In an unusually forceful statement yesterday, the governor of the Central Bank and head of the financial regulator Patrick Honohan told a conference that "non-cooperative mortgage borrowers really are at risk of losing their homes . . . repossession is an available option for the lender. It would be unwise to imagine it otherwise. If the banks were unable to make repossessions then the incentive for the borrower to cooperate would be greatly weakened".

In a frequently made criticism of the banks, the governor said “mortgage lenders need to address the problem of non-performing mortgage debt more energetically. The time for passivity is long past”.

Among the most needed actions by the banks, he said, was identifying those who can’t pay their mortgages from those who are “merely reluctant to pay”.

Arrears crisis
Nearly one in eight mortgages is currently in arrears, a very high proportion by international standards. Academics and property market experts have long pondered the extent to which some of those in arrears are in that position despite being financially capable of servicing their debts.

In this regard, the bank is shortly to publish a revised “Code of Conduct on Mortgage Arrears”.

The existing code has been criticised by the banks for limiting their powers to encourage and compel mortgage holders in arrears to continue servicing their debts.

Prof Honohan told delegates yesterday that the median income of those in arrears on their mortgages is €45,000 a year and two-thirds of those in arrears are in employment.

Pay cuts
Citing forthcoming research by staff at the bank, he added that "the decline in after-tax incomes for most employees has been significant, but aggregate data suggest that in the bulk of cases this decline is not so large as to make the continued servicing of debts impossible".

Prof Honohan acknowledged the difficulties faced by many families but warned that “despite the anger and disappointment felt by so many who have suffered a financial loss from housing investments, permanent debt relief is not something that can be offered to all, but has to be limited to those who are truly overindebted to the point of insolvency”.

He also ruled out any debt reduction for those in negative equity. “Negative equity is not in itself a viable rationale for providing debt relief. It would be unwise for anyone to think that not paying one’s debts is a matter of choice”.

A second reform measure that should accelerate the reduction in the numbers in arrears is change to personal insolvency arrangements. In contrast to forthcoming changes to the Code of Conduct on Mortgage Arrears, this will give debtors greater power in dealing with banks. Advocates of more extensive debt relief have long argued that insolvency laws were unbalanced, favouring creditors over debtors.

Commenting on the changes to personal insolvency mechanisms, Prof Honohon said that "this new legislative framework has shifted the balance in favour of borrowers, which is welcome and needed."

Prof Honohan was speaking at a banking conference in Dublin organised by University College Dublin and NUIM Maynooth.

A separate research paper published by the Central Bank yesterday gave further impetus to the need to address mortgage indebtedness among households.

Comparing similar households across the population, and taking account of differences in incomes, households with mortgage repayment problems spend 18 per cent less on average, according Central Bank economist Reamonn Lydon.

Over 55,000 households were surveyed to generate the findings.