Addressing Ireland's Mortgage Arrears Crisis

ADDRESSING THE ISSUE OF
MORTGAGE ARREARS
IN IRELAND
a good practice guide from HML

Contents

Section 1:
Section 2:
Section 3:
Section 4:

Section 1:
About this paper

About this paper

A brief introduction to HML

Ireland: where are we now?

Tackling residential and buy-to-let (BTL)
mortgage arrears

Section 5:

This good practice white paper details
HML’s experience of managing mortgage
arrears in Ireland, with our main focus on
ensuring the most sustainable outcomes
for customers. With banks in the country
currently under increasing pressure from
the Central Bank of Ireland (CBI) to not only
propose sustainable solutions to customers,
but to also complete deals, a significant
amount of resources will need putting into
arrears management and collections.

At HML, we believe Standard Financial Statement (SFS)
engagement with the borrower should be at the heart of
any successful arrears management strategy, as this is
the gateway to the Mortgage Arrears Resolution Process
(MARP). Once within MARP, mortgage customers can
evidence they are engaging with their lender, which – to
a point – protects the borrower from repossession. Cash
collection also increases when a customer is within MARP,
which is beneficial to both the borrower and their lender.
This white paper will take you through the process of
managing Irish mortgage accounts in arrears, from
ensuring SFS completion and engaging with MARP to
sustainable restructures and the next steps lenders need
to take in order to meet their CBI targets. We will draw
upon our experience and provide a case study as an
example of where a client has seen considerable success
after HML supported its arrears management strategy and
collections operations.

Not every bank, mortgage portfolio owner
or other stakeholders may have the
capacity to ramp up customer contact and
collections, which is where HML can prove
to be of assistance. We have been servicing
Irish lenders’ loan portfolios since 2005 and
have in-depth knowledge and experience
of Ireland’s unique financial environment,
making us ideally situated to help banks
meet their CBI targets.

Conclusion and next steps: a sustainable
financial future for
mortgage arrears Ireland

Section 6:
Definitions

2

3

Section 1:
About the authors

Section 2:

A brief introduction to HML
HML is a third-party mortgage
administration company that operates in the
financial services sector. It has 25 years of
experience in the outsourcing industry and
is based at four sites - it is headquartered
in Skipton, and also has offices in Glasgow,
Derry and Dublin, with approximately 1,300
employees in total. It has been servicing
Irish lenders’ portfolios since 2005.

It currently has approximately £44 billion (€53 billion) of
managed assets and 50 major clients, including banks and
building societies. Mortgage administration and servicing
is HML’s main service at present, although it also offers
standby servicing and securitisation, business intelligence
and asset trading, among other services.
In August 2013, Fitch announced that HML’s UK
residential primary (prime and sub-prime) servicer ratings
had been upgraded to RPS1- from RPS2+. HML’s new
RPS1- primary (prime) servicer rating is the highest of any
third-party mortgage administration company in the UK
and Ireland. Its RPS1- primary (sub-prime) rating is the
highest in Europe.
Fitch affirmed HML’s Irish residential mortgage primary
servicer ratings for both prime and sub-prime at RPS2,
while its UK special servicer rating was affirmed at RSS21.
In August 2013, S&P revised the outlook of HML’s primary
servicing of residential mortgages in the UK from stable
to positive. It also affirmed the above average rankings for
HML as a primary and special servicer of UK residential
mortgages, and as a primary servicer of residential
mortgages in Ireland.

GLASGOW

(opened 2007)

In addition, HML’s stable outlook was affirmed for the
special servicing of UK mortgages and the primary
servicing of Irish residential mortgages2.

DERRY

James Hudson

Rachel Bayley

James is lead strategist – portfolio servicing at HML and
has worked within the arrears management side of the
company since 2005. James is responsible for designing
arrears strategies, as well as implementing them and
providing oversight, working to drive improved arrears
servicing for UK and Ireland clients.

(opened 2004)

Rachel is a marketing executive at HML. After completing
a journalism degree at the University of Sheffield, she went
straight into the content marketing industry, where she
worked at an agency for five years before moving to HML
at the start of 2013. Her main responsibility is to produce
external marketing copy, including white papers, press
releases and blogs.

SKIPTON HQ
(opened 2010)

DUBLIN

(opened 2013)

1

4

www.hml.co.uk/latest-thinking/2013/08/fitch-upgrades-hml-to-rps1-for-uk-residential-prime-and-sub-prime/

2

www.hml.co.uk/latest-thinking/2013/08/hml-receives-sp-outlook-revision/

5

Section 3:

Section 3:

Executive summary: The spotlight is
currently on banks in the Irish financial
sector. In addition to the significant issue
of loss-making tracker mortgages, a
combination of the CBI pushing banks
to complete sustainable deals with their
customers in mortgage arrears, along with
negative equity and a lack of borrower
engagement, is piling pressure on to
lenders. A balance needs to be struck to
ensure treatments and restructures not only
produce favourable outcomes for mortgage
customers – which must be a priority – but
to also ensure they support banks in the
long term in resolving the issue of arrears in
Ireland.

The problem of negative equity is also running alongside
climbing mortgage arrears. The CBI’s October quarterly
bulletin for 2013 revealed that since 2009, the number of
principal dwelling houses mortgages in arrears of more
than 90 days has almost quadrupled. These type of
mortgages totalled €18.6 billion by the end of June 201310.

Ireland: where are we now?
In March 2013 the CBI set banks in Ireland targets to
propose solutions to half of those in mortgage arrears
of more than 90 days by the end of 20133. Since then, it
has increased the pressure on banks to take sustainable
and long-term action, with banks being told that they
must have completed deals for 15 per cent of this cohort
by the end of 2013. In addition, by the end of March 2014,
banks must have proposed solutions to 70 per cent of
over-90 day arrears customers and completed deals for
25 per cent4.
In early December 2013, the CBI went one step further
and announced additional targets. By the end of June
2014, banks must have offered sustainable solutions to
75 per cent of over-90 day arrears customers and have
completed solutions for 35 per cent of this cohort5.
Rewind to 2008, and it provides a clear background as
to the position the country finds itself in now and why the
CBI must steer the industry so firmly. During Q2 of 2008,
the average price of a second-hand home was €356,638,
according to the Department of the Environment,
Community and Local Government6. By the same quarter
the following year, this had declined to €313,4317 and to
€279,839 in 20108. The Q2 house prices for 2013 noted
that this price had fallen further still to €260,0309.
The downturn in the Irish residential property market has
implications for both banks and borrowers. Borrowers who
may have previously stretched themselves to get their foot
on to the housing ladder are struggling to downsize due to
the economic conditions and stagnant market. Even if they
were able to sell, they would achieve a much lower selling
price than the original purchase price, compounding the
issue of negative equity.

http://www.centralbank.ie/press-area/press-releases/Documents/
Approach%20to%20Mortage%20Arrears%20Resolution%20-.pdf

The March 2013 targets from the CBI laid out three types
of sustainable solutions:

1: Payments are re-established as per the original

CBI governor Patrick Honohan informed the Oireachtas
Finance Committee that as of the end of June 2013, there
were 98,000 mortgages in arrears of more than 90 days.
Of these, around 75 per cent (74,000) “were not yet in
an arrangement” with their mortgage lender. Mr Honohan
said: “Things are still not moving as quickly as the Central
Bank would prefer; the indications are that the process
is working, momentum is building, but there is some
way to go11.”

schedule or as mutually agreed

2: Borrower opts for a Personal Insolvency Agreement
3: Surrender or repossession of the property
The last option is not ideal for neither the banks or the
borrower, and borrower engagement and commitment
remains the fundamental attribute to resolving the problem
of mortgage arrears.

In November 2013, the CBI revealed that as of the end
of September, there were 99,189 mortgage accounts in
arrears of more than 90 days, although it was clear to
point out that the big driver for this increase was accounts
that had been behind for more than 720 days. The number
of accounts in early arrears of less than 90 days fell by six
per cent during the third quarter. This decline stood at 3.3
per cent during the previous three-month period12.

We will now take a look at good practice for mortgage
arrears management and resolution and the different
strategies and forbearance options that lenders can adopt.

While residential property prices are starting to recover,
albeit mainly supported by rallying values in Dublin
(where in Q2 2013 the average second-hand home cost
€351,99813), the issue of mortgage arrears is proving to
remain problematic.

7

http://www.centralbank.ie/press-area/press-releases/Pages/
CentralBankstatementonMortgageArrearsResolutionTargets
ConcludedArrangements.aspx

Continued

http://www.environ.ie/en/Publications/StatisticsandRegularPublications/
HousingStatistics/FileDownLoad,21279,en.pdf

8

3


4

HousingStatistics/ (Excel download: Latest House Prices, Loans and
Profile of Borrowers)

9

http://www.centralbank.ie/press-area/press-releases%5CPages%5CCentr
alBankstatementonMortgageArrearsResolutionTargets.aspx

5


6

6

http://www.centralbank.ie/publications/Documents/Quarterly%20
Bulletin%20Q4%202013.pdf

ResidentialMortgageArrearsandRepossessionsStatisticsQ32013.aspx

10

12

http://www.centralbank.ie/press-area/speeches/Pages/
IntroductorystatementbyGovernorPatrickHonohan.aspx

13

HousingStatistics/ (Excel download: Latest House Prices, Loans and Profile
of Borrowers)

11

7

Section 4:

Section 4.1:

4.1: The right information at
the right time

How we use this information to enhance our arrears
management in Ireland is a four-stage process:

Tackling residential and BTL
mortgage arrears
Having access to in-depth information at the right
time is essential for successful arrears management,
including driving pre-emptive pre-arrears action. However,
information is only useful if it can be used intelligently to
assess each customer’s propensity and willingness to pay.
In this way, the right resources can be applied to each
customer’s unique set of circumstances.

Executive summary: A successful
arrears management and restructure
strategy usually begins with predictive
analytics. Having this powerful tool
to hand means a full picture of each
customer can be created, ensuring
customer contact, arrears management
and collections strategies are all tailored
to the individual. In the UK, predictive
analytics are partly based on credit
bureau data, but in Ireland, the CBI holds
all of this information, which is
not publically available.

In the UK, predictive analytics is a key tool that HML
employs for this purpose. It allows each customer to
be assessed quickly and accurately on the basis of that
individual’s information. The output from the predictive
analytics process is a set of forward-looking predictions
that describe how each customer is likely to behave in the
future. This can include the propensity of a customer to
recover their account on their own, i.e. self-cure, and the
likelihood that a customer will redeem and repay
the capital.
While predictive analytics have been successfully used
in other countries with major banking systems14, the
financial and regulatory environment is very different in
Ireland. There are no consumer-facing credit bureaus in
the country; instead, the CBI holds credit data which is not
publically available, meaning in Ireland we currently draw
solely upon payment and contact history (behavioural
analytics) instead.

Instead, HML currently uses accountlevel and SFS information to help
accomplish lenders’ objectives. For all
lenders in Ireland, these tend to include
driving people into the protections of
MARP and the successful deployment
of sustainable restructures. However,
the changing regulatory landscape
surrounding contact attempts now
favours the development and deployment
of more predictive analytics, an area of
specialism for HML.

Of course, the rapidly changing regulatory landscape
surrounding contact attempts under the Code of
Conduct on Mortgage Arrears (CCMA) now favours the
development and deployment of more predictive analytics,
an area of specialism for HML; we will be deploying newlydeveloped predictive scorecards in the early part of 2014.

Continued

The Collections stage of the process is to integrate
the analytics outputs with what is happening on the
ground, in order to drive the specific collections
strategies. Individually-tailored contact strategies
are then applied. HML’s highly-trained arrears
management executives within the Arrears Support
Unit (ASU) deliver the bespoke approach required for
each customer within each segment.

Analyse

Review

Segment

The final stage of the process is to Review and learn
through the use of appropriate Management Information
(MI). HML has developed a rich suite of MI designed to
provide insight and analysis into not only the performance
of the portfolio, but also key tranches, including an
account-level lens. Using granular data to advise on the
effectiveness of strategies results in efficient decisionmaking, whether on a daily, weekly or monthly basis.

Collect

In the Analyse stage, payment and contact history
information is applied to assign behavioural scores to
each account. Each score represents a different aspect
of a customer’s behavioural profile. So we might have
predictive scores that provide an assessment of the
risk that the individual represents, drawing upon loan-tovalue, repayment type and payment and contact history,
for example.

This knowledge, along with other information derived
from our analytics capability, enables our portfolio
servicing team to shape our arrears management and
collections strategies.

In the Segmentation stage, the scores are used in
conjunction with information such as recent payment
performance and affordability, to identify key groups
(segments) within the population. A segmentation strategy
might look something like the chart below.
Risk assessment
(predictive score)

Recent payment
performance

Affordability

High

“Our track record in developing and deploying predictive
analytics to enhance collections in the UK has delivered
substantial benefits for our clients and their customers.
It is HML’s aim to bring the same intelligence to our
collections teams working on Irish mortgage portfolios to
improve the outcomes for existing and new clients and
their customers in Ireland during 2014 and beyond.”
Damian Riley,
director of business intelligence at HML

8

B

6

C

7

D

8

E

9

D

10

F

High

11

G

Low
9

5

Low

Poor

http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/
Documents/Deloitte_FSI_UnleashingthePower_MBStudy.pdf

14

C

High

High risk

4

Low

Good

A

High

Poor

3

Low

Medium risk

B

High

Good

2

Low

Poor

A

High

Low risk

1

Low

Good

Customer
segment

Collections
strategy

12

H

Section 4.2:
4.2: Arrears management
and collections strategies
in practice

Under the CCMA, the limit of three unsolicited contacts
per month has been removed, although lenders must
ensure contact is proportionate and not excessive. A
board-approved communications policy must be put in
place by lenders to protect borrowers from unnecessarily
frequent contact and harassment.

Executive summary: The CCMA
is a central part of HML’s arrears
management and collections strategies
in Ireland, as well as increased customer
contact. Our highly-trained and qualified
collections executives ensure customer
contact is made at the right time and is
tailored to the individual and includes
phone calls, letters and face-to-face
meetings. From when the account first
falls into arrears right up to the eviction
date (if the situation progresses to
this point), HML makes every effort to
re-engage the customer into MARP
to ensure they benefit from the most
sustainable outcomes.

Highlighting the success we have had with one of our
clients in Ireland shows how increased customer contact
at the right time works. Since June 2012, when HML
implemented a new arrears management strategy, calls
to customers have increased by fivefold. However, as we
have said, contact has to be made at the right time, and
HML’s current contact hours – in-line with the CCMA –
are from 09:00-20:30 Monday to Friday and 09:00-13:00
on Saturdays. However, we can be flexible with this and
extend to 09:00-21:00 Monday to Saturday, as outlined
under the Consumer Protection Code (CPC).
Several methods of communication are used to uplift
engagement levels. As well as outbound calls, generic and
bespoke letters and face-to-face meetings are also used.
Where telephony and contact letters have failed to engage
a borrower, a suite of bespoke re-engagement letters are
used which highlight the importance of engaging with
MARP. In addition, these letters explain the consequences
of being classed as non-cooperative, which includes a
timeline within which a non-cooperative account could be
progressed into litigation.
The next step, if appropriate, is that a field agent will be
instructed to engage the borrower and achieve a signed
SFS. This is all done within the CCMA framework, which
states that unsolicited personal visits to a borrower’s home
are only permitted when all other attempts at contact have
failed or immediately prior to classifying a borrower as
non-cooperating. The lender must also provide five days’
notice before making an unsolicited personal visit to a
borrower’s home.

HML has been servicing Irish lenders’ portfolios since
2005 and has a deep understanding of Ireland’s unique
financial environment. This experience, as well as our 25
years in the third-party financial administration sector,
means we are well placed to deploy arrears management
and collections strategies in Ireland that are fully compliant
with the CCMA.

Section 4.2:
Continued

MARP

SFS
Documents

Field Agent,
Letter Suite,
Non-Cooperation

Decision

Borrower
Acceptance

Arrangement
Offer

Mortgage
Unsustainable

Monitor
Arrangement
Performance

Field Agent,
Letter Suite,
Non-Cooperation

Offer Not Accepted

Demand

Legal

As you can see, it is essential that a combination of
effective strategies is deployed in order for lenders to
make real headway into the issue of mortgage arrears
in Ireland and we have enjoyed success by adopting
such an approach. The following case study is based on
one of our clients in Ireland for whom we deployed an
arrears management strategy.

Outbound dialling will continue throughout the strategy to
maximise borrower contact and engagement with MARP.
As borrowers return a completed SFS and adhere to
MARP, they are removed from this process. It is important
to note that our contact begins when an account first
falls into arrears and continues until eviction date, if the
process is required to go this far. Contact strives to reengage the customer at every opportunity to bring them
into MARP and ensure repossession is avoided where
possible. Even when legal proceedings commence, HML
does not think the relationship of engagement between
a customer and lender is ‘beyond repair’ and we do
everything possible to ensure customers remain in
their homes.

The revised CCMA, which was introduced by the CBI on
July 1st 2013, is another integral part of HML’s arrears
management and collections strategies and has put
in place a consumer protection framework for those
mortgage customers who genuinely cannot afford their
monthly repayments15.

CentralBankPublishesRevisedCodeofConductonMortgageArrears.aspx

15

10

Arrangement
Deployed

11

Section 4.2:

Section 4.3:

Case study: Increasing the repossession
protections of MARP for customers

4.3: SFS engagement: at the
heart of successful arrears
management

Continued

It is worth noting that under the contact restrictions of
the former CCMA, we maximised our efforts within the
framework to uplift contact levels, which has continued
under the revised CCMA.

Our approach:

Our work with this client in Ireland resulted in HML winning
the Best Debt and Arrears Strategy category at the
Mortgage Finance Gazette Awards 2014, showing how
even with the challenges we face – such as not having
access to credit bureau data – we can still achieve value
for both lenders and customers16.

• In this example, our client had seen an increasing
arrears profile since January 2008.
• HML was asked to service a non-conforming
Irish residential mortgage portfolio to increase
cash collections, contain arrears emergence
and increase the lender’s focus on
sustainable restructures.
• We deployed an arrears management strategy that
is compliant with the CCMA, with a particular
focus on increasing customer engagement through
the SFS process.

What our client says:
“HML have worked with us to improve portfolio
performance, while at the same time ensuring more
customers can remain in their homes through long-term
sustainable and affordable treatments.”

Delivered results:
• Number of accounts that had been in arrears
for more than 12 months increased at a smaller
rate during the second half of 2012, compared to
the same period in 2011, which was prior to HML
implementing the new strategy.
• Between July 2012 and October 2013, there
was a significant increase in the volume of arrears
accounts with an SFS captured, helping to mitigate
the risk of repossession, allowing customers to
stay in their home under the protections of MARP.
• Number of accounts paying full monthly
payment with SFS gathered more than doubled
over the period.
• Cash collections throughout 2013 increased.
• Since adopting the new approach in June 2012,
there has been a sizeable uplift in the number of
accounts in arrears of more than one month
making payment of greater than the contractual
instalment and an almost doubling of the 12
month+ portfolio paying contractual instalment
or more.

items within an SFS, such as income and expenditure. If
customers do not paint an accurate picture for executives
by giving as much detailed information as possible, this
could put them at risk of being seen as not engaging
properly with MARP. It is therefore in their best interests
to be as accurate as possible, not only so they are seen
as engaging with their lender, but also so any restructures
and treatments deployed are appropriate to their
circumstances, helping them to stay in their home.

Executive summary: Have we done
everything we can with the tools we
have to prevent repossession? This is a
question we regularly ask ourselves to
ensure we have maximised our arrears
management and collections efforts inline with the CCMA to ensure favourable
outcomes for borrowers. Increased
SFS collection should be at the centre
of every arrears management strategy,
as this is the gateway to MARP. Every
available tool should be used to increase
the completion by customers of the SFS.

Of course, while lenders will know of the importance
of customer engagement, it is another matter to see
success in this area. AIB chief executive officer David
Duffy told the Oireachtas Finance Committee that four
per cent of the bank’s mortgage customers are choosing
not to repay their home loan, resulting in them being in
‘strategic default’. He added that around a fifth of its total
mortgage holders are in arrears, with a similar percentage
of these having access to a disposable income to pay their
mortgage, but choose not to17.
The previous case study noted our success at improving
SFS engagement – so how did we do this? We ensured
our customer contact strategies were tailored to the
individual circumstances of customers and were
particularly focused on those who may have been more at
risk of repossession. We knew customer contact had to
increase, but also ensure communications were made to
the right customer at the right time.

At HML, we believe that improved borrower engagement
through increased SFS collection should be at the centre
of every arrears management strategy. By taking part in
the SFS process, customers can enter the gateway to
MARP, which shows that they are engaging with their
lender. Evidence shows that repayments increase when
customers are within MARP.

We also renew a customer’s SFS on a six-monthly basis
where appropriate - which is in-line with the CCMA –
which enables us to react to a customer’s changing
affordability profile to ensure the arrangement they are on
is the most suitable.

Improving SFS engagement is a central part of our arrears
management strategies in Ireland, as this – combined with
appropriate and sustainable restructures – results in the
best outcomes for customers. Focusing on individuals
who are at a higher risk of repossession first by using
our analytics to identify this cohort will ensure the right
individuals – who are also the riskiest for lenders – are
prioritised, bringing them into the protections of MARP as
quickly as possible.

Have we done everything we can
with the tools we have to prevent
repossession?
This is a question we regularly ask ourselves and one
that we believe the CBI will increasingly ask lenders.
We maximise every tool we have in-line with the CCMA,
including phone calls, letters, text messaging and field
agents to ensure sustainable restructuring and the best
outcomes for customers.

Having skilled and qualified collections executives who
understand the root cause of the customer’s difficulties is
integral, and the SFS allows an accurate financial position
to be established. However, customers must also honestly
engage with lenders during the SFS process, as this will
result in sustainable and realistic repayment plans. These
skilled executives are also experienced in challenging

http://www.mortgagefinancegazette.com/awards-special/winnersannounced-in-the-mortgage-finance-gazette-awards-2014/

When we look back over a case that is potentially about
to fall into legal proceedings, we want to be able to
say that we have done everything we can before taking
further action.

16

http://www.independent.ie/business/personal-finance/propertymortgages/aib-crackdown-on-strategic-defaulters-29466902.html

17

http://www.hml.ie/latest-thinking/2013/11/hml-takes-home-3-mortgage-
finance-gazette-awards/

http://www.thejournal.ie/aib-mortgage-default-1066811-Sep2013/

12

13

Section 4.4:

Section 4.4:

4.4: Sustainable restructuring

mortgage so as to secure a debt write-off. Lenders, for
this reason, tend to shy away from overtly writing off debt.
However, it again underlines the requirement for a detailed,
case-by-case assessment of each borrower. Notably,
Ulster Bank and the Bank of Ireland (BOI) have previously
stated that they will not consider debt forgiveness as part
of their restructure suite18. There is an argument, however,
that only truly sustainable solutions can be achieved in the
cases of some borrowers if some form of debt forgiveness
plays a role.

Short-term restructuring measures, such as switching
a mortgage to interest-only, are not designed to provide
sustainable solutions for borrowers in arrears. Instead,
advanced restructure strategies are required to guide
lenders and their customers to a more stable,
long-term future.

Executive summary: Long-term
sustainable restructures are key to
helping resolve the issue of mortgage
arrears in Ireland. Short-term measures
will not support mortgage customers
going forward, albeit they can provide
relief while homeowners organise their
finances. HML has significant experience
in administering a range of long-term
restructures, and we ensure regular
contact with customers remains to
make sure the arrangement continues
to be suitable and produce the best
outcomes for them.

HML currently administers accounts in Ireland with a
mixture of arrangement types, including short and longterm restructures. Arrangements are decided by the
lenders whose portfolios we service following analysis of
the customer’s SFS and their previous repayment patterns
to ensure they meet the individual needs of the borrower.
Some of the restructures that we currently administer
include term extension, capital payment holiday, adjusted
interest rate, arrears repayment, capitalisation and split
mortgage options.
We recognise the importance of communicating with
debt advice providers, such as the Money Advice and
Budgeting Service, to gather appropriate information and
aid decision-making. During the last 12 months, HML has
provided forbearance on 3,996 accounts and entered into
52,249 arrangements to pay with borrowers in both the
UK and Ireland. With an excess of 700 residential Irish
mortgage restructures in the last 12 months, we have
significant restructure experience.

Continued

Lenders must clearly identify uncooperative borrowers and
provide a warning letter with at least 20 business days’
notice to those borrowers who could fall into this category
and which outlines the implications of being classed as
not cooperating.
Where borrowers have engaged with their lenders,
repossession action can only begin if their bank has
made every reasonable effort to agree an alternative
arrangement or an alternative arrangement has not
been accepted or offered due to the circumstances. As
mentioned, HML maximises the toolkit we have available
in-line with the CCMA to ensure repossession is a last
resort for lenders. However, should this route need to
be taken, we collect as much information about the
property as possible to ensure robust asset management
is deployed, including marketing it for sale or rent and,
where needed, bringing it up to standards. HML has a
strong panel of suppliers we can draw upon, including
field agents, debt advice providers, litigation solicitors and
asset managers.

Minister for Justice Alan Shatter is one of the advocates
of debt forgiveness, although he stresses it should only be
used for those who genuinely cannot pay their mortgage,
rather than those who can but won’t19. It remains to be
seen which bank will take – if any do – the first steps
towards systematic debt forgiveness due to the obvious
problems of implementation.
In some cases, the only option for lenders is to start legal
proceedings. Under the CCMA, if a borrower is classed as
being uncooperative and therefore not within the confines
of MARP, lenders can commence repossession action.

“It is without doubt that despite best efforts to agree long-term sustainable solutions, a resolution will not be appropriate or
possible in all cases. Consequently, the court process may be the only option. Judges will scrutinise the proceedings to ensure
every effort has been made to negotiate with borrowers before granting orders for possession.”

Long-term restructures are put in place with trial periods to
test the affordability and sustainability of the arrangement,
as well as the willingness of the borrower to commit to it.
This monitoring regime allows us to see if this works or if a
new SFS is required. Our executives work with customers
on an ongoing basis through regular contact, allowing
them to quickly react to any changes to ensure the
customer is on the right arrangement for their needs.

Gráinne Dever, partner in the Debt and Asset Recovery Department in Lavelle Coleman Solicitors

It is essential that customers fully understand restructures
and trust their lender that this is the best option for them.
New arrangements need to be clearly articulated to
highlight the potential benefits to the borrower and remove
any suspicion they may have.
In some cases, borrowers simply cannot afford their
mortgage, even when efforts have been made by both the
customer and lender to manage payments. The issue of
debt forgiveness is a tricky one to tackle in Ireland given
the quantum of the problem, as doing so could potentially
provide an incentive to borrowers to not pay their

http://www.irishexaminer.com/business/ulster-bank-boss-rules-out-debtforgiveness-for-customers-224172.html

18

http://oireachtasdebates.oireachtas.ie/debates%20authoring/
DebatesWebPack.nsf/committeetakes/FIJ2013090400018
http://www.justice.ie/en/JELR/Pages/SP13000345

19

14

15

Section 4.5:

Section 4.6:

4.5: iCONNECT: drawing upon
IT capability

4.6: The importance of
Management Information

“[HML’s investment in IT] is seen across all areas of the
business and is particularly evident in its roll out of the
new iPortal online client reporting tool. Fitch views this
type of innovation favourably, and considers it to be
market best practice20.”

Executive summary: In today’s fastmoving financial world, it is essential that
IT platforms can withstand the demands
of a modern mortgage market. HML’s
iCONNECT is a custom-built platform
in which over €34.5 million has been
invested in the last three years and it
is optimised for effective and efficient
collections. Fitch has highlighted that
our servicing platform can be tailored to
satisfy the different regulatory and market
requirements in Ireland, drawing upon our
experience of the UK’s mortgage market.

Fitch report into HML’s ratings upgrade, August 2013

Our iCONNECT system provides consultants with quick
access to key functions and account and borrower data.
It has extensive use of automation and workflows fully
configured to support MARP and supports all restructure
types advocated by the CBI, including mortgage splits,
assisted voluntary sales, part and part and a reduced
interest rate.
Once an arrangement has been agreed, HML will issue
a confirmation letter, including the arrangement’s terms,
expectations of the borrower and the consequences of
failure to comply with the payment schedule. iCONNECT
monitors the performance of the arrangement and
identifies missing and underpayments at the point the
payment is due. Contact will then be attempted to rectify
payment default through cash collection or gain an
updated SFS enabling reassessment of the borrower’s
financial situation. Weekly and monthly reports track
performance against key metrics.

HML iCONNECT is our custom-built platform from which
we run our mortgage administration services. Our clients
can use HML’s iCONNECT as part of a white-labelled
account administration package or on a remote systemonly basis.
In the case of our arrears management work in Ireland, the
platform supports a multi-channel approach for customers
including phone, post, email, web self-serve and IVR
card payments. With system availability of 99.9 per cent,
iCONNECT provides an efficient and fast performance,
proven reliability and is fully configurable to suit individual
client requirements.

HML has a suite of MI which we use to aid decisionmaking, such as whether we are calling the right
customers, whether they are responding to our contact
and if our clients’ service level agreements (SLAs) are
being met. Our extensive range of dashboards and
reporting, which can be tailored to a client’s specific
requirements, include portfolio performance, cash
collections, loan modification persistency and complaints.

Executive summary: An important
part of our arrears management and
collections strategies is MI. HML has a
significant volume of information that we
use to aid decision-making, however, it
can only be effectively put into practice
if the right people with the right skillset
are making appropriate decisions and
changes off the back of MI. Our MI
feeds back into our Analyse process,
allowing us to assign a new risk status, if
necessary, to an account. This allows us
to make any changes that are required in
order to drive improved performance.

Our MI is intuitive and has translated into better arrears
management performance in Ireland in several ways. It
allows us to see at which stage of MARP an account is in
and whether an account is or isn’t engaging. For example,
we can easily see which households haven’t returned
an SFS and investigate this. We can then deploy various
tools, such as letters, calls and field agents, to remove
any blockages to MARP, bringing customers into its
protections and increasing cash collected.
On a daily basis, we monitor client SLAs, customer
correspondence and the number of paying accounts. On a
weekly basis, we look at SFS collation and arrangements
offered and deployed. Meanwhile, we use MI monthly to
assess the overall performance of a portfolio and to take a
more holistic view of how arrangements are working.
However, while our MI is comprehensive, its true value
can only be realised if the right people with the right
skillset are using the information to make decisions and
changes, resulting in an improved portfolio performance.
An improved arrears performance can help lenders
reduce their provisioning requirements and loss and bad
debt charge.
Our portfolio servicing team provides insight of operational
areas to ensure successful delivery and customer
service. The members of the team have over 125 years of
combined industry and supplier management experience
and know how to use MI and ongoing monitoring to
quickly adjust strategies to ensure consistent delivery of
targeted performance. MI enables us to ensure MARP runs
smoothly, our tools are being maximised and allows us to
debate, discuss and take action if required.

“The ability of HML to service Irish assets as a primary
servicer benefits from its experience in operating in the
UK market. The existing servicing platform in the UK can
be tailored to satisfy the different market and regulatory
requirements in Ireland by leveraging operational
efficiencies, sound technology and experienced staff21.”

We are also in the unique position of being able to
service assets on a single platform. Fitch, the rating
agency, recently commented that our IT systems
compare favourably with those of our competitors in
Ireland and the UK.

HML’s bespoke MI portal can also be accessed by clients,
ensuring they benefit from visibility of the data that shapes
their strategies and portfolio performance. This links
back to our analytics and feeds into our Analyse process,
allowing the loop to start again.

Fitch’s September 2013 servicer report

http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_
id=799778

20

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_
id=716875

21

16

17

Section 4.7:

Section 4.7:

4.7: Operating in Ireland’s
regulatory environment

However, operating in Ireland’s regulatory environment
needs to go beyond simply adhering to the rules. Striving
for the best possible outcomes for customers is integral
to our work in Ireland, and we are aware of the deep
cultural differences between lenders and mortgage
borrowers. For example, some people - whether they
realise it or not - could afford their mortgage if they
changed their lifestyles to reflect their current situation, but
haven’t. In addition, many borrowers choose to prioritise
their unsecured loan commitments over their mortgage.
This is why our executives are highly experienced in
assessing a customer’s financial situation and supporting
them with the most appropriate restructure or treatment
for their circumstances.

Ireland’s financial sector regulations differ from those
in the UK, although there are many similarities which
ensure lenders deliver the best outcomes for customers.
HML’s operations in Ireland are fully compliant with the
CBI’s regulations, while we also undertake oversight and
monitoring in relation to Irish law. We closely monitor
any rulings coming out of the court system and the CBI
that may impact upon our client’s contact, collection and
litigation processes. These include Land Registry issues
and unsolicited contact policies.

Executive summary: While it is
essential that operations in Ireland are
fully compliant with the CBI’s rules
and regulations, companies need to
remember that customer service needs
to be at the heart of everything they do.
At HML, our collections executives have
the appropriate skills and qualifications
to ensure they are equipped to help
achieve the most sustainable outcomes
for customers. In addition, our proactive
compliance team works with clients to
discuss, debate and challenge strategies
to ensure maximum value and full
compliance is being achieved.

We also undertake second-line monitoring of activity,
with recent audits undertaken including Irish Credit
Bureau and CBI reporting, as well as CCMA account and
call monitoring reviews, testing and ensuring compliance
with the CCMA, CPC and Mortgage Arrears Resolution
Strategies (MARS) targets.
For arrears management and collections strategies to be
truly successful, it is essential that the executives who
deploy them have the appropriate skills and qualifications,
not only from an operational perspective, but also so
customers feel they are being dealt with by the appropriate
individuals. In addition, the CBI’s Minimum Competency
Code expects this level of qualification22. Our ASU
executives are trained in how to execute MARS and how
to comply with Irish mortgage regulation, such as the
newly-revised CCMA and the CPC.

Continued

HML’s quality culture has been highlighted in various
ratings reports, and is the subject of our 2013 white paper
Destination 100%: the evolutionary journey to a total
quality concept in the mortgage servicing sector. Our
vision is to achieve total customer and client interaction
quality at all times and to help lead a shift in the financial
industry’s mindset to 100 per cent24.
Organisations within the financial services sector, including
third-party administrators, should strive for zero per
cent appetite for customer service failures and conduct
risk. This sentiment is made even more pertinent when
you consider the stress that an individual’s financial
situation can cause - with even the smallest of issues
often magnified. It is clear how important it is to place
customers at the centre of everything we do and be
aware at all times that a poor-quality service could prove
detrimental to them.

HML operates a team of Accredited Product Adviser
(APA)-qualified quality associates (QAs) that are
independent of operations and responsible for the
frontline performance assessments of staff23. The QAs
are equipped to provide developmental feedback and
coaching to improve performance and ensure customers
are dealt with in a safe, fair and dignified environment.
They work within a risk management framework that is
designed to promote a risk-aware culture and implement
robust practices to identify, assess, measure and monitor
risk across HML.

“HML’s internal control and risk management framework
are particularly robust, which when combined with an
increased focus on staff training, allow HML to have an
excellent level of control and efficiency26.”
Fitch report into HML’s ratings upgrade, August 2013

In addition, HML has a dedicated Irish compliance unit
that enables us to quickly react to any changes on the
ground, providing us with the ability to challenge our
current service and ensure we maximise its value. In the
example of our case study, our compliance team worked
with the lender’s own compliance experts to discuss how
the new CCMA should be applied, such as how this may
impact upon customer correspondence.

“HML’s risk management discipline is robust and
operates in a controlled environment, in our view25.”
SP servicer evaluation report, September 2013

“Having a robust risk framework and adhering to regulatory codes such as the CCMA are vital to operational delivery and
compliance. However, the focus of our business must be on good customer outcomes, and recognising this is essential to
building an appropriate culture in any regulatory operation.”
Martin Berry, director of compliance at HML

http://www.iob.ie/?q=apa

http://www.standardandpoors.com/ratings/articles/en/
us/?articleType=HTMLassetID=1245357525005

23

CentralBankPublishesEnhancedMinimumCompetencyCode
toStrengthen01Sep.aspx

25

http://www.slideshare.net/HML_Corporate/hml-destination-100-spreadsupdated-october

22

24

18

http://www.fitchratings.com/creditdesk/press_releases/detail.cfm?pr_
id=799778

26

19

Section 5:

Section 5:

Executive summary: With the
CBI increasing pressure on banks
to conclude mortgage arrears deals
and to increase the strength of their
provisioning, it is clear lenders need to
take action ‘on the ground’. Success will
only be achieved if arrears management
and collections strategies are centred
on borrower engagement – it is an
improved customer-bank relationship
that is the key to a sustainable financial
future for Ireland.

The CBI published its Macro Financial Review in
December 2013, which stated that domestic banks are
currently capitalised above the 10.5 per cent minimum
Core Tier 1 ratio. However, capital has been negatively
impacted due to higher provisions, deleveraging,
amortisation and operating losses.

Conclusions and next steps: a
sustainable financial future for Ireland
While repossession and surrender may meet CBI targets,
as noted in section 4.2, HML believes it is good practice
to continually try and engage with a borrower, even
throughout any legal process, to attempt to bring them
back into MARP.
Where lenders have been successful at deploying
arrangements for customers, the next important step
will be how these borrowers are managed to ensure
they adhere to the terms. This links back to regular SFS
monitoring; once a mortgage book has changed, lenders
need to monitor and react to a customer’s changing
financial situation, whether this improves or worsens.
Borrower engagement and commitment remains the
fundamental attribute to resolving mortgage arrears in
Ireland, but it is a very detailed, specialised and timeconsuming task requiring expert staff, analytics and
interpersonal skills, along with well-focused engagement
and collection strategies.

The CBI’s targets have moved away from banks simply
needing to propose sustainable solutions to customers
in mortgage arrears to completing deals. This watershed
from proposal targets to deal-led ones will increase the
pressure on lenders to make significant headway in
contributing to a sustainable financial future for Ireland.
Indeed, the June 2014 targets set in December 2013 show
how the Central Bank is pushing forward with its desire
to see lenders taking action and completing deals. Three
categories of sustainable solutions were laid out in the
CBI’s March 2013 targets; payments are re-established
as per the original or a new schedule, the borrower opts
for a Personal Insolvency Agreement or the property is
surrendered or repossessed.

While HML has seen considerable success in Ireland
by placing customer outcomes, SFS completion and
engagement at the heart of its arrears management and
collections strategies, as with most things, more can be
done.
Predictive analytics will be increasingly drawn upon, with
newly-developed scorecards set to be deployed in early
2014. Scorecards are statistical models that provide
account-level predictions of certain events happening – a
pre-delinquency scorecard, for example, predicts the
likelihood of an account moving into arrears. Statistical
models can help lenders build strategies and assess the
capital required for future unexpected losses and help to
build provisioning models.

During Q2 and Q3 of 2013, 62 per cent and 55 per
cent respectively of the banks’ proposed sustainable
arrears solutions for borrowers fell into the surrender
and repossession category27. Although these meet the
requirements of the CBI targets for offers, they will be
difficult to translate to deals in practice due to the lack of
borrower engagement.
Another option banks could take is to significantly change
and refocus their efforts to engage their borrowers as is
required under CCMA guidelines. This route is preferable
for a number of reasons, not least that in many cases it
will prove to be the best outcome for the borrower. It is
accepted that while repossession is the least attractive
option for the bank and the borrower from an overall
economic and social perspective, in some situations it is
the only option where the bank and borrower engagement
relationship has broken down.

Continued

While as of January 2014 the ECB key interest rate
remained at the historic low of 0.25 per cent31, the rate
will not stay at this level. When economic recovery gains
momentum, property demand and prices will rise, and
the ECB will be required to keep a check on inflation via
a higher base rate. As such, lenders need to take action
now to resolve as many arrears cases as possible. The
large cohort of borrowers who are just about managing
their mortgage (and unsecured) repayments now could
potentially slip into arrears - making it essential that preemptive solutions are also deployed as soon as possible.
Lenders need to assess whether they could cope with an
influx of further arrears cases.

“While the aggregate coverage ratio increased marginally
in the third quarter of 2013, to just over 50 per cent,
concerns remain about whether domestic banks are
sufficiently provisioned to cope with the outstanding stock
of distressed loans,” the CBI said in its report.
Meanwhile, capital ratios for foreign-owned banks in
Ireland continue to move upward, with Core Tier 1 capital
hitting 20 per cent in September 2013. The review came
ahead of Ireland exiting the troika bailout in the middle of
December, and while this step is positive, the CBI noted
the “challenging” macro-financial environment. This is
not only in relation to mortgage arrears, but also the
“particularly acute” distress among small and mediumsized enterprises28.

HML is taking several proactive steps to help combat
this, not only by making our arrears management and
collections strategies more sophisticated through the
introduction of predictive analytics, but also through
expanding our presence in Ireland.
By getting more executives on the ground in Ireland,
we can further support lenders with their Irish mortgage
arrears portfolios and help them to shape and deploy their
strategies before an interest rate shock potentially reverses
any progress made with mortgage arrears in Ireland.

This is compounded by recent comments by European
Central Bank (ECB) president Mario Draghi, who
expressed concern about the robustness of Irish banks
following the results of the recent CBI’s analysis of the
balance sheets of AIB, BOI and PTSB. Mr Draghi called
for action to address weaknesses29. The International
Monetary Fund recently reflected a similar concern in
its statement to mark Ireland’s exit from the bailout and
highlighted the specific need for banks to deal with the
problem of mortgage arrears30.

Get in touch

For more information about our mortgage servicing in
Ireland and how HML can assist you, contact managing
director, HML Ireland David Kelly on +353862387145 or
david.kelly@hml.ie

“While the aggregate coverage ratio increased marginally
in the third quarter of 2013, to just over 50 per cent,
concerns remain about whether domestic banks are
sufficiently provisioned to cope with the outstanding
stock of distressed loans.”
CBI’s Micro Financial Review

http://www.centralbank.ie/publications/Documents/Macro-Financial%20
Review%202013.2.pdf

http://www.ecb.europa.eu/press/pr/date/2013/html/pr131108_1.en.html

28

30

http://www.ecb.europa.eu/press/pr/date/2014/html/pr140109_2.en.html

31

http://www.ecb.europa.eu/press/key/date/2013/html/sp131216.en.html

29

http://www.independent.ie/incoming/irish-banking-sector-remains-a source-of-some-concern-mario-draghi-29843101.html
http://www.irishtimes.com/business/sectors/financial-services/draghi expresses-concern-about-health-of-irish-banks-1.1629952

CentralBankpublishesoutcomeofMortgageArrears.aspx

27

20

21

Section 6:
Definitions

Code of Conduct on
Mortgage Arrears (CCMA)

NOTES

Management Information (MI)

MI is data that is used to report on performance achieved,
to provide insight on future strategies and to deliver the
input to statistic scorecard development which will enable
operational strategies to be put in place to maximise
collections performance.

The CCMA sets out how mortgage lenders must treat
borrowers in or facing mortgage arrears, with each case
needing to be considered on its own merits. On July 1st
2013, a revised CCMA came into effect and replaced the
previous one that was introduced on January 1st 2011.

Mortgage Arrears Resolution
Strategies (MARS)

Under the revised code, it clarifies the CBI’s definition of
an uncooperative borrower as broadly one who doesn’t
provide their lender with the information that is required to
assess the borrower’s financial circumstances.

The CBI’s MARS programme engages with lenders to
ensure they are developing strategic plans and have the
operational capability to address the problem of mortgage
arrears. The CBI’s review of lenders’ MARS includes
the assessment of strategy roll-out, treatment options,
resources, systems and MI.

Standard Financial
Statement (SFS)

An SFS is a comprehensive document that details the
income and expenditure of a household, in addition
to other information. The CBI has created an industry
standard format which must be used. It is designed
to assist borrowers to set out their current financial
circumstances so that their lender can determine which
solution is the most appropriate and sustainable for each
customer case.

Consumer Protection
Code (CPC)

The CPC was first introduced in August 2006 to ensure
a consistent level of protection for consumers. The code
was updated on January 1st 2012.

Accredited Product
Adviser (APA)

Mortgage Arrears Resolution
Process (MARP)

The APA designation allows individuals to become
accredited under the CBI’s Minimum Competency Code,
which applies to people who are advising consumers or
and/or carrying out specified functions relating to certain
retail financial products.

Under Provision 16 of the CBI’s CCMA, lenders must
operate a MARP framework when dealing with pre-arrears
and arrears customers. The four steps of MARP are
communication, financial information, assessment and
resolution and by engaging with the framework,
customers are provided with protection from
repossession, to an extent.

Arrears Support Unit (ASU)

Under Provision 17 of the CCMA, a lender must have
an ASU, which must be adequately staffed, to manage
cases under MARP. The lender must pass on a completed
SFS immediately to its ASU and provide a copy to the
borrower. The ASU must immediately review a borrower’s
case, including their SFS, if the individual ceases to adhere
to the terms of an alternative repayment arrangement.

22

23

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Addressing Ireland's Mortgage Arrears Crisis

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