Mortgage blitz will get banks lending -- Regulator
BANKS are to offer a range of new deals to help struggling homeowners pay their mortgages.
The boards of AIB and Bank of Ireland met Central Bank staff in the past few days and outlined their plans to offer new solutions for mortgage holders in distress.
Permanent TSB board members will detail their plans at the end of June.
Financial Regulator Matthew Elderfield said he believed a blitz on the arrears problem could help the banks get back to proper mortgage lending by the end of the year.
The banks have been given until today to provide a detailed breakdown of those customers who are likely to lose their homes, and those who will be able to remain in them if they are offered a new deal.
It will be the first time the banks will have collated and handed over such information since the economic crisis began in 2008.
Mr Elderfield said a mortgage "clean-up process was in full throttle" in the banks.
The range of solutions submitted by the banks include:
- Negative-equity mortgages for those in arrears. This would allow people who bought huge houses during the boom to move to a smaller home. Some of the arrears they have built up could be wiped out from the sale of the original home.
- Voluntary repossessions of homes with a sale assisted by the bank. This would mean losses for the bank as much of the balance still owed on the mortgage would have to be written off, but householders who avail of this would still end up having to make repayments to the bank based on their ability to pay for six years.
- Offering those who can never repay their mortgage the option of renting back the home -- but they will lose ownership. This would only apply to those with an income of less than €35,000, and a home worth less than €220,000.
- Other options include split mortgages, where some of the principal borrowed is set aside for a few years. When people get back into employment they could then take over paying the full mortgage.
- Other householders who refuse to co-operate with the bank will end up with their homes repossessed. These people will end up being declared bankrupt under new insolvency rules. The legislation will also reduce the bankruptcy period from 12 years to three, but it would still be a tough process that would involve people giving up control of their income to the courts, surrendering their passports and facing a ban on taking certain jobs.
- Banks are also moving to encourage partial payments of mortgages. Up to now, when a householder did not have the full monthly payment the banks often did not accept the lesser amount.
Once banks confront the mortgage issue, and know what it is going to cost them, they will then be more inclined to get back to proper mortgage and business lending, regulators believe.
Mr Elderfield said yesterday that the banks may need another €3bn to €4bn in funds in the next five to six years. But he said they should be able to raise this money themselves, without the need for state help.
It is understood this extra money is not directly related to the cost of dealing with the mortgage problem.
Mr Elderfield revealed in an interview with a German newspaper that new EU banking regulations will require higher levels of capital in all banks.
This could mean up to €4bn will be needed for the banks by 2017.
Mr Elderfield told NewsTalk radio last night: "There isn't any new news about the health of the Irish banks. The point is that all banks in Europe need to meet tougher international standards over the next five or six years and that, therefore, it's important that the Irish banks start to make some profits sooner rather than later."
The Government had to pump €64bn worth of capital into the banks after the property bubble burst and Central Bank Governor Patrick Honohan said last week that the banks remained adequately capitalised.
Also yesterday it emerged that the European Commission had backed calls to have Europe's bailout fund, the European Stability Mechanism, lend directly to banks rather than to governments.
If this was to happen and was applied to Ireland, it could mean the cost of any new bail-out of the Irish banks would be shared across Europe and not borne by Irish taxpayers alone.