Warning that more families will lose homes
IT IS inevitable that major mortgage lenders will have to repossess homes in the future as arrears continue to pile up, a leading credit ratings agency has warned.
Mortgage holders have been falling behind on payments for two years but there have not been widespread repossessions, said Fitch, one of the three main global ratings firms.
It warned that some form of action would ultimately be taken.
"Ultimately, the lender will either foreclose on some properties or restructure the loans," it said.
The company made the comments in a note to investors who have purchased mortgages from Irish banks, chiefly EBS.
The restructuring of loans usually involves stretching out payments over a longer period or reducing the overall amount owed. However, this second option creates a loss for the banks, reducing their capital levels if done on a wide scale.
The Government has imposed a moratorium on repossessions of 12 months. Some politicians want this to be extended to two years.
But while a ban on repossessions is popular with householders, it does not stop the arrears increasing.
Fitch said Irish banks in general were exercising "forbearance" for borrowers but that this could not continue forever.
Many Irish banks bundle up their mortgages and sell them on to investors in a process known as 'securitisation'.
But so far, the Government has not developed any proposals to deal with this issue, depending instead on social welfare assistance to help heavily indebted borrowers.
A government-appointed committee on mortgage debt has recommended a radical overhaul of this mortgage interest supplement scheme.
It has also suggested that banks should be prevented from scrapping the tracker mortgages of those householders who get into difficulty.
The committee has also been exploring the idea of a debt-forgiveness programme, whereby borrowers would have some of the debt written off.
The main actions currently being taken by banks involve stretching out payments or putting borrowers on mortgage holidays for a period.
Financial Regulator Matthew Elderfield has already said that there is "no silver bullet solution"' to the problem.
One in every 25 residential mortgage holders is now more than three months in arrears, figures show.