John Drennan: Reform of bankruptcy law and initiatives on homeowners in trouble finally to be dealt with
Plan to hit banks for the mortgage mess
THE Government is preparing a series of radical moves to make the banks take responsibility for the home mortgage crash.
The Keane Report, which will be presented to the Cabinet next week, will propose major changes to Ireland's bankruptcy laws -- which are the harshest in Europe -- and make the banks write off mortgage debt for homeowners in a similar way to writing off business debt.
The group, chaired by accountant Declan Keane, will recommend:
• Homeowners who can no longer pay the mortgage could negotiate with their lenders to hand back the property but remain on as tenants.
• Banks who repossess homes will then lease them to local authorities to deal with housing shortages.
• The timeframe to get discharged from bankruptcy to be cut from up to 20 years to just three years.
• People facing bankruptcy will be offered a "non-judicial" route -- meaning they won't have to go through the courts in all cases.
• The Money Advice and Budgeting Service will be beefed up with hundreds of "front-line" financial advisers who will deal exclusively with distressed mortgage holders.
In what would represent a radical departure from current policy, it is also believed the report will say that banks should engage in debt settlement. The report is also believed to advocate that homeowners in negative equity will be allowed to "park or refinance the negative equity aspect of the loan" if they want to move house. The objective is to give a real incentive to banks to "resolve the mess they've created" by negotiating with individual homeowners to restructure mortgages and write off debt that it is no longer possible to collect.
However, government sources were anxious to stress that any response to the Keane Report will be tailored around a scenario where "continuing to pay your mortgage is still the best solution''.
"The reality of things is the Central Bank, regulators and banks themselves won't be supportive of the creation of huge write-downs or vast, black holes. Our aim is to give people who cannot pay their mortgages options but there will be a downside to any response where the mortgage is given up," said a source.