Borrowers who genuinely can't pay will get debt deals from banks
The Government is to force banks to increase the number of deals they do with mortgage borrowers who find themselves in genuine distress.
Taoiseach Enda Kenny is set to outline at a press conference today that:
- Banks will have to offer deals that last years -- rather than just putting those behind with their payments on the likes of interest-only deals for a few months.
- The deals will include split mortgages and long-term, interest-only deals for those in serious arrears.
- But there will be no debt write-offs, informed sources have indicated -- the mortgage will have to be repaid in full.
The six main banks -- AIB, EBS, Bank of Ireland/ICS, Permanent TSB, Ulster Bank and KBC Bank -- will be given common targets for dealing with mortgage arrears.
Banks yesterday met the Central Bank and the Cabinet was briefed about the new strategy, details of which are revealed for the first time by the Irish Independent.
The main lenders will target homeowners they feel are deliberately withholding mortgage payments under the new Government strategy.
The banks could get back powers within days to threaten repossessions of residential and buy-to-let investors who they suspect are not paying their mortgages even though they can.
A High Court decision in 2011 and various Central Bank rules on mortgage arrears have convinced some people that they cannot lose their homes.
As a result, Department of Finance and Central Bank officials fear money that could be used to pay mortgages is being diverted to pay other bills.
As part of the deal to give banks back the power to threaten repossessions, the lenders will be forced to start offering thousands of distressed homeowners more long-term deals. But no mortgage debt will be written off.
If the banks have not shown that they have met the new target of restructuring at least 20,000 mortgages a month, they will be forced to put aside extra capital, as new rules on provisions will be introduced in 2014.
The strict rules in the mortgage arrears code, operated by the Central Bank, will be changed to help banks move against those who are deliberately not engaging with lenders.
This will include relaxing the limit on the number of unannounced contacts banks can make each month with those who won't engage with them.
Deputy Central Bank governor Matthew Elderfield briefed the Cabinet on the new mortgage plans yesterday.
Separately, banks also had the plans outlined to them in the Central Bank.
One of those who has been briefed said: "The Government is not forcing the banks to write down one cent of mortgage debt.
"Instead, people in mortgage trouble will be offered to have half of the debt parked, or the term of the mortgage will be elongated, or the interest rate will be reduced.
"But the full burden of the debt will stay on people's backs."
Some 186,000 residential mortgage-holders are either in some form of arrears or have had a short-term deal – such as interest-only repayments – put in place with the agreement of the bank.
Another 50,000 borrowers with buy-to-let mortgages are in trouble.
Fewer than 80,000 residential mortgages have been restructured, but half have ended up back in arrears.
Department of Finance and Central Bank officials fear many people are strategically defaulting.
Professor of Finance at NUI Maynooth, Gregory Connor, recently estimated that up to a third of mortgage-holders who are in arrears are deliberately not paying.
This works out at close to 40,000 residential and buy-to-let mortgage-holders who can meet their payments but are choosing not to.
They may be using the money to pay other bills.
However, Prof Connor's figure is considered too high by state officials.
Some experts briefed yesterday feel the push to get banks to offer split mortgages and lower interest rates to those in mortgage distress is an attempt to stem the numbers seeking personal insolvency deals.
The new personal insolvency process is due to be up and running by the summer, allowing people to have debt written off.
Up to 25,000 people are expected to avail of the insolvency procedures in the first 12 months of the new service.
But bankers fear they will eat up any spare reserves they have if too many people seek debt deals under the new rules.
David Hall of the Irish Mortgage Holders Organisation said the key question was how to define a mortgage restructure.
"Is it putting someone on interest-only? If so, the banks will meet their targets in four months," he said.