THE EMBRYONIC proposal floating around banking circles that could remove the logjam in the mortgage market was apparently first aired over an informal meal last month between some bank chiefs and Minister for Finance Brian Lenihan.

The proposal involves the State buying packages of mortgages from the banks which would use the money for new loans to first-time buyers and breathe life into the property market.

The subject came up in conversation at the informal meeting with Lenihan as a concept that exists in some countries rather than as a specific proposal for the Irish market.

However, Bank of Ireland's head of retail operations in Ireland Richie Boucher later seemed to be flying a kite at the Oireachtas Finance Committee on July 2nd when he referred to the German Pfandbriefe system and the US companies Freddie Mac and Fannie Mae: mortgages have been used in both countries to create collateral to generate more loans.

A potential State top-up for the mortgage market was endorsed by the Construction Industry Federation (CIF).

Taoiseach Brian Cowen poured cold water on the idea in New York on Wednesday when he said that the Government didn't need to help the banks, adding they were "very well capitalised".

Most analysts dismiss the idea, saying Irish banks can tap the European Central Bank liquidity system for extra cash, though Boucher said this is only a short-term solution. One senior banker said the proposal was all but dead: it had become a political topic and, if granted, would appear like a Government bailout.