Irish Mortgage Arrears: The Inter-Departmental Working Group on Mortgage Arrears, which was established by the Government, says in its report published this morning that it opposes blanket debt or negative equity forgiveness. One proposal could see as many as 10,000 people transfer ownership of their homes to local authorities.

The group chaired by Declan Keane of the Department of Finance says the issue of mortgage difficulty can only be considered on a case by case basis and taking individuals' circumstances into account.

Today's report (pdf) says the State has a significant role to play in resolving the mortgage debt crisis and proposes the two “mortgage to rent” social housing schemes that would see approved housing bodies taking ownership of houses in certain circumstances and the leasing of houses by banks to local authorities if that was deemed to be more appropriate.

The report says there has been a dramatic rise in the level of mortgage arrears in the last 2 years and this trend is continuing with approximately 45,000 households (this equates to the c55,000 mortgage accounts in the Central Bank data) in 90 days plus arrears, of which approximately 32,000 households are in 180 days plus arrears. Numbers in the 180 days plus arrears category have doubled since end 2009 and on average in the 180 days plus arrears category, due arrears amount to over 10% of the principal.

The report says there are also approximately 56,000 households with restructured loans (approximately 70,000 mortgage accounts).

The group says that both borrowers and lenders have to recognise that some mortgages are currently unsustainable and that more sustainable solutions will have to be advanced for such cases.

Among the solutions to address mortgage over-indebtedness included trade down mortgages, split mortgages and sale by agreement.

The report recommends that a more specialised mortgage advice service be set up, which could be linked into MABS (the Money Advice and Budgeting Service). It warns that reform of the bankruptcy and personal insolvency laws is fundamental and without this reform the mortgage problem will not be resolved.

The group says that given the challenging environment, the reality is that some people will lose their home. "The challenge is to minimise the incidence and consequences of this event," it says.

The group says a blanket debt or negative equity forgiveness scheme would not be an effective use of State resources and would not solve the problem:

–It is estimated that it would cost in the region of €14bn to clear the negative equity in the Irish mortgage portfolios
–Even a more targeted population (mortgage taken out between 2006 and 2008) would cost in the region of €10bn
–The primary driver of mortgage arrears is affordability not negative equity. While a write-down of the negative equity would help a mortgage holders in arrears, in many cases it is unlikely to create an affordable mortgage
–The Central Bank estimates that only 10% to 13% of those in negative equity are in arrears

MABS as currently resourced and structured is not suitable to provide the support needed by distressed mortgage holders while unsecured borrowing and BTL (buy to let) borrowing is quite pervasive and will complicate any solution.

Up to 50% of the arrears to date are outside the domestic Irish banks

The Minister for Finance, Michael Noonan, TD, commented: “The Government’s Economic Management Council instructed that an interdepartmental group be established to consider further measures to alleviate the increasing problem of mortgage over-indebtedness." 

 In establishing the group, the Government set two core objectives:

• To assist those facing real difficulties to remain in their own homes where appropriate, and

• To ensure a distinction between those who cannot afford to pay their mortgages and those who choose not to pay their mortgages. 

The report’s wide ranging and significant measures to address mortgage difficulties fulfils these objectives.   

Work is underway to implement key elements of the report:  

• Minister for housing Willy Penrose will shortly launch two mortgage-to-rent schemes in line with the report’s recommendations.  These will operate on a pilot basis initially, subject to prompt review ahead of wider roll-out.  Under each scheme, households in extreme mortgage distress who are eligible for social housing will be able to remain in their homes as social housing tenants with either the lending institution or a housing association taking ownership of the property.  Minister Penrose’ officials will be kick-starting this process next week.

•  Minister for Justice and equality Alan Shatter has already undertaken extensive work on the Heads of a Personal Insolvency Bill as set out in the report and these will be published shortly. 

•  Minister Noonan has instructed the Banking Division of the Department of Finance to begin discussions with the banks to ensure speedy implementation of the measures set out in the report.

 Noonan said: “This report sets out important measures to address the problem of mortgage difficulty.   It is incumbent on the State authorities and the banks to fully consider these and for the financial institutions to bring forward other innovative solutions which help address this difficult and complex problem.

The Government will now propose that the Dáil have an opportunity to debate the findings and recommendations of the report and will make time for a debate next week.  This will give all sides of the House the opportunity to contribute in a constructive and realistic manner to the deliberations on this important issue.” 

The Minister for Finance and the Minister for Justice and Equality will form an implementation strategy to be set out at the conclusion of the Dáil debate.  This implementation strategy will set out the necessary steps to put into effect all of the measures that are deemed feasible. 

The Irish Banking Federation (IBF) welcomed the report.

While existing forbearance measures continue to provide critical support for many borrowers - - as reflected in the 70,000 restructured mortgage accounts and the low level of repossessions - - IBF said it acknowledges that further measures will be necessary for borrowers whose situation has become unsustainable.  As the report confirms, forbearance is a very useful and appropriate solution for distressed borrowers in many cases.  However it is not necessarily the solution in all situations. 

IBF will engage constructively with the Government and the authorities on the recommendations of the Interdepartmental Group and member institutions will continue to work actively with distressed borrowers in determining appropriate solutions on a case-by-case basis. 

IBF  said it supports moves to reform the legislative framework on personal insolvency and bankruptcy and will work constructively with the Department of Justice, the Central Bank and other stakeholders on the development of that framework. 

It says borrowers who are facing difficulties in making their mortgage repayments should contact their lender at the earliest opportunity and provide the information required.