Judge Edmund Honohan, Master of the Irish High Court, has also warned that a new approach would have to be adopted in such cases to take account of changed economic circumstances and the collapse of the housing market.
Orders for repossession should not be made as a matter of course, the judge said. Instead, the objective should be to agree an interim regime that protects the interests of borrowers and lenders.
The judge, who has responsibility for court procedures, advised that in repossession cases involving sub-prime lenders the courts would have to look carefully at the interest rates charged and consider whether such rates meant the lenders involved had accepted the risk of default.
Other factors to be taken into account include failure to stress-test loan applications, failure to require insurance cover in the event of unemployment or illness, the commission paid on transactions and the published profits of the lenders involved.
According to the judge, in cases coming before the courts the ratio was about 80/20 between sub-prime lenders and high street banks. In reaching decisions, courts would have to check that sub-prime lenders had conformed to good banking practice.
He said: “While defaulters were not looked upon with much sympathy in the past, we are undergoing a recession of historic proportions with many, if not most, borrowers not to blame for their arrears.”
The judge added that in the present climate of virtually no house sales, unless credible evidence was presented that a purchaser was available there was no good reason to grant a lender immediate vacant possession.
The judge’s remarks came as the government introduced a mandatory code requiring all lenders including sub-prime mortgage providers to offer struggling home owners a six-month breathing space before initiating legal repossession proceedings.
During that period, they will be required to offer home owners options such as reduced or deferred payments, mortgage extensions or different mortgages. In the case of the country’s two main banks, Allied Irish Bank and Bank of Ireland, there is a 12-month reprieve on mortgage arr-ears as part of the recapitalisation programme.
Announcing the code, Taoiseach Brian Cowen said he wanted a more humane approach taken to those experiencing mortgage difficulties because of unemployment.
He said: “It’s about finding solutions that ensure people don’t lose their homes.”