STRUGGLING mortgage holders who fail to engage with their bank face legal proceedings and being excluded from new personal-insolvency laws, the financial regulator has warned.
Matthew Elderfield said the key message for customers in trouble was that they must work with their bank to strike a deal.
At the Institute of Directors spring lunch in Dublin, he also challenged the banks to come up with a more "realistic mix of solutions for borrowers".
Mr Elderfield said that it was encouraging that a number of bank chiefs have acknowledged that while repossessions will rise, there will be more deals struck with homeowners to get targeted debt relief.
He offered hope for co-operative homeowners who are insolvent and have already cut back their living expenses. These people could be offered deals to resolve their debt while remaining in their homes.
Latest figures show that 180,000 mortgage holders are in some form of arrears or have done deals.
Mr Elderfield said that a crucial input into the stress-test exercise, set to be carried out on the banks later this year, will be the treatment of troubled loan portfolios.
The financial regulator said that the banks have a stronger capital position, have suffered fewer losses than projected from the non-core asset disposals and will benefit from early signs of stability in the housing market. But, he warned that the macro-economic picture still remains "in stress".
And, he said that mortgage- arrears levels continued to rise and that the introduction of insolvency legislation "adds to the picture of uncertainty".
A survey by the Central Bank, released earlier this week, showed that a majority of people in trouble got a new borrowing agreement when they contacted their lenders using the existing Code of Conduct on Mortgage Arrears.
The bank's survey showed that three-quarters of mortgage borrowers were happy with their experiences after trying to talk to lender.