Another key conclusion is that the mortgage arrears problem needs to be addressed on a case-by-case basis by lenders. This has been widely acknowledged, although perhaps not universally accepted. Important and specific implications that follow from this:
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First, this case by case approach will only work if the situation of unsustainable mortgages is addressed properly.
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Second, the banks’ own actions need to take care not to exacerbate the arrears problem.
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Third, the banks need to have the operational capacity – including structure, resourcing and senior sponsorship – to address the arrears problem effectively, implementing best practice, rigorously tackling all the dimensions of the problem and ensuring compliance with the Code.
It is important to emphasise that in addition to accelerating their work on mortgage arrears, the banks must also be required to conserve their financial resources prudently. What is needed is a careful husbanding of financial resources to apply to cases of genuinely unsustainable mortgages. This is a difficult balancing act, but one that cannot be avoided.
The final conclusion is to highlight the importance of sensibly concluding the public policy debate on bankruptcy reform and, indeed, bringing the debate on mortgage arrears public policy more generally to a settled conclusion so that there is certainty for bankers and borrowers alike. But here, too, care is needed as well as speed, to ensure that the calibration of the framework for non-judicial debt settlement does not incentivise behaviour that imposes unnecessary costs to the taxpayer.
Making swifter progress on these fronts, while avoiding unintended consequences which add to the costs of the financial crisis, is the key challenge. The Central Bank’s supervisory and enforcement strategy outline here today is designed to press the banking sector firmly to meet its responsibilities to resolve this issue
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