FINANCIAL REGULATOR Matthew Elderfield last night called for an urgent review of Ireland’s bankruptcy laws as international ratings agency Moody’s reported a growing number of Irish mortgage holders are in arrears.
Reform of the bankruptcy regime could allow borrowers to earn a fresh start by discharging their debt over a reasonable period of time, Mr Elderfield said. However, he cautioned against debt forgiveness for the thousands of mortgage holders currently behind with payments on their loans.
Addressing compliance officers in Cork, he said it was understandable that some people wanted to go beyond rescheduling debt to consider some form of debt forgiveness.
“However, the cost of any support will need to be borne by the taxpayers or by the banks and therefore, in many cases, effectively the taxpayer as well, and this raises questions of fairness for taxpayers who are not in debt and, at a time of immense budgetary pressure, affordability for government finances.
“There is also the risk that any scheme would create perverse incentives and in fact make the arrears problem worse by encouraging some borrowers to stop making payments.
Mr Elderfield’s comments come as figures show the proportion of mortgages in full default has tripled within the past year, while almost one in 20 loans is now in serious arrears.
Data compiled by Moody’s, the ratings agency, shows that, in August, 1.28 per cent of mortgages had lain unpaid for a year or more, leaving them in outright default.
The figures are based on a selected pool of mortgages used by Irish lenders to back bonds issued by them to raise funds. When translated to the full body of outstanding Irish mortgages, this suggests at least 10,000 loans are in full default.
A year ago, the comparable proportion of mortgages in full default was 0.43 per cent, translating to fewer than 3,500 loans. The number of mortgages where repayments are behind by more than three months in August also crept up, with almost one in 20, or 4.83 per cent of loans analysed, more than 90 days behind.
The loans assessed by Moody’s are described as “prime”, meaning they were not considered to be carrying much risk when they were selected by lenders to back their bonds.
Subprime loans, which typically carried higher interest rates and were extended to less secure borrowers, could therefore be expected to be under even more strain.
The Moody’s data reflects figures released by the Central Bank earlier this month, which showed almost 36,500 mortgages, or about 5 per cent of the total, were in arrears.
“As the recovery in the labour market is expected to be slow, Moody’s expects a large portion of loans that have fallen into arrears to remain in arrears,” the agency noted.
Moody’s recorded the highest rate of outright default in First Active mortgages, followed by loans contained in a Bank of Ireland/ICS bond.
Mr Elderfield said he expected the final report of the Law Reform Commission on personal debt management and debt enforcement – due before the end of the year – to lay the foundations for the redesign of personal insolvency process, including the development of a non-judicial debt settlement system.
A separate expert group on mortgage arrears will publish its final recommendations in early November.
The reforms it is developing aim to create a better process of resolving arrears, immediate relief from penalty charges, practical arrangements to help people stay in their home and assistance for those with unsustainable mortgages, he said.