders in arrears or pre-arrears in assessing their options. The report stated that the need for this service would be time limited to approximately three years. A Working Group chaired by the Department of Social Protection, examined the issues relating to the establishment of such a service and recommended a three phased approach to the provision of information and advice to assist people in mortgage distress. The approach differentiates between mortgage information and mortgage advice. The first two elements of the service focus on the provision of general mortgage arrears information and advice. A website was developed as the key online access portal for general mortgage information and advice and has had over 177,000 visitors since June A Mortgage Arrears Information Helpline was established within the Citizens Information Board (phone ) to provide general mortgage arrears information and signposting in relation to the Code of Conduct on Mortgage Arrears, and other supports available for those in mortgage arrears or pre-arrears. The helpline started at the end of July 2012 and has had in excess of 8,500 calls to date. The third element of the service is the provision of independent financial advice to mortgage holders at the point where a lender presents a borrower with long term forbearance proposals relating to a mortgage secured on the borrower s primary residence. It was agreed that a review of the operation of the independent financial advice element of the service would be commenced in June 2013 to ensure that it is delivering for people with mortgage debt problems. 1.2 Independent Financial Advice Service The provision of independent financial advice to borrowers in mortgage distress to assist them assess their options was a key recommendation of the Keane Report. The third element of the Mortgage Arrears Information and Advice Service provides for independent financial advice to mortgage holders who are being presented with long term mortgage resolution proposals by their lenders. This advice is provided at the point where a lender presents a borrower with a long-term forbearance proposal relating to a mortgage secured on the borrower s principal primary residence. When a lender is proposing a long-term mortgage resolution proposal to a borrower, the lender advises the borrower to obtain independent financial advice on the proposed arrangement and that, if 4

5 the borrower wishes to avail of this option, that the lender will pay 250 to an accountant of the borrower s choosing for the provision of this advice directly to the borrower. The advice is provided by a panel of accountants drawn from members of the main accountancy institutes in Ireland who agreed to participate and support this independent service. The panel is available on a county by county basis on the website The advisory framework commenced with practicing accountants because they already operate within a regulatory regime which includes qualitative oversight by their regulating bodies and in these circumstances it was possible to establish the advisory framework for people with mortgage distress within a relatively short timeframe. A protocol for the provision of the advice was agreed between the accountancy bodies and the Irish Banking Federation. The general scope of the advice is limited to the borrower s principal private residence. 1.3 Approach to the review The review of the independent financial advice element of the Mortgage Arrears Information and Advice Service was undertaken to ensure that the service is meeting its objectives. The review encompasses all aspects of the service including the take up of the service and its possible extension to other interested parties. A Group comprising representatives from Department of Finance and the Department of Social Protection was established to oversee the review. The Review Report was considered by the Mortgage Arrears Implementation Steering Group and the Cabinet Committee on Mortgage Arrears and Credit Availability. A process of public consultation was undertaken during which all relevant stakeholders and interested members of the public were afforded the opportunity to offer their views in response to a set of questions developed by the Review Group. 2. Main Issues arising in the Review There was a general recognition and appreciation of the potential benefits of the independent financial advice service though a number of issues were raised about its operation namely; 2.1 The lack of awareness about the independent financial advice service The majority of submissions commented on a lack of awareness about the service among eligible borrowers. They reported that a lack of clarity in the paperwork issuing to borrowers by lenders when making long term forbearance proposals is causing confusion about the nature of the service, whether it is actually free to borrowers and the context in which it becomes available to them. 5

6 2.2 Small number of users of the service Figures provided show that approximately 11,000 borrowers had been informed of the availability of the independent financial advice service by the end of September 2013 and lenders had received just under 200 invoices from accountants for the provision of the advice. The numbers don t directly relate to the reporting period as there will be time delays between the issue of the long term forbearance offer, the meeting with the accountant, and the receipt by the lender of an invoice. 2.3 The limited scope of the advice The majority of the submissions considered that the scope of the financial advice which can be offered by the accountant to the borrower is too limited. The advice as provided for in the operating protocol relates only to the offer made by the lender and does not have scope to advise on other resolution options from any other sources. Many considered that the advice should be broadened to include legal advice and broader financial advice including the options now available under the Personal Insolvency Act The implementation of the operating protocol by lenders A number of issues have arisen relating to the operation of the protocol. It would appear from the submissions that the independent financial advice service is not being offered to all eligible borrowers. For example, borrowers who are being offered a six month trial of a proposed long-term restructure are advised by their lenders that the independent financial advice service is not available to them until the end of the trial period. Also, in cases where where the long term resolution offer is that of voluntary surrender/repossession, borrowers are not being made aware of the availability of the service. 2.5 The timeliness of the service Approximately half of the submissions suggested that the distressed borrower needs to have independent advice at an earlier point (and throughout) the process of re-negotiation of their mortgage with their lender. It was also acknowledged that the costs of providing such a service would be significantly higher than the costs of the current service, that not all borrowers would need this enhanced service and the issue of identifying those who would benefit from such a service would have to be addressed. 2.6 Possible extension of the panel of participating accountants to include other professionals Most of the submissions were of the view that consideration should be given to extending the panel to include other professionals with a broader range of skills and experience who could advise on finance, law and insolvency issues. In this context issues relating to oversight, quality assurance and redress would have to be addressed and the submissions suggested that oversight arrangements should be at the same standard as currently obtains for accountants. 6

7 3.0 Summary of the main Recommendations The Review Oversight Group having considered the issues identified in the review regarding the operation of the independent financial advice service make the following recommendations: 3.1 Information about the service to be made available to borrowers The review group recommends that communication from lenders about the independent financial advice service must be made much clearer and simpler. In particular, communications should specify that no other additional fee will be charged to the borrower for this service; that the service is independent and confidential and that the lender recommends that the borrower should avail of the service (ultimately, of course, this will remain a decision for the borrower and s/he may wish to secure advice in a different way or not at all). Furthermore it is recommended that a standard, stand-alone letter should be used by all lenders in order to ensure that the borrower is made fully aware of the availability and nature of the service and that it available to him/ her free of charge at the point where a lender is making a long term forbearance proposal. Agreement has been reached with the Irish Banking Federation that a comprehensive information leaflet will be issued along with the annual mortgage statement to all mortgage holders as provided for in the revised Code of Conduct on Mortgage Arrears. 3.2 The implementation of the Operating Protocol by the lenders The review group recommends that where a lender is proposing a long term solution to a co-operating Principal Dwelling House (PDH) mortgage borrower under the Mortgage Arrears Resolution Target (MART) process, they should recommend that the borrower avail of the independent financial advice service in relation to that offer. Where a mortgage lender is not formally part of the MART process, the offer to avail of the advice service should be made in the context of a proposal which, if the relevant bank was part of the MART process, would be considered to be a proposal under that process. As it appears that not all eligible borrowers are being offered the option of independent financial advice when certain long-term forbearance options are being proposed by the lenders, it is recommended that the wording of the protocol be re-visited and clarified so that it is clear to lenders that the advice must be offered in all cases where a long-term forbearance offer is being made. 3.3 The scope of advice covered by the Protocol It is noted that some of the long term forbearance offers under the terms of the operating protocol and the MART process could involve a situation where the borrower will lose ownership (either in whole or in part) of their home. Given the potential ownership implications for the borrower in these situations 7

8 it would seem appropriate, in such specific circumstances, that the co-operating borrower should also be afforded the opportunity to avail of legal advice in addition to financial advice on a restructuring or resolution proposal being made by the bank where it envisages a loss of ownership (either partial or whole) of a PDH property. Furthermore, given that the new statutory mortgage debt resolution framework is now in place, the review group recommends that the accountant should be in a position to advise the borrower of other mortgage debt resolution options including those available under the Insolvency Service of Ireland. Such information will, of necessity, have to be limited as the advisor will not be in a position to perform the statutory functions of an authorised Personal Insolvency Practitioner, including the provision of advice in the context of section 49 of the Personal Insolvency Act In this context consideration should be given to increasing the funding available to provide the financial advice service to 500 with the cost of this increase to be met by the lenders. 3.4 The timeliness of the advice Having considered a number of submissions which suggested that the advice should be available to borrowers at an earlier stage in the process, the review group concluded that, as the lenders are currently in the process of offering long-term proposals to a significant number of mortgage holders in arrears and the review group is recommending that the offer of the advice service be linked to the MART process, the provision of the independent financial advice service should remain as it is, pending a further review of the service. 3.5 The possible extension of the panel to include other financial advisors Consideration was given to the potential to extend participation in the panel of financial advisors to other interested parties and to identify relevant qualification criteria, quality assurance and redress mechanisms. The review group notes that the existing panel was capable of serving the current level of demand for the service at present. It was also noted that, following the commencement of the Central Bank (Supervision and Enforcement) Act 2013, the Central Bank is commencing an authorisation and regulatory framework for debt management firms. In this context the review group considers it appropriate to permit and allow debt management firms that may in due course be authorised by the Central Bank, to provide independent financial advice to mortgage holders when considering a long term forbearance offer from their lender. Implementation of this recommendation would require further examination and would involve discussions with the Central Bank. The review group also recommends that in circumstances where the long term resolution proposal involves a change or loss of ownership of the PDH the borrower should access both legal and financial advice. The Housing Agency approach in relation to the mortgage to rent scheme is a model that could be used in this regard. 8

9 Chapter 2: Government Strategy to assist those in mortgage difficulty. 2.1 Resolving the Mortgage Arrears Crisis The Government acknowledges that the mortgage arrears situation is one of the most serious social and economic issues facing the country. It is a cause of distress to many families. It is also an impediment to economic recovery. The Government has prioritised this issue by putting in place new legislation, structures and processes to resolve the mortgage arrears issue. In July, 2011, the Government established an Inter-Departmental Working Group on Mortgage Arrears, chaired by Mr Declan Keane, to build on the work of previous reports in this area and to consider further actions to alleviate the increasing problem of mortgage arrears A Cabinet Sub-Committee on Mortgage Arrears, chaired by the Taoiseach and with a membership comprising the Tánaiste, the Minister for Finance, the Minister for Public Expenditure and Reform, the Minister for Environment, Community and Local Government, the Minister for Social Protection, the Minister for Justice, Equality and Defence, and the Minister of State for Housing and Planning, has also been established to provide strong political support to the implementation of policy measures designed to assist households struggling with debt arrears. This Government sub-committee acts to reinforce the co-ordinated response to the mortgage arrears crisis and to drive both the development of the personal insolvency legislation and the implementation of the other recommendations of the Keane Report. A Steering Group, chaired by the Department of Finance, and comprising senior representation from the Departments of Public Expenditure and Reform; Justice, Equality and Defence; Environment, Community and Local Government; Social Protection, the Insolvency Service of Ireland and the Central Bank was established in late 2011 to drive and oversee the implementation of the recommendations of the Keane Report. The Steering Group meets on a fortnightly basis to co-ordinate and drive the implementation of the strategy across Government and to receive and monitor the reports from the relevant Departments and agencies on the implementation of their respective areas of the overall strategy. The establishment of the Government sub-committee and the official high level Steering Group clearly signals that implementing effective and appropriate measures to tackle the mortgage crisis is a key policy priority for the Government. It also indicates that a coordinated national strategy, premised on inter-departmental co-operation, has been adopted to address the critical problem of rising household debt distress. 2.2 Progress to date The Government s continuing approach to tackling mortgage arrears is founded on one important premise - keeping a roof over peoples heads. A significant amount of work has been done to tackle this: 9

10 The Central Bank has now set targets for the banks to deal with distressed borrowers requiring them to offer sustainable solutions by the end of next year. Quarterly targets have been set in relation to the number of sustainable resolution solutions to be proposed i.e. proposals to be made to 20% of arrears cases by end June 2013, 30% by end September 2013, 50% by end December 2013 and 70% by the end of quarter Also, the Central Bank has announced targets for concluded solutions of 15% at end 2013 and 25% at end quarter Updating the Central Bank Code of Conduct on Mortgage Arrears to facilitate effective resolution of borrowers arrears situation. The Code of Conduct on Mortgage Arrears (CCMA) is a key part of the Central Bank s mortgage arrears framework. It is designed to provide appropriate and effective consumer protection measures and to ensure that borrowers who are experiencing, or are concerned about, mortgage arrears are treated in a fair and transparent manner. Intensive and ongoing engagement by the Central Bank to ensure that the banks continue to develop their operational capacity to deal with the mortgage arrears problem. The Central Bank is working on finding solutions for people who have multiple debts with numerous borrowers and are in financial difficulty but are not insolvent. Establishing the Insolvency Service of Ireland which will facilitate insolvent borrowers and lenders to come to an agreed solution. It will enable many people to make a fresh start. Personal Insolvency Practitioners and Approved Intermediaries are now in place and the Insolvency Service of Ireland is accepting and available to process applications for Debt Relief Notices and protective certificates and subsequently proposals for Debt Settlement and Personal Insolvency Arrangements. The radical overhaul of the bankruptcy rules in Ireland, reducing it from 12 to 3 years. Enabling people to remain in their family home through roll-out of the mortgage-to-rent scheme. The scheme will enable any eligible families to remain in their home, while ownership is transferred to an approved housing body who in turn rent it to the original owners. Provision of more comprehensive advice and guidance to people based on the availability of new arrangements for people in arrears. The Government believes that these main elements of a transparent resolution process for borrowers are now in place. Within the next twelve months it is expected that the vast majority of those who cannot pay their mortgage will have concluded a sustainable solution. Already 79,000 mortgage holders have had their mortgages restructured. A key message to people who are experiencing difficulties with their mortgage payments is to engage with their bank and to avail of the processes in place. Repossession should and will remain the last resort the purpose of the strategy is to ensure that, wherever possible, the banks offer a sustainable solution that allows families to remain in their home. 10

11 Chapter 3: Mortgage Arrears Information and Advice Service 3.1 Introduction The interdepartmental Mortgage Arrears Working Group (Keane group) recommended that an independent mortgage support and advice service be established to advise mortgage holders in arrears or pre-arrears. The report estimated that the need for this service would be time limited to approximately three years. A Working Group chaired by the Department of Social Protection examined the issues relating to the establishment of the mortgage advice service. Representatives from the Departments of Finance; Public Expenditure & Reform; Justice, Equality and Defence; The Central Bank; the Citizens Information Board (CIB) and the National Consumer Agency (NCA) are participating in the group. The Group reviewed the range of existing services, both State and non-state, which provide assistance to people with mortgage difficulties and had regard to the personal insolvency legislation which was being developed, to ensure there was no conflict with or duplication of Government supported services. Having considered a range of options, the Working Group differentiated between mortgage arrears information and mortgage arrears advice and recommended the three phased approach to establishing a comprehensive Mortgage Information and Advice Service which addresses the issues identified and provides the necessary supports to assist people in mortgage distress Mortgage Arrears Information and Advice Service The Working Group recommended a three phased approach to establishing a Mortgage Arrears Information and Advice Service, as follows: 1. Development of a website 2. Introduction of the Mortgage Arrears Information Helpline 3. Operation of an Independent Financial Advice Service to borrowers availing of long-term forbearance Website The first element of the service became fully operational in June 2012, in line with the Working Group s schedule. The website, was redesigned and updated with key information for people who are having difficulty keeping up with their mortgage repayments or with paying their rent. A mobile version of the site was also developed. The website is regularly updated to ensure that the latest information on developments in this area is available. The website has had more than 177,000 visits since its establishment and is the key online access portal for comprehensive mortgage 11

12 information and advice. The website is also a key information resource for a range of information providers Mortgage Arrears Information Helpline The second element of the service was the introduction of a telephone helpline in the Citizens Information Board, targeted at those borrowers in mortgage arrears or in pre-arrears on residential property only. The telephone helpline was introduced on schedule at the end of July 2012 and mortgage lenders have agreed to fund this service with lenders payments commensurate with their loan exposure. The helpline provides general mortgage arrears information and signposting in relation to the Code of Conduct on Mortgage Arrears, the Mortgage Arrears Resolution Process and the other supports available to those in mortgage arrears or pre-arrears. It operates in conjunction with the website to provide independent, confidential and high quality information to callers at all stages of mortgage arrears. It refers callers as appropriate to MABS, Free Legal Aid Centres or other relevant services as appropriate, The helpline operates from 9.30 am to 5.00 pm Monday to Friday and since its establishment has handled over 8,500 calls Independent Financial Advice Service The third element of the Service was the introduction of an independent advice service for those borrowers who have been offered long-term forbearance on their mortgages. The Irish Banking Federation (IBF) and the main accountancy bodies agreed to be involved in this element of the service and an operating protocol between the main stakeholders is in place (see Appendix 1). The independent advice service commenced with practising accountants because they already operate within a regulatory regime which includes qualitative oversight by their regulatory bodies and in these circumstances it was possible to establish the advisory framework for people in mortgage distress within a relatively short timeframe. A county by county panel in excess of 2,000 participating accountants is available on the website ( The advice service is free to borrowers and the costs, 250 per engagement, is paid by the lender. This element of the Mortgage Arrears Information and Advice Service became operational in September A monitoring group chaired by the Department of Finance comprising the Department of Social Protection, the main accountancy bodies and the Irish Banking Federation is in place to address issues arising. It was agreed that this element of the service would be reviewed in June Information on the service usage levels is provided by lenders to the Central Bank and in respect of the period quarter 4, 2012 to quarter 3, 2013 lenders reported that some 11,000 long-term 12

13 forbearance offers were made to borrowers with just under 200 invoices received from accountants. It should be noted that the numbers reported don t directly relate to the reporting period as there will be time delays between issue of the long-term offer, the engagement with the accountant and the receipt by the lender of an invoice. 13

14 Chapter 4 : Review of the independent advice service for borrowers availing of long term mortgage forbearance 4.1 Approach to the Review The review of the independent financial advice element of the Mortgage Arrears Information and Advice Service was undertaken to ensure that the service is meeting its objectives. The review encompasses all aspects of the service and involved a consultation process with relevant stakeholders. Since the advice service was established and the operating protocol agreed the environment has changed significantly. In March 2013 the Central Bank introduced the Mortgage Arrears Resolution Targets (MART) process requiring the main mortgage lenders to propose sustainable solutions or otherwise resolve the position of mortgages in arrears of more than 90 days and a new statutory debt resolution framework is in place with the establishment of the Insolvency Service of Ireland. The review is therefore timely as it provides an opportunity to assess the service in the context of the changed debt resolution environment. A group comprising representatives from the Department of Social Protection and the Department of Finance was established to oversee the review. The review group reports to the Mortgage Arrears Advice Interdepartmental Group, chaired by the Department of Social Protection. The review report has been considered by the Mortgage Arrears Implementation Steering Group and the Cabinet Committee on Mortgage Arrears and Credit Availability. 4.2 Terms of Reference The following terms of reference were agreed by the Review Group: Assess the independent financial advice element of the Mortgage Arrears Information and Advice Service as it currently operates Examine the potential for extending participation in the financial advice element to other interested parties and in that context to identify relevant qualification criteria Provide an assessment and suggestions/recommendations for the operation of the independent financial advice function to ensure that it meets the needs of borrowers being offered long-term forbearance options by their lenders. 4.3 Consultation process In June 2013 written submissions were invited from interested organisations and stakeholders with nineteen responses received. The review group also met with stakeholders during the consultation phase. (A copy of the consultation paper is at Appendix 4 and the list of organisations which made written submissions is at Appendix 5) Given the low take up levels of the advice service to date, it was decided that undertaking a survey of the users would have limited value and was not pursued at this time. A small number of the responding organisations had surveyed their own customers and included these views as part of their submissions. 14

15 Chapter 5 : Main Issues arising in the Review Overall there was a recognition and appreciation of the potential benefits of the independent financial advice service, though a number of issues were raised about its operation, namely; A lack of awareness about the independent advice service; Small numbers accessing the service; The limited scope of the advice provided; The implementation of the operating protocol by lenders; The timeliness of the service and The possible extension of the panel of participating accountants to include other professionals 5.1The lack of awareness about the independent advice service The majority of submissions commented on an apparent lack of awareness about the independent advice service among eligible borrowers. They pointed to a lack of clarity in the paperwork issuing to the borrowers by the lenders when making long term forbearance proposals which is causing confusion about the nature of the service, whether it is actually free to borrowers and the context in which it becomes available to them. Respondents were strongly of the view that information on the availability of the service is not prominently highlighted in the communications issuing from lenders, is often included in correspondence which may also contain other financial information and therefore availability of the service is lost in the overall communications. The following extracts from letters from lenders demonstrate this point: Term Extension Offer/Split Mortgage Restructure Agreement. The following information is contained on page three of a twelve page document; We analyse each customer s individual situation, and offer them the restructure solution which we believe is most appropriate. We believe that a Split Mortgage is the most appropriate solution for your circumstances. As this is a very important financial decision, we recommend that you: 1. Receive independent legal and financial advice: We suggest you receive independent legal and financial advice before you accept this Offer, in order for you to be as informed as possible. We will pay up to 250 (plus VAT) towards your independent financial advice the first time you use this service. To avail of this financial support, please call us on the number below and we will send you a financial advice pack. This details how to claim the financial support and what information you will need to bring to your meeting with the advisor. 2. Talk to us if you have any further questions about this Offer: If you are unsure about what the implications of this Offer will be for you, please contact one of our Arrears Management advisors on

16 Split Mortgage The following information is contained on page six of a ten page document Prior to accepting this Split Loan Letter of Agreement, X strongly recommends that you; Obtain independent legal, tax and financial advice, in particular if you have any questions as to the legal, tax or financial implications of the Split Loan Facility. As previously advised, should you wish to obtain independent financial advice (which we strongly recommend), X will pay a total of 250 (plus VAT) for a meeting with an adviser chosen from the panel of practising accountants (full details of the panel are available at You should already have received a copy of your completed Standard Financial Statement (which will enable the adviser to assist you at this meeting), together with a declaration document that must be completed by you after this meeting. On receipt of this completed declaration, X will make the payment to the adviser. Respondents also suggested that there was little publicity and media coverage beyond the initial launch of the service in September 2012 and this was another factor contributing to the lack of awareness about the service. 5.2 Small Numbers availing of the service Information on the service usage levels is provided by lenders to the Central Bank of Ireland. The information provided in respect of the period quarter 4, 2012 to quarter 3, 2013 show that lenders made some long term forbearance offers to borrowers who were provided with information about the advice service and in that period they had received just under 200 invoices from accountants. As previously outlined the numbers don t directly relate to the reporting period as there will be time delays between the issue of the long term forbearance offer, the meeting with the accountant, and the receipt by the lender of an invoice. Unaudited monthly data published by the Department of Finance in respect of the period to August 2013 provides details of some 41,000 permanent mortgage restructures in place following engagement between lenders and mortgage holders. The type of restructures in place includes term extensions, Interest only for a period, Arrears capitalisation, split mortgage and Hybrid mortgage/other. This serves to highlight the low take up of the service by borrowers when considered in the context of the number of overall restructure offers already made by the lenders. The low take up of the service was commented on by a number of the submissions who attributed a lack of awareness about the service as the main contributory factor. Others suggested that this part of the service would become more important as the lenders roll out their long term forbearance options more intensely and as the Central Bank Mortgage Arrears Resolution Targets process intensifies. 16

17 5.3 The scope of advice is too limited Many submissions considered that the scope of the financial advice which can be offered by the accountant to the borrower is too limited. The advice relates only to the offer made by the lender and does not have scope to advise on refinance options from any other source or possible alternative forbearance options. It was also considered that the advice should be broadened to include legal advice and financial advice, which includes the mortgage debt resolution options now available under the new insolvency arrangements of the Insolvency Service of Ireland. It is noted that borrowers who are availing of the mortgage to rent scheme must get independent legal and financial advice. They must get legal advice because of the change in tenure of the property and financial advice on how to deal with residual debt and how it might affect their credit rating. The lenders fund the legal advice (up to 500) on the basis of the change in tenure of the family home. The use of the service is compulsory and the final letter of offer under the mortgage to rent scheme has to be countersigned by the solicitor. It was suggested in a number of submissions that consideration be given to broadening the scope of the service to include the provision of legal advice when borrowers are offered a long term forbearance proposals which involves voluntary sale or repossession of their home. Any adjustment to the scope of the operating protocol currently in place would require renegotiation with all parties and that other arrangements would have to be made if other forms of advice (e.g. legal) are to be incorporated into this service. 5.4 The implementation of the protocol by the lenders Submissions received identified a number of issues relating to the operation of the protocol. A number were of the view that the documentation issuing by lenders to borrowers was not comprehensive or sufficiently clear. This resulted in confusion among borrowers about the nature, scope and availability of the service. It would also appear that the independent financial advice service is not being offered to all eligible borrowers. For example; Borrowers who are being offered a six month trial of a proposed long-term restructure are advised by their lenders that the independent financial advice is not available until after the trial period Borrowers, where the long term forbearance/resolution offer is voluntary surrender/reposession, are not being made aware of the availability of the service 17

18 An analysis of calls to the Mortgage Arrears Information Helpline indicates that a significant number of callers have expressed concern regarding the long term forbearance proposal they receive from their lender. Of a sample of calls surveyed, almost 50% of the long term resolution offers received by borrowers from their lenders involved voluntary sale/surrender or repossession In such cases borrowers appeared unaware of their entitlement to avail of independent financial advice. These issues give rise to a concern that, in some cases, the offer to avail of the independent financial advice service is being provided in the context of general/on-going engagement with the borrower about a mortgage arrears case and not in the context of a specific offer or proposal by the mortgage lender to address a long term mortgage problem. This causes confusion about the nature of the service actually provided and can limit the benefits of the service to the borrower. The independent financial advice service is intended to be of most benefit to the borrower, and can best be delivered by the advisor, when it is availed of in the context of a specific long term forbearance offer/proposal and the operating protocol is clear that this particular advice service was to be offered and provided in that context. Separately, it was also indicated that some of the accountants listed as providing the service when approached, indicated that they were not in fact participating in the scheme. 5.5 The timeliness of the Service Approximately half of the submissions suggested that the distressed borrower needs to have independent advice at an earlier point (and throughout) the process of re-negotiation of their mortgage with their lender. The Mortgage Arrears Resolution Process provides at an early stage for the borrower to be advised in writing of the importance of taking independent advice from MABS or an appropriate alternative. Others commented that the first approach by a borrower in mortgage arrears to their lender is the most difficult and that the advice service should be made available to borrowers from the outset. It was acknowledged that such an approach would change the nature of the service which was put in place to help a borrower at the point when their lender makes a long-term forbearance proposal. It was also acknowledged that the costs of providing such as service would be significantly higher that the costs of the current service, that not all borrowers would need this enhanced service and the issue of identifying those who would benefit from such a service would be difficult to address. 5.6 The extension of the Panel of Advisors The majority of submissions were of the view that consideration should be given to extending the panel to include other professionals with a broader range of skills and experience who could advise on finance, law and insolvency issues. Organisations representing financial brokers want the panel extended to include mortgage brokers and qualified financial advisers who meet various professional standards (e.g. banking qualifications, certified mortgage practitioners), are regulated by the Central Bank and have professional indemnity insurance. 18

19 Other submissions expressed concerns that issues in relation to quality assurance, consistency of approach and redress for dissatisfied borrowers would need to be adequately addressed in advance of any decision to extend the panel of participating advisors to other interested parties and that oversight arrangements should be at the same standard as currently obtains for accountants. Proposals in this regard were not particularly specific as to how this might be achieved, some suggested that the Financial Ombudsman might have a role; others suggested the Central Bank and/or the establishment of a Central Oversight Unit. Another suggestion was that practitioners in interested accountancy and law firms would give advice to borrowers at a time of their choosing. Such practitioners would undergo training similar to that which is in place for proposed Personal Insolvency Practitioners 19

20 Chapter 6: Review Recommendations The Review Oversight Group, having considered the issues identified in the review regarding the operation of the independent financial advice service makes the following recommendations: 6.1 Information about the service to be made available to borrowers The low service usage levels and lack of awareness about the service is a significant concern and points to the need to review the documentation issuing from the lenders to ensure that borrowers are fully informed about the availability and nature of the advice service when they are being offered a long-term forbearance resolution on their primary private residence. The review group recommends the following measures to address the information deficit: Communication from lenders about the financial advice service should make clear to the borrower: that no other or additional fee will be charged to the borrower for this service that the service is independent and confidential and the borrower is free to select an accountant of their choosing from the panel on the website that the lender recommends to the borrower that they should avail of the service (ultimately, of course, this will remain a decision for the borrower and s/he may wish to secure advice in a different way or not at all) A standard, stand-alone letter should be used by all lenders in order to ensure that the borrower is made fully aware of the availability and nature of the service and that it is available to him/ her free of charge at the point where a lender is making a long term forbearance proposal. (A proposed template letter is attached at Appendix 3) A comprehensive information leaflet which provides information on all aspects of the Mortgage Arrears Information and Advice Service has been finalised (See Appendix 2). Following agreement with the Irish Banking Federation this leaflet will be issued to all their mortgage holders along with their annual mortgage statements which the lenders are now required to issue to mortgage holders under the revised Code of Conduct on Mortgage Arrears. This process commenced in November 2013 and will ensure that mortgage holders in early and pre arrears will receive information on the supports and services that are available to assist them in understanding their options It is also recommended that in addition to the above, the information leaflet should be included in correspondence from lenders when they are proposing long-term forbearance resolutions to borrowers. It is accepted that some borrowers will receive the leaflet twice, however the view of the review group is that at a time when a long-term forbearance offer is being made it is important that the borrower is aware that independent financial advice is available to assist them assess the proposed resolution. 20

21 6.2 The implementation of the protocol by the lenders Since the independent financial advice service was established and the protocol was agreed the environment has changed significantly. The Insolvency Service of Ireland has been established and a range of statutory debt resolution options are available to mortgage holders, the mortgage to rent scheme has become operational with 100 cases finalised and 1,000 being progressed, and the Central Bank have introduced the Mortgage Arrears Resolution Targets (MART) process which requires the main mortgage lenders 1 to work through their mortgage arrears cases and to propose, and subsequently conclude, sustainable solutions or to otherwise resolve the position of mortgages in arrears of more than 90 days. Specifically, this regulatory process requires these banks to propose 2 solutions to 20% of such mortgages by end June % by end September % by end December 2013 and 70% by end March The review group recommends that a lender which is proposing a long term solution to a cooperating Principal Dwelling House (PDH) mortgage borrower under the MART process should recommend that the borrower avail of the independent financial advice service in relation to that offer. Where a mortgage lender is not formally part of the MART process, the offer to avail of the advice service should be made in the context of a proposal which, if the relevant bank was part of the MART process, would be considered to be a proposal under that process It should be noted that it is possible that a temporary or short term offer may, having regard to the individual circumstances, be regarded as a sustainable solution for the purposes of the MART. Central Bank guidance has indicated that temporary solutions are those designed to have a specific term and which will expire at some point in the near future (eg a six month interest only restructure) but that such a temporary arrangement will only be regarded as a sustainable solution where the bank has satisfied itself (and can demonstrate to the Central Bank) that the temporary arrangement is in fact sustainable. Therefore, it is recommended that, other than such a short term temporary arrangement, any proposal to a co-operating PDH borrower under the MART by a bank should also include an offer by the bank to the customer to avail of the independent financial advice service The banks covered by the MART are ACC Bank, AIB (incl EBS), KBC Bank, Permanent tsb, bank of Ireland and Ulster and applies to PDH and BTL mortgages (and together these banks account for around 90% of the Irish mortgage market) 2 Targets have also been set for concluded solutions and so far these are 15% by end 2013 and 25% by end March Further 2014 targets for proposed solutions will be set in due course. 21

22 6.2.3 As it appears, from the submissions received and an analysis of callers to the Mortgage Arrears Information Helpline, that not all eligible borrowers are being offered the option of independent financial advice when certain long-term forbearance options are being proposed by the lenders, it is recommended that the wording of the protocol be re-visited and clarified in order that it is clear to the lenders that the advice must be offered in all cases where a long-term forbearance offer is being made. The recommendation above, that the offer should be made in the context of a proposal under the MART (or if the lender is not formally part of the MART process at an equivalent point in their process), will be of assistance in this regard. Furthermore the review group recommends that in circumstances where the long-term forbearance offer is made subject to an initial, short trial period, it is considered that the offer to avail of the independent financial advice should be made at the time of the initial offer and not at the time of the confirmation of the arrangement at the termination of the short trial period. 6.3 The scope of advice covered by protocol The review group considered extending the scope of the advice to include legal advice and/or broader financial advice. In that context, the scope of advice currently provided under the protocol specifically excludes legal advice (which is reasonable given that the providers of the advice are accountants). The group recommends the following; Provide legal advice in certain circumstances It is noted that some of the long term forbearance offers under the terms of the operating protocol and the MART process could involve a situation where the borrower will lose ownership (either in whole or in part) of their home. Given the potential ownership implications for the borrower in these situations it is recommended that, in such specific circumstances, the borrower should in addition to financial advice also be afforded the opportunity to avail of legal advice on a restructuring or resolution proposal being made by the bank where it envisages a loss of ownership (either partial or whole) of a PDH property. The mortgage to rent (MTR) scheme, which entails the loss of ownership, but not occupation, of the home, involves the lender paying up to 500 for the borrower to avail of legal advice and presents an operating model in this regard Provide advice on other mortgage debt resolution options Given that the new statutory debt resolution frameworks are now in place, the review group recommends that the advisor should be in a position to advise the borrower of other mortgage debt resolution options including the new insolvency arrangements now available under the auspices of the Insolvency Service of Ireland. In this way the borrower will have a better understanding of the proposed mortgage resolution offer and the options available in the event that they wish to reject their lenders proposal. Such information will, of necessity, have to be limited as the advisor will not be in a position to perform the statutory functions of an authorised Personal Insolvency Practitioner, including the provision of advice in the context of section 49 of the Personal Insolvency Act In this context consideration should be given to increasing the funding available to provide the financial advice service to 500 with the cost of this increase to be met by the lenders. 22

23 6.4 The timeliness of the advice In considering a number of submissions which suggested that the advice should be available to borrowers at an earlier stage, the review group took into account that under the mortgage arrears resolution process (MARP) lenders are required to advise borrowers to seek advice from MABS or other alternative that lenders are currently in the process of offering, under the mortgage arrears resolution targets (MART) process, long-term proposals to a significant number of mortgage holders in arrears in compliance with the Central Bank target of having sustainable solutions offered to 70% of mortgage holders who are more than 90 days by March 2014 and this review is linking the availability of the independent financial advice service to the MART targets and concluded that the provision of the independent financial advice service should at this point remain as it is, pending a further review of the service. 6.5 The possible extension of the panel to include other financial advisors The potential to extend participation in the panel of financial advisors to other interested parties and in that context to identify relevant qualification criteria, quality assurance and redress mechanisms was considered in the review. The review group felt that any decision to extend the panel to include other financial advisors should be carefully considered and an extension must be done because it is felt justifiable and appropriate both in terms of demand levels for the service and careful consideration of the needs of users for a professional and regulated service. Competency and consistency are important factors to be considered in the review of the panel and the group noted that the independent financial advice commenced with practicing accountants because they already operate within a regulatory regime which includes qualitative oversight by their regulatory bodies. The group considered that the ability to give advice on, one type of financial product, may be removed from the ability to explain, in detail, the overall consequences of the acceptance of a long-term resolution proposal. The key considerations if extended to include other groups include; how would quality be guaranteed? what redress mechanisms should be put in place for the clients? what governance and regulatory arrangements would be considered appropriate? In addition in examining whether to extend the panel to include brokers and Qualified Financial Advisors, the group considered that there is a difference between advising on general insurance or mortgage products where considerable support is provided by insurers and lenders and the type of advice covered by the operating protocol. There is also a potential conflict of interest if a broker is in receipt of or potentially in receipt of an appointment (and commission) to sell on behalf of the same lender. 23

24 The review group concluded that the current panel was capable of serving the level of demand for the service at present and that no changes be made to the composition of the panel at this time. However, it was also noted that, following the commencement of the Central Bank (Supervision and Enforcement) Act 2013, the Central Bank is commencing an authorisation and regulatory framework for debt management firms. Section 28 of that Act defines a debt management firm as a person who, for remuneration, provides debt management services and which includes the giving of advice about the discharge of debts, or negotiating with a person s creditors for the discharge of a person s debts. As this new statutory authorisation and regulatory framework is now being put in place, it would be appropriate to permit and allow any debt management firm that may in due course be authorised by the Central Bank, to provide independent financial advice to mortgage holders when considering a long term forbearance offer from their lender. The review group notes that the implementation of this recommendation would need to be thoroughly examined and proposals in this regard would need to be discussed with the Central Bank. The review group recommends that in circumstances where the long term resolution involves a loss of ownership (either wholly or partly) of the PDH that the borrower should be able to access both financial and legal advice. 6.6 Review existing Panel The review group recommends that a review of panel of participating accountants be undertaken to ensure that only those accountants who wish to participate in the service are listed as providing the service. Other Recommendations 6.7 Continued monitoring of the Service It is recommended that operation of the independent financial advice element of the Mortgage Arrears Information and Advice Service should continue to be monitored by the monitoring group established for that purpose Further Review in Quarter The review group recommends that the independent financial advice service be further reviewed in Quarter and that the review should include a survey of the service users. 24

25 Appendix 1 Protocol for Independent Financial Advice to borrowers availing of long term mortgage forbearance 25

26 Parties Recognised Accountancy Bodies, such as ACCA, CAI and ICPAI Participating mortgage lenders regulated by the Central Bank of Ireland. Relevant Public Bodies Department of Social Protection Department of Finance Central Bank of Ireland Scope This protocol, which is not legally binding on any of the parties, addresses the arrangements regarding the provision of specified independent financial advice* to mortgage borrowers arising from the advanced forbearance process with respect to a mortgage secured on a primary residence (as defined in the Code of Conduct on Mortgage Arrears as issued under Section 117 of the Central Bank Act 1989). General At the advanced stages of the Code of Conduct on Mortgage Arrears MARP process, some co-operating borrowers will be offered a long term forbearance arrangement for their mortgage. The description long term is used to describe arrangements that are intended to be both permanent and/or long term. Long term forbearance will involve the borrower being offered a scheme that is affordable in the long term and in the normal course of events and should not, save for provision for annual review by the lender, need to be revisited, amended or adjusted over the remaining life of the mortgage other than standard bank loan reviews or any reviews required by the forbearance proposal itself. The long term forbearance options covered by this protocol, where they are offered by a participating lender, may include one or more of the options as outlined below (or variations of same); Split Mortgages Term Extensions Long Term Interest Only Mortgage to Rent (or potentially Lease) Trade Down Forbearance Equity participation Voluntary Sale forbearance Repossession (co-operating customer) The above list of options, however, is not exhaustive and variations of the above options or other options may also be offered to borrowers. Once the borrower has been presented with a final long term forbearance option for consideration, the lender will advise the borrower to take independent financial advice on the proposed arrangement and that, if the borrower wishes to avail of the option, that the lender will pay 250 (plus VAT where applicable) to 26

27 an accountant for the provision of specified independent financial advice directly to the borrower. The specified advice assignments will be provided by a panel of practicing accountants. The advisory scheme will be promoted to accountants by the Recognised Accountancy Bodies and a list of participating accountants will be prepared. Borrowers will be free to choose their own adviser from this list and the lender will pay for the advice once only per borrower. Protocol The general scope of work of the independent financial advice would be: o Obtaining customer due diligence documentation as required by Anti-Money Laundering rules; o Agreeing a standard letter of engagement for a specified independent financial advice assignment with the client; o Obtain from the client a copy of their Standard Financial Statement (SFS) and a Financial Statement summary; o Obtain from the client details of the lender s proposed long term forbearance arrangement(s); o Explain technical terms and language in the proposal, o Advise on the implications of the advanced forbearance options in terms of: o The revised monthly/weekly cash cost of debt servicing compared to the client s weekly/monthly net wages o The new term of the loans compared to previous o The interest rate being charged compared to previous o Surplus after expenses of discretionary money available on a weekly/monthly basis per the Financial Statement Summary o Other on-going financial implications arising from the proposal o The financial implication of the final outcome o The practical implications of default on the scheme o Advice provided within a two week period of initial client approach, where possible. o The provision of specified independent financial advice under this arrangement will be free to the borrower. (However, should the borrower require and wish to obtain further financial ad vice from the accountant, such as in relation to taxation or self-employment/business options etc, this will not be covered by this agreement. It may, however, by agreement between the borrower and the accountant be the subject of a separate engagement between them, the terms of which are a matter for the parties concerned. The additional costs for this will not be met by the mort gage lender). o The specified advice under this arrangement could involve up to two meetings between the borrower and accountant, although it is expected that most assignments will be completed in one meeting. o The accountant will explain to the client that the advice provided under this arrangement does not constitute legal advice and, if necessary, legal advice should be obtained on a separate basis. o The accountant will not specifically advise the client to accept or reject the proposed arrangement(s). o The accountant will not have any liability to the mortgage lender in respect of the advice provided to the borrower under this arrangement or in respect of the decision of the borrower. 27

28 Data collection The participating mortgage lenders will collect and make available to the relevant public bodies as required and where reasonable statistical data on the take up and usage of the scheme including for publishing (in an appropriate way) or other policy purpose. The Recognised Accounting Bodies have agreed where practical to cooperate in the collection of such data. The mechanisms for the collection of statistical data will be finalised by the parties as soon as possible. Review mechanism The arrangement will be kept under review by the relevant public bodies. Nothing in this protocol shall be taken to amend or diminish mortgage lenders legal obligations, including without limitation, their obligations under the Consumer Protection Code 2012 and the Code of Conduct for Mortgage Arrears. This protocol shall also not impact on the independence of the Central Bank of Ireland in the performance of its statutory functions and this protocol is without prejudice to the performance by the Central Bank of Ireland of its statutory functions. * - the advice given by the firm does not constitute investment advice as defined by the Investment Intermediaries Act 1995 or a mortgage advice as defined by Consumer Credit Act

29 Appendix 2 Mortgage Arrears Information and Advice Service Leaflet 29

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