Struggling borrowers with distressed mortgages could be offered a write-down of their debt under a new strategy to tackle the crisis.
Banks will also be forced to strike a deal with hard-pressed customers within strict timeframes to make their loan repayments easier to meet.
But the Central Bank has warned a significant increase of repossessions will inevitably sweep the country.
"Various factors have temporarily restrained lenders, but it is an unpalatable fact in light of the severity of the crisis that repossessions must be expected to rise significantly," Matthew Elderfield, deputy governor of the Central Bank, said.
The regulator published a set of performance targets for the country's six main banks to help customers in mortgage arrears.
They will be forced to offer sustainable repayment solutions to 50% of distressed borrowers by the end of this year, and "the vast majority" by the end of 2014.
Where banks are unable to reach an agreement with customers, some - depending on individual circumstances - could have the value of their loan reduced to the level that would apply at repossession.
Finance Minister Michael Noonan insisted sustainable solutions would be offered to tackle the mortgage arrears crisis, which he described as one of the most serious social and economic issues to ever face the country.
"The option of debt write-down has to be part of the portfolio of solutions and it has to be done where necessary," Mr Noonan said.
Latest figures showed more than 180,000 mortgages are in arrears. Among those, 143,851 private households were behind to some degree with 1.8 billion euro of repayments not met, and 94,488 of those homes were in arrears for more than 90 days at the end of last year.