A GOVERNMENT-appointed expert group has recommended against debt forgiveness for homeowners with lengthy arrears on their mortgages.
The Expert Group on Mortgage Arrears and Personal Debts proposes new measures to ease the difficulty faced by those in debt, notably the creation of a deferred interest scheme.
In its final report, the group warns that arrears levels will persist for some time and the problem “may get worse before it gets better”. However, it points out that repossession levels in Ireland remain substantially lower than in the UK and claims lender forbearance is working well here.
More than 40,000 mortgages, or 5.1 per cent, were in arrears for over 90 days at the end of September, up from 26,000 a year ago, the Central Bank indicated yesterday. In 28,000 of these, the arrears were more than 180 days.
For the first time, the bank has published an estimate of the number of rescheduled mortgages, at 45,000. Since there is an overlap between mortgages in arrears and rescheduled cases, the bank estimates 70,000 mortgages are either in arrears or have been rescheduled.
The report says 90 per cent of mortgage accounts are being repaid normally and two-thirds of rescheduled accounts are paying at least full interest.
The group, chaired by Hugh Cooney of KPMG, examined debt relief schemes in different countries but found none provided a precedent for introducing debt forgiveness in Ireland. Financial Regulator Matthew Elderfield said the State couldn’t afford such a scheme and claimed it could give mortgage-holders a “perverse incentive” to stop paying.
The deferred interest scheme proposed by the expert group has already been accepted in principle by four of the largest lenders – Bank of Ireland, AIB, Irish Life Permanent and EBS – but some banks have declined to participate. To qualify, borrowers would have to be able to pay at least two-thirds of their mortgage interest payments.
Mr Elderfield said the proposal would ensure indebted borrowers wouldn’t have to pay interest on their interest payments and could “warehouse” the shortfall in their repayments for a period.
He said the cost for the banks would be marginal but the scheme could save borrowers up to €1,000 over five years as well as buying them time.
The report urges the Department of the Environment to implement new regulations to enable borrowers at risk of losing their homes to become eligible for social housing assessment before a repossession order has been made. It calls on lenders to facilitate trading down by borrowers who are in negative equity and for whom such a move would result in more affordable monthly payments. It calls for the introduction of new bankruptcy laws and mechanisms to allow repossessed borrowers to stay in their homes for a time, while the housing authority finds them another home.
Mr Elderfield acknowledged the arrears problem was worsening but predicted the trend would reach a plateau shortly in line with unemployment figures, which he said was the main driver of mortgage arrears. He also emphasised that although arrears figures were still rising, the loss rate they imply for the banks was still below the average rate for the industry.
The Central Bank figures show mortgage lenders have made formal demands in 5,576 cases and court proceedings had been issued in over 3,000 cases. However, just 98 repossession orders were granted during the quarter and 81 houses were repossessed.
Among the other members of the mortgage arrears expert group are senior civil servants and representatives of the ESRI, Free Legal Advice Centres and the Irish Banking Federation.
