IMF has to be consulted on whatever plan State chooses
THE government has to come up with a plan to fix the mortgage crisis by year end -- but debt forgiveness is off the table.
In the memorandum of understanding with the IMF and EU, the Government agreed to reform the bankruptcy laws before the end of the year.
And these changes are linked to finding a way to deal with the 55,000 home loans that were in arrears at the end of June.
The Government is waiting to receive a report from an expert group with proposals on a scheme to restructure mortgage debts.
This scheme could be included in the next Budget, with new legislation to be brought in next year.
But the Government has insisted this does not mean there would be debt forgiveness, or that the banks would write off chunks of money owed.
And there were indications the IMF -- which has to be consulted on whatever solution is put on the table -- was supportive of the Government's position.
Two years ago, it published a paper that examined what type of debt restructuring schemes worked best.
IMF staff members Luc Laeven and Thomas Laryea looked at debt restructuring and debt forgiveness schemes rolled out in the US, Mexico, Lithuania and other countries.
It said all debt-restructuring programmes should be based on sound economic principles and pointed out that the housing market could not stabilise, much less recover, as long as house prices were expected to keep falling.
As Ireland's banks have now been re-capitalised and have billions of euro to absorb any future potential loan losses, that IMF paper suggests the Government should leave it to the banks to deal with on a case-by-case basis.
The IMF does say that guidelines should be drawn up to ensure this is done in a transparent and fair way. The rules for restructuring should be simple and help the banks to quickly come up with new terms to make it easier for mortgage holders to make repayments.
A system of penalties should also apply where borrowers don't meet the new terms agreed.