The Government and the Central Bank are discussing moves to force the banks to tackle their mortgage arrears as part of a new push to overcome the personal debt crisis.
The aim is to help tens of thousands of homeowners who cannot repay their mortgages to enter arrangements with their banks to restructure the debt.
A “split-mortgage” procedure would be used, with clients retaining responsibility for the portion of the loan they can reasonably repay, while the portion they cannot repay is “warehoused” for settlement later.
The latest official figures show that 135,628 residential mortgages were in arrears at the end of September 2012, 86,146 of them for more than 90 days.
Following the promissory notes deal last week, the mortgage question is moving to the top of the Government’s economic agenda, alongside the Croke Park talks.
Amid mounting frustration in the Coalition and the Central Bank at the failure of the banks to confront the problem, steps to compel the lenders to take action are under detailed consideration.
Taoiseach Enda Kenny and Central Bank governor Patrick Honohan have each spoken in recent days about their frustration at the banks’ failure to deal with the arrears problem.
Their interventions reflect the view that the banks’ failure to confront the problem is a big impediment to their own recovery and to economic recovery generally.
This is seen as an issue for all lenders but the Government has greatest leverage over the two pillar banks, the State-owned Allied Irish Banks and the State-backed Bank of Ireland.
Absorb losses
A new drive to make rapid inroads into the problem could lead to banks being compelled by the financial regulator to quickly absorb losses on loans that are in arrears.
This would lead banks away from the present system in which they can make general provisions for mortgage losses without actually recognising such losses in their accounts.
It is only by recognising the losses that the loans can be restructured to facilitate the “split-mortgage” arrangement.
This procedure is designed to avoid blanket debt forgiveness. The capacity of the client to repay the “warehoused” portion of the loan would remain under regular review in line with the client’s income and property valuations.
Also in the mix to incentivise banks are measures to prevent them from reducing future corporate tax payments by offsetting tax liabilities against financial losses in the past.
Each of the banks would also be obliged to adopt a common target for the settlement of discussions with mortgage holders in arrears who co-operate fully with their lender.
