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IMF backs plan to help struggling homeowners

ALL mortgage lenders will be forced to thrash out new payment terms with struggling homeowners to help save borrowers' homes.

A key group appointed to look at the mortgage arrears crisis is set to recommend a standardised series of measures that will offer protection to those at risk of losing their homes -- a move that has been backed by the highly influential International Monetary Fund (IMF).

Officials from the IMF met the mortgage expert group in May and came away agreeing with its approach to protect those in arrears from home repossession.

The government-appointed expert group is now due to issue an interim report by the end of this month.

Under the recommendations to be made next week, lenders will be told to hammer out ways to reschedule monthly payments to stop people getting deeper into arrears.

It is understood the group has found that lenders have different approaches to alternative repayment plans for mortgage holders. The recommendations will also apply to subprime lenders, who have a reputation for rushing to the courts to repossess homes rather than negotiate with struggling mortgage holders.

Every Monday, courts in Dublin are clogged with homeowners threatened with repossession. Some four out of 10 cases are taken by subprime lenders.

The mortgage arrears group, which is chaired by insolvency expert Hugh Cooney and includes Financial Regulator Matthew Elderfield, will recommend that all lenders have a set way of exploring options that will reduce monthly mortgage repayments for those unable to meet their payments.

This will include lenders offering one or a combination of the following:

  • extending the term or length of the mortgage;

  • letting homeowners pay interest only on their mortgage;

  • allowing mortgage holders to take a payments holiday.

Under the Financial Regulator's code of conduct on mortgage arrears, lenders must explore alternative payment measures with struggling homeowners.

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But the mortgage group will recommend a list of criteria to ensure this is done in a standard way by all lenders.

The recommendations are set to offer comfort to the thousands of people struggling to pay their home loans.

Some 32,000 people have not paid their mortgage for three months or more, latest figures indicate. At least double this figure are also understood to have rescheduled their monthly mortgage repayments.

A survey by the EU released this week exposed the true extent of the debt crisis when it found that almost half of households are so strapped that they would be unable to pay an unexpected €1,000 bill.

The IMF yesterday endorsed moves to help out those in difficulties with their mortgages.

In a report on Ireland, the IMF backed moves to put in place "narrowly-targeted support measures for vulnerable homeowners".


The Washington-based IMF, that oversees the global financial system by following the macroeconomic policies of its member countries, said banks here could absorb the initial costs of doing more to help those in arrears.

It suggested lenders could identify those who are genuinely in need of assistance by only targeting supports at those homeowners who are unemployed or who are receiving other social welfare payments.

It added: "This process will be aided by an overdue shift to a more efficient and balanced personal insolvency regime."

The IMF did not specify what help for homeowners it had in mind. But it is understood it had a long discussion with the mortgage arrears group and was satisfied with its approach.

The mortgage group's report is set to fall short of demands by a number of groups for a large-scale debt write-off by lenders.

It is set to wait until July to get into discussions on whether or not banks should forgive some of the loans of over-indebted homeowners.

However, it is understood the mortgage arrears group will also recommend that lenders should not impose penalties on those who are in arrears.

But the IMF warned that there was a need to be "mindful of the moral hazard risks".

This is a reference to fears that bailing out homeowners will encourage people to welsh on their debts.

This warning echoes one issued by regulator Matthew Elderfield in May when he appeared to dampen down expectations of a large-scale bailout for financially distressed householders.

"In seeking to assist households in difficulty, we need to recognise that the cost of any support will be borne by those neighbours who avoided excessive borrowing themselves or are gritting their teeth and meeting their obligations," he said at the time.