Brokers seek change in anti-consumer risk rule
THERE should be a ban on mortgage lending that makes home buyers and not lenders fully responsible for the risk in buying a property, the Irish Brokers Association has said.
Full-recourse mortgage lending -- where the borrower and not the bank is wholly responsible for the risk in buying a property -- has exacerbated the property implosion, the IBA said.
The prevalent system in Ireland means that, if a property is repossessed, then the borrower will still have to pay the full amount borrowed -- even if the value of the house has fallen, IBA chief executive Ciaran Phelan said.
He said full-recourse mortgage lending was an "unreasonable and anti-consumer" system.
Mr Phelan said that, with a full-recourse mortgage, the mortgage holder is fully liable for the total debt due on the loan agreement over and above the realisation of the actual value of the property.
"Essentially, this means that if a mortgage is taken out on a property with a hugely inflated value, as with most mortgages in Ireland in the boom years, then even if the value of that property drops dramatically, even by 50pc, the mortgage-holder is left to bear full responsibility and the banks do not pay any price for their imprudent lending practices.
"The mortgage holder cannot simply short-sell the house, repay the bank and move on, as is the case in the US. In fact, he or she has to carry the cross of that mortgage for the rest of their lives.
" This practice hugely undermines confidence for those affected, resulting in a curtailment of consumer spending and an extended recession," he said.