No chance of state bailout for broke mortgage holders
HOMEOWNERS in arrears will not get any state bailout.
Financial regulator Matthew Elderfield told a conference in Cork that no other country writes off the debts of those who are behind on their home-loan repayments.
What the regulator is saying is that there will be no 'NAMA for the people'.
Bust banks have been bailed out, but Mr Elderfield, a key member of the government-appointed mortgage arrears and personal debt group, said "no jurisdiction simply provides debt forgiveness for customers in arrears".
He warned that some borrowers with mortgages they will never be able to repay may be best off voluntarily handing over the keys of their home to the bank and reaching agreement on a settlement.
He said a radical change to bankruptcy laws would be needed to facilitate this.
This would mean that a cash-strapped homeowner would have to agree a deal with their bank on how much they could repay, and agree to do so over a set period.
More than 36,000 homeowners have not paid their mortgages for three months or more; this amounts to 4.6pc of all mortgage accounts.
Mr Elderfield warned last night that the arrears figures were due to get worse.
"It's clear these numbers will get worse before they get better, because it will take time before economic recovery translates into higher levels of employment and better ability to pay off mortgage debt," he said.
He admitted that the number of homeowners in trouble was much higher than the arrears figures showed, as thousands had agreed lower repayment deals with their lenders.
These forbearance deals involve lowering the monthly repayments by allowing homeowners to extend the term of the mortgage, allowing mortgage holders to have a payment holiday, and allowing homeowners to pay only the interest on the mortgage.
The expert group on mortgage arrears is considering whether more should be done for those who are deeply in debt.
It had been thought that the group would recommend some form of debt forgiveness for those struggling to repay big mortgages after losing a job or suffering a pay cut.
But the indications from Mr Elderfield's speech are that the State will not be writing a multi-billion euro cheque to pay part of the mortgages of those unable to meet their payments.
Mr Elderfield said the difficult message was that "in some cases it is better to look at the alternatives such as selling the house, voluntary surrender or accessing social housing".
US banks have been incentivised by the federal authorities to reduce the interest or lower the capital amount owed by borrowers.
But unlike in the US, Irish borrowers are personally liable for the debt whether or not the sale price of the house covers the mortgage owed.
Mr Elderfield said writing off mortgage debt would create perverse incentives and make the situation worse by encouraging some borrowers to stop making payments.
It would be unfair to taxpayers who were not in debt if they had to pay to bail out those who overborrowed, the regulator indicated.