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Tuesday 21 January 2020

Elderfield warns mortgage crisis will take years to fix

Charlie Weston Personal Finance Editor

MORTGAGE arrears are to rise throughout this year and the home-loan mess will take years to resolve, Central Bank deputy governor Matthew Elderfield warned yesterday.

In a hard-hitting speech, the regulator warned banks to come up with solutions for the more than 10,000 homeowners who have no hope of ever being able to repay their mortgages.

Banks were accused by Mr Elderfield of failing to tackle this unsustainable mortgage problem.

He said he would "breathe down the necks" of lenders to force them to come up with proper solutions for those who will be unable to get back on top of their mortgage debt problems.

Mr Elderfield said it was now time for banks to absorb losses.

He said that the banks had a substantial capital buffer with which to absorb losses on their mortgage books.

More than €62m has been pumped into the domestic banks over the past three years to allow them cover loan losses.

In a speech in Dublin, Mr Elderfield said there was uncertainty about the size of unsustainable mortgages and it was unfair to borrowers to kick the can down the road in the most difficult cases where families were borderline insolvent.

He said this added to their debt when there was no prospect that putting homeowners on interest-only payments or giving them payment holidays would work.

"The homeowner may be building up a bigger and bigger shortfall, for example through interest capitalisation, which will eventually be owned when ownership of the home is ultimately lost."

The Central Bank wrote to all 21 mortgage lenders in the Irish market last year asking them to set out their strategy for dealing with mortgages in arrears.


A clear definition of an unsustainable mortgage was needed, he said.

The government-appointed Expert Group on Mortgage Arrears, of which Mr Elderfield is a member, defined an unsustainable mortgage as one where there was 18 months of arrears and a build-up of overdue interest.

"The mortgage arrears problem is one of the biggest remaining challenges for Ireland from the financial crisis," said Mr Elderfield.

While borrowers "who genuinely can't afford to pay back all their mortgage should get help", those that could "need to face up their responsibilities", he said.

Some 107,700 mortgage holders are either three months behind on their payments or have had to seek a deal from their bank to lower their payments.

Another 47,000 are less than three months in arrears.

This means that 154,700 homeowners, or more than one in five householders, is in trouble with their repayments.

The deputy Central Bank governor told the Harvard Business School Alumni Club of Ireland that there was "considerable uncertainty" over new personal insolvency rules.

The Government is reshaping personal bankruptcy and insolvency laws. Troubled borrowers seeking at least partial mortgage writedowns in out-of-court settlements need approval from 75pc of secured creditors, according to the proposed legislation.

Mr Elderfield confirmed an Irish Independent story that permission had been granted to issue negative equity mortgages.

This is where borrowers can bring some of the debt with them in a new loan. Mr Elderfield said the pilot scheme begun with two banks -- Bank of Ireland and Permanent TSB -- was now being extended to all lenders.

Irish Independent

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