The Central Bank of Ireland (CBI) published its new research on interest-only mortgages in Ireland in July 2014, which detailed several main findings and highlighted potential risks for borrowers who have this type of mortgage. Early borrower engagement is key to increasing the available and sustainable repayment options for borrowers, allowing them to remain in their home at the end of their mortgage term. This step-by-step good practice guide details what lenders should be doing to deliver their interest-only borrower engagement strategies. HML is available to support you with interest-only borrower servicing, so please feel free to get in touch to discuss your needs.

1. INTEREST-ONLY
DEALING FAIRLY WITH INTEREST-ONLY MORTGAGE
CUSTOMERS: A GOOD PRACTICE GUIDE FROM HML

2. The Central Bank of Ireland (CBI) published its new research on interest-only
mortgages in Ireland in July 2014, which detailed several main fi ndings and
highlighted potential risks for borrowers who have this type of mortgage.
Early borrower engagement is key to increasing the available and sustainable
repayment options for borrowers, allowing them to remain in their home at
the end of their mortgage term.
This step-by-step good practice guide details what lenders should be
doing to deliver their interest-only borrower engagement strategies. HML is
available to support you with interest-only borrower servicing, so please feel
free to get in touch to discuss your needs.
REVIEW THE CBI’S MAIN RESEARCH FINDINGS ON INTEREST-ONLY
MORTGAGES
The CBI’s main research fi ndings are outlined below:
• During the height of the boom, many mortgages were originated on
interest-only terms
• Between 2005 and 2008, the majority of interest-only mortgages were issued to
buy-to-let (BTL) investors at a high loan-to-value (LTV) ratio on tracker mortgages
• Interest-only mortgages were more likely to be issued to BTL borrowers in Dublin
for the purchase of apartments. These loans also experience a higher arrears
rate than standard mortgages
• Over the next two years, a signifi cant number of interest-only mortgages are due
to revert to principal-and-interest (P&I) repayments, which could lead to
a rise in mortgages arrears
• Of those BTL borrowers with interest-only mortgages, 44 per cent will be past
retirement age when their loans are due to revert to P&I repayments. There are
14 years on average until these borrowers retire
In an August 2014 letter to lenders, the CBI said it advocated a proactive approach
and expected lenders to take “appropriate and consumer-focused steps now to
identify and work with borrowers to mitigate the risk of negative outcomes to them
in the years to come”. The message to lenders is clear.
In the UK, the Financial Conduct Authority put forward several good practice
guidelines which are noted in the table. Lenders in Ireland
may fi nd these useful to cross-reference against to ensure
their interest-only borrower engagement strategies are as
comprehensive as possible.

3. Governance
A written strategy
detailing the procedural
and policy framework
for the management of
expired term interest-only
mortgages
Document reasons why
lenders haven’t offered
borrowers certain options
Interest-only
strategy options
Switch to full or part capital
repayment with borrower
agreement after an
affordability check
Overpayments
Mortgage term extension
where appropriate
Waive normal fees and
charges for borrowers
changing to alternative
products or repayments
Where options are agreed
verbally, follow up in writing
Documented
guidance
framework
Front-line staff to have
a written policy and
procedural guidance
to ensure a consistent
approach
Give borrowers (both
before and after maturity)
appropriate options
Assess borrower’s ability to
pay should the mortgage
extend into retirement or
varying the mortgage term
increases repayments
Repossession action is a
last resort
A defi ned criteria is in place
for mortgage product and/
or interest rate change
Regular reviews of a
borrower’s circumstances
when forbearance
measures are in place
Appropriately trained staff to
deal with borrowers
Management
Information
Communications strategy
responses
Options deployed before
and after term maturity
Post-maturity rolling options
Post-maturity arrears,
litigation and repossession
Predictive data including
payment behaviours
Collate information to
capture current repayment
strategies for existing
interest-only borrowers,
which should be used to
develop the fi rm’s interest-only
strategy
Communications
prior to maturity
Regular and earlier borrower
contact communications
strategy,
with more regular
communications as they
approach the end of the
mortgage term
Set out options for
borrowers concerned about
repaying their mortgage
A simple process
A helpline with opening
times noted
Inform borrowers of free
impartial or independent
advice services
Provide a balanced position
including risks
of inaction
Communications tailored to
individuals
Communications reviews
to improve borrower
engagement
Communications followed
by telephone campaigns
Communications which
take into account alternative
repayment strategies, such
as downsizing
Requests for proof of
repayment strategies are
proportionate and balanced
Communications adapted
for borrowers currently in
forbearance arrangements
or arrears
Online access to income
and expenditure tool
Encourage borrowers to
contact the fi rm to agree a
resolution after maturity
Communications
post maturity
Communications which
encourage borrowers to
contact lender

4. LIST THE OPTIONS YOU OFFER YOUR INTEREST-ONLY
BORROWERS TO REPAY THEIR MORTGAGE
There are three main categories of interest-only mortgage borrowers in Ireland:
1) BTL investors
2) Borrowers on interest-only mortgages as a temporary forbearance measure
3) Borrowers on interest-only residential mortgages that are planned to, after a
set term, move to principal-and-interest (P&I) repayments
Repayment options that lenders in Ireland could offer to borrowers, if appropriate
to their circumstances, include extending the mortgage term to allow more time to
repay the outstanding balance, accepting overpayments and converting to part or
full repayment.
Lenders should identify the options that they currently offer or are prepared
to offer and note any additional borrower criteria that need to be considered,
such as whether it is appropriate for the term to be extended beyond normal
retirement age.
This step presents the opportunity to develop innovative products and services,
such as improved product rates, equity release, shared partnership mortgages and
assisted voluntary sales.
DECIDE HOW YOU WILL DEAL WITH BORROWERS
POST-MATURITY
Lenders need to be aware that some borrowers will need to be contacted post-maturity
and be encouraged to engage with their loan provider regarding the
repayment of their loan. The outcomes lenders wish to implement for borrowers
with matured interest-only mortgages need to be defi ned and procedures
documented. Some of the tasks that may be involved include establishing robust
supplier arrangements, such as with solicitors, asset managers and fi eld agents,
and altering the content of letter templates and call scripts.

5. DECIDE WHAT INFORMATION YOU NEED FROM
YOUR BORROWERS
The tone and quality of borrower communications will set the scene for successful
borrower engagement. HML has developed call scripts and letter templates for several
lender-borrower contact campaigns, with information currently collected including:
• Whether the borrower has a repayment plan and what the repayment plan is
• Is the repayment plan suffi cient to clear the loan – how does the borrower plan to
repay any shortfall
• Any additional information regarding the plan, including its value and when it matures
In circumstances where the borrower isn’t able to repay their loan, a Standard
Financial Statement should be carried out to determine the appropriate options
available to them.
DEVELOP A WAY TO CAPTURE DATA
HML has developed a borrower repayment strategy screen on its iCONNECT
system to capture information about repayment plans. The majority of information
that is collected is produced in a measurable format to allow for the effective
reporting of a mortgage lender’s portfolio.
It is useful to compare borrowers’ responses to their risk parameters, such as their
age, LTV, remaining balance and the remaining term. This creates a clearer picture
of each borrower and how they should be categorised in terms of communication
priorities and the risk of them not repaying their loan at the end of its term.
In the UK, we use predictive analytics to assess each borrower quickly and
accurately, with the output a set of forward-looking predictions that describe how
each borrower is likely to behave in the future. In Ireland, due to a different fi nancial
and regulatory environment, we draw solely upon payment and contact history
(behavioural analytics) instead. HML is in the process of developing advanced
analytics in Ireland that adhere to the country’s different fi nancial and regulatory
environment and that will help borrowers and lenders benefi t from more tailored
contact and collections strategies.
The borrower’s mortgage fi le should also have a clear
audit trail of the deployment of options which evidences
which options have been considered and if any were not
offered to the borrower and the reasons why.

6. DECIDE HOW OFTEN YOU NEED TO CONTACT YOUR
BORROWERS AND HOW
The CBI found that 44 per cent of BTL borrowers will be past retirement age when
their loans are due to revert to P&I repayments, with 14 years on average until
these borrowers retire. Half of original interest-only mortgages are due to mature
between 2030 and 2033.
At HML, we believe that early engagement is key to increasing the sustainable
repayment options that interest-only mortgage borrowers have. This is particularly
important when you consider the limited time that many borrowers in Ireland have
to repay their interest-only mortgage in full. In addition, the CBI has made clear
that it expects lenders to take proactive steps now to contact their borrowers on
interest-only mortgages.
All contact HML makes to borrowers on behalf of lenders is in-line with the Code
of Conduct on Mortgage Arrears and Consumer Protection Code. Our highly-trained
and qualifi ed collections executives ensure borrower contact is made at the
right time and is tailored to the individual.
HML has found through pilot studies and borrower engagement campaigns
that getting in touch with an entire interest-only portfolio instigates wider action.
We have used a combination of letters and phone calls to maximise borrower
engagement and have worked with lenders to produce a contact timeline based
on the term expiry date. Based on this date, we state within the contact timeline
whether just a letter is required, or also follow-up telephone calls.
If a borrower confi rms they have a repayment plan in place, our iCONNECT
repayment screen can be updated to ensure these individuals are not
unnecessarily contacted, ensuring a quality experience and appropriate outcomes
for the borrower.

7. REVIEW YOUR OVERALL OBJECTIVES AND HOW YOU INTEND
TO DEPLOY THESE
Working back through the steps above, a high-level policy document can now be
created which includes all of a lender’s objectives. Information contained within
this document can include what interest-only repayment options are available, who
these options are available to and when and how borrowers should be contacted.
This can be shared with front-line staff to ensure communications are tailored
towards a borrower’s individual needs.
Lenders need to review the deployment of their interest-only repayment options
and assess whether they have performed as expected.
Consideration should also be given to how lenders manage their existing contract
variation processes, such as waiving the usual fees that would apply when
changing the repayment type.
DECIDE HOW TO TRAIN YOUR STAFF AND MAINTAIN
SERVICE QUALITY
HML has dedicated staff who are trained to respond to interest-only lender-specifi
c needs and who have the required experience and skillset. We also have a
dedicated helpline for customers to access. In addition, process fl ows, call scripts,
letter templates, quality assurance checks and a training academy have all been
established to ensure a quality borrower experience and appropriate outcomes for
borrowers.
Any interest-only communication strategies will continually need refi ning and
improving to up-skill staff, bolster borrower experience and outcomes and to
mitigate conduct risk. This requires time, effort and resources, but plays a central
role in helping to ensure borrowers are dealt with fairly.

8. HML GOOD PRACTICE - OUR SUCCESSES
HML has worked with a number of lenders to help shape their borrower
engagement plans. Some of our successes include:
A 61 per cent borrower contact rate
from a letter and three outbound calls
€12.6 million worth of balances were
converted to full or part repayment
following one letter that highlighted
access to an online repayment calculator
One client HML is working with
is now on its fourth successful
contact strategy
Borrower feedback included:
“I’m impressed by your pro-active
approach to contacting your interest-only
customers,” and “I’m unsure what
to do and will speak to an adviser.”
BENEFITS OF BORROWER ENGAGEMENT CAMPAIGNS:
• Early contact instigates borrower action and provides them with more time
to consider their repayment options
• Engaging with borrowers earlier could help mitigate the risk of them facing
repossession at the end of term
• The cost of running a borrower engagement campaign is low compared to
the expense of holding the capital associated with interest-only mortgages
• Evidence that you have reviewed and acted upon the CBI’s interest-only
mortgage fi ndings
• Outsourcing borrower engagement strategies to a third party can allow
lenders to focus on the core of their business
• Start to manage the credit risk within an interest-only portfolio

9. How much time and effort do you spend managing
a €200 mortgage arrears case compared to a
€200,000 interest-only mortgage?
You can discuss interest-only borrower engagement campaigns within the HML Interest
Only Mortgages group on LinkedIn.
For more information about good practice and how HML can help, contact David Kelly,
managing director of HML Ireland on +353 86 2387145 or david.kelly@hml.ie

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