The Irish Central Bank has unveiled new measures to tackle mortgage arrears.
Banks will be placed on a targeting system designed to force them to reach ‘sustainable’ solutions with mortgage customers.
Banks will be expected to have reached a sustainable solution with 20% of borrowers by the end of July, rising to 30% by the end of September and 50% by the end of the year.
Deputy Governor of the Irish Central Bank said that he expects arrears to “rise significantly” while emphasising the importance of early engagement between the bank and the borrower.
Regarding the matter of debt write-down, Mr. Elderfield said “some form of debt relief makes sense but it is up to each bank”.
The Central Bank has also begun a consultation process on the Code of Conduct on Mortgage Arrears (CCMA). Under the new proposals, some restriction that blocked banks from making more than three unsolicited contacts with customers per month would be dropped.
The new proposals will also redefine the rules of engagement between borrowers and lenders with more serious consequences for borrowers determined to not be fully engaging with their mortgage lender.
In the Central Bank’s definition of a sustainable solution, it includes repayment of “a revised principal sum” – in other words some of the debt being written down if the bank offers a deal to a customer.
It is also hoped that there will be an increase in the use of split mortgages, where the mortgage is divided into two parts, with the customer paying the first part and the second part would be parked without interest accruing in some circumstances.
Where agreed by individual banks, the second part of the mortgage could be written off at the end of the loan term.
If banks fail to restructure loans they will have to write-down the loans to value of the loan to repossession value of the property.
If a new sustainable solution cannot be reached with the bank, the borrower has the option to use the personal insolvency arrangements, which will be operational in June.
The measures will cover AIB, Bank of Ireland, Permanent TSB, Ulster Bank, KBC and ACC.