Tuesday 20 February 2018

Banks forced to offer 'sustainable solutions' to half struggling homeowners by 2014

Lyndsey Telford

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.


Some 23,500 are in arrears for more than 720 days.


The finance minister admitted Government plans to close a legal loophole that has prevented banks from repossessing homes will result in more people being forced into repossession.


But he disagreed with Mr Elderfield, who said that number would rise "significantly".


"In the menu of solutions, from the most gentle to the most severe, the solution of repossession is at the very end of the line," Mr Noonan said.


"We think that there would be a few repossessions but obviously there will be more than at present, because there are none at present - except the voluntary handing over of keys."


But the Central Bank chief warned the seizing of homes may be necessary at times.


"The current level of repossessions - I think set around 950 properties in repossession - is surprisingly low," Mr Elderfield said.


"It has to be anticipated there will be a significant increase on that number. We don't know what that number will be."


The six banks that will be forced to set the new targets are Allied Irish Bank (AIB), Bank of Ireland, Permanent TSB, ACC Bank, KBC Bank and Ulster Bank.


AIB chief executive David Duffy said his bank was focused on meeting and, in some cases exceeding, the new targets.


"The bank has the staff, resources and product solutions in place to assist our customers through this process," Mr Duffy said.


"We again urge all customers facing difficulties to engage with us as soon as possible with a view to reaching solutions."


He added that AIB would work with borrowers on a case-by-case basis and insisted: "Our policy is that, where mortgage repayments are being prioritised, the bank will seek to keep people in their homes wherever possible."


Under the targets, banks must offer 20% of mortgage customers in arrears of more than 90 days a sustainable solution to manage their debt by the end of June.


That will increase to 30% by the end of September, and 50% by the end of the year.


The Central Bank will set further quarterly targets for the end of 2014, and will also assess how many of the proposed solutions have been agreed upon and how many are likely to stick.


The regulator has warned it will audit the banks to ensure they have offered sustainable solutions that homeowners will be able to adhere to in the long term.


It has warned that where banks do not comply, the Central Bank will demand more capital from them.


In addition to offering mortgage write-downs, other solutions likely to be offered by banks will include restructured payment periods with interest-only payments, and the choice of split mortgages.

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