Overstretched borrowers could receive a write-down or write-off of some of their debt following an agreement struck yesterday by the Central Bank between secured and unsecured lenders.
Starting next month, a pilot scheme will seek to agree arrangements with a sample of 750 borrowers to restructure their debts. These are people who are not technically insolvent but who have significant debts with multiple lenders.
Sustainable goal
The pilot is designed to provide a sustainable outcome for borrowers and would see repayments being made to the various lenders to reflect their credit exposure to an individual and level of loan security.
Borrowers will be able to deal with the lenders through a third-party service provider. This will propose a restructuring arrangement.
The framework is designed to allow borrowers to remain in their homes, although in hopeless cases repossession and bankruptcy is provided for as a worst-case scenario.
A range of solutions will be offered to borrowers depending on their debts. This will range from six months’ grace on their debts to loans being extended in time with reduced interest rates.
Mortgage repayments could be extended out to age 65 to have the principal amount repaid in full.
In some cases, “significant mortgage restructure” options will be considered, including split mortgages, where part of the loans is warehoused; negative equity tradedowns; and “other solutions”.
In these scenarios, secured lenders could allow the repayment of other loans on a proportionate basis for a two-year period. After the two years are up, the remainder of the unsecured loans could be written off in certain circumstances.
This is where lenders could apply write-downs or write offs. In a worst-case scenario, borrowers will be moved towards insolvency or bankruptcy or have homes repossessed.
This framework does not apply to buy-to-lets or business-related loans.
The Irish Banking Federation said its members would engage "constructively" in the scheme and it had "considerable potential" for those in arrears.
Impact analysis
Kevin Johnson, chief executive of the Credit Union Development Association, said there was "merit" in the pilot study. "There has been significant pressure from vested interests to provide solutions in this area without carrying out some form of impact analysis," he said.
“We believe the pilot will go some way to providing the necessary impact information, before we return to the talks to see if we can agree a formula that is genuinely helpful for credit union members who find themselves in multilender difficulty.”
