Irish proposals to strengthen lenders’ ability to deal with mortgage arrears are credit positive for Irish mortgage covered bonds because they will make it easier for lenders to take action against delinquent borrowers and reduce arrears, according to Moody’s.

On 13 March Ireland’s Department of Finance (DoF) announced that it planned to introduce new legislation removing a legal ban on repossessions, which Moody’s said would remove legal uncertainty regarding lenders’ ability to repossess properties when a mortgage loan has become delinquent. Legislation was published on 28 March by the Department of Justice & Equality.

Meanwhile, Ireland’s central bank concluded a four week public consultation on the review of the Code of Conduct on Mortgage Arrears (CCMA) on 11 April, and is now reviewing and analysing the submissions, with the revised CCMA expected to be published by the end of May. The amendment of the CCMA is aimed at increasing lenders’ powers when dealing with delinquent borrowers. The proposals include a tightening of the definition of a “co-operating” borrower, a classification that triggers a 12 month moratorium on the lender taking any action against the mortgagor. Another proposal is the removal of a cap on the number of communications that a lender can have with a borrower, currently limited to three per month, said Moody’s.

“These initiatives are credit positive for mortgage backed covered bonds and RMBS in Ireland because they will enable lenders to weed out disingenuous borrowers and reduce arrears,” said Moody’s.

The rating agency noted that as a result of a “borrower-friendly legal and regulatory system” Ireland has one of the highest rates of residential mortgage loan arrears in Europe and a very low number of repossessions.

Mortgage arrears surpassed 12% at the end of 2012, while repossessions were practically zero as a result of a 2011 High Court ruling that, according to Moody’s, “made it virtually impossible for mortgage lenders to get a court order to repossess a home if the mortgage was originated before 1 December 2009”.