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An Opportunity to ease the Social Housing Crisis Missed
The Mortgage-to-Rent Scheme was introduced at a time when pressure was being brought to bear on Government to introduce systems to help alleviate the very real financial stresses being endured by indebted homeowners in relation to their family homes.
The Mortgage-to-Rent (MTR) Scheme had been recommended in the Keane Report as one of a number of mechanisms that would offer solutions to people with significant indebtedness.
Minister Michael Noonan said implementation of the recommendations in the Keane Report, published in October 2011, including the MTR Scheme, would allow families to “break the shackles of unsustainable debt, which can have such a destructive effect on family life.”
The aim of the MTR process was “to assist vulnerable home-owners who have unsustainable mortgages and are in danger of losing their home”.
Since its inception, in or around 3,000 cases have been recommended for the MTR Scheme by lenders of which 2,100 were deemed elligible. Of the 900 remaining approximately 115 have been completed and the remainder are “being progressed”. Over two years into the scheme, in June 2014, the number of MTR transactions completed stood at just 40, prompting David Hall to lament, “The entire system is rubbish…you know something is failing when it’s cheaper for a bank to repossess a house than it is to participate in the mortgage-to-rent scheme.”
Statistics from the Irish Courts for the first 9 months of 2015 show that over 1,000 orders for repossession were granted and while there will always be a requirement for lenders to repossess properties, the numbers of repossessions compared to successfully concluded MTR cases is stark.
The Process
The MTR process is a complicated one in which a number of parties with vested interests interact and negotiate and the status of the occupier of the property changes from homeowner to tenant.
In the first instance lenders submit a list of potential MTR Scheme applicants to the Housing Agency which reviews initial eligibility criteria and then selects a Housing Association. Homeowners who wish to participate in the scheme must have exhausted the Mortgage Arrears Resolution Process (MARP) before applying.
There are four steps to the MARP procedure and these are communication; financial information; assessment; and resolution. Under the procedure all lenders must communicate in writing to borrowers who have fallen into arrears the status of their mortgage account, including details of payments missed and total arrears. It must also explain the MARP process. Lenders must also issue a Standard Financial Statement (SFS) to borrowers who will complete the SFS and return it, with supporting documents, to the lender’s Arrears Support Unit (ASU). The lender’s ASU will then assess the borrowers case on its merits taking into consideration factors such as the information in the SFS, overall indebtedness, payment history, current payment capacity and personal circumstances. Once the assessment is complete the lender must consider what resolution, if any, may be available.
If the MARP process has been exhausted and applicant homeowners are deemed eligible by their lender for the MTR Scheme a letter of offer will issue from the lender to the homeowner who then has a 60 day cooling off period in which to consider the offer. If proceeding, the homeowners must then make a submission to their local authority who will decide if the home-owner qualifies for social housing. To be deemed eligible a number of financial criteria relating to, among other things, income, property valuation and suitability of home must be met.
A Housing Association, such as Cluid, Tuath or Fold Ireland, will assess the purchase of the property. It will have the property valued and then negotiate a sale price based on that valuation with the homeowners’ lender. The Housing Association will also source finance for the purchase of the property or it will already have sourced a tranche of funds for the purpose of funding a number of acquisitions from the market.
For the process to continue, the homeowners must surrender ownership of their home to their lender, having first obtained Independent Legal Advice. Once this has been done and a sale price has been agreed between lender and Housing Association, the Conveyancing process may begin and lead to a tenancy agreement being signed by the homeowers whose status changes from owner-occupier to tenant.
What is causing the delay in the MTR process?
It has been suggested “part of the reason the scheme has struggled is that it has encountered strong cultural resistance on the part of local authorities and lenders”. It is said some local authorities view MTR applicants as “queue jumpers”. The borrowers become not just tenants but also social housing tenants and leapfrog the 24,000 plus people who’ve been on housing lists for up to four years. Lenders view the scheme as a form of debt forgiveness and contrary to banking instincts in that any residual debt becomes unsecured debt once the property is sold to the Housing Association/Local Authority.
There are many stakeholders and many disparate transactions and negotiations within the process which means that the process is very protracted. In addition, agreeing the value as between the Bank and the Housing Association is a further cause of delay. Furthermore, some homeowners intially feel there is a stigma attached to the change of status from homeowner to tenant and are reluctant to avail of the MTR Scheme. For those who do, engaging with numerous agencies can be confusing and off-putting.
KBC Bank is currently reviewing its MTR process with a view to streamlining it and finding greater efficiencies while Cluid, the largest housing association, has written to the Government’s working group on mortgage arrears with its views on the process.
Currently, Cluid Housing Association and Pepper Group lead the way in the MTR league table with Cluid having completed 102 (Purchases) and Pepper 70 (sales) but these are negligible in the context of the number of unsustainable loans.
Reform of the Mortgage-to-Rent Scheme
In a review of the MTR Scheme published in June 2013, Cluid Housing Association made a number of recommendations including:
- Each lender and housing association should agree the mechanism they use for negotiating the price/value of dwellings.
- The Mortgage-to-Rent guide for lenders should be amended to ensure eligibility criteria are comprehensive and unambiguous.
- Timelines should be adhered to the process map to minimise delays. The target total time for completion of the process should be 30 weeks.
- The cooling off period should be reduced from 60 days to 28 days.
- If repairs are required the costs of these should be reflected in the valuation/sale price of the dwelling.
- In order to improve the scheme’s effectiveness, the Housing Agency should provide training for members of housing associations and local authorities and produce a set of guidelines.
Opportunity
There is an opportunity for acquirers of loan portfolios to participate in the MTR Scheme. In principle the loan book acquirers will have greater lee-way on the valuation as they will typically have acquired the loan at a discount.
Conclusion
The new Government will have an opportunity to take the MTR scheme forward and to get all interested parties to agree a streamlined process that will allow the scheme to more quickly realise it’s promise of relieving stressed and struggling families of unsustainable debt and at the same time increasing social housing stock and improving bad loan books, which would be the win-win situation the scheme was intended to be.
As valuations appear to be a stumbling block for Banks and Housing Associations they should agree a process where an independent valuation will be accepted where valuation cannot be agreed.
If Government is serious about increasing its stock of social housing and about assisting struggling families it needs to bring the various vested interests in the MTR process together to devise a more streamlined and efficient process. The current MTR process is not working.