Mortgage arrears: your questions answered

Mortgage arrears are making headlines again? Why?

The Central Bank and the Government have come up with a new plan to deal with a crisis which has seen more than 100,000 Irish house owners falling behind in their loan repayments. The idea is to force banks to writedown the value of troubled mortgage loans unless they put in place "sustainable" restructured arrangements with distressed borrowers. They could be forced to reduce the value of loans to levels which would apply if they had to take possession of a property. If that happened the banks would have to raise additional funding to maintain their capital ratios. Effectively they are being told that unless they fix the mortgage mess they will be financially penalised.

Our banks are broke, right? Where would they get this extra funding?

From us. If AIB, Permanent TSB or Bank of Ireland were forced to boost their capital reserves they would most likely need a new bailout from the exchequer.

Oh.

Indeed.

How committed are the powers that be to resolving the problem?

Speaking yesterday the Central Bank's deputy Governor Matthew Elderfield said the resolution of mortgage arrears was "a key priority" and banks now have targets to end the impasse on arrears

What kind of targets?

Banks have until the end of July to come up with workable solutions for 20 per cent of borrowers in arrears. Almost a third will have to have been dealt with by the end of September while 50 per cent of problem mortgages will have to have been resolved before the end of the year.

Sounds good. Anything else?

A consultation process has been started on its code of conduct on mortgage arrears.

Another one?

The Central Bank loves a good consultation process. This time it wants to see restrictions preventing banks making more than three unsolicited contacts to customers per month dropped as it thinks such limitations hamper banks in their attempts to deal with arrears. The consultation process will also investigate the merit of taking borrowers in arrears off tracker mortgages as long as an alternative arrangement “which is more advantageous in the long term”' is offered.

What could be more advantageous than a tracker ?

If a borrower was offered a revised mortgage based on today's house prices rather than the purchase prices it could be considerably more attractive.

Sounds like debt forgiveness to me?

It is. It also wants to see more split mortgages introduced. Under such arrangements the borrower would pay the interest and capital on one portion while a second part would be parked interest-free. Depending on a borrower's circumstances once the loan period ended, the remaining debt could be written off or new terms arranged.

So all is well?

Well. Minister for Finance Michael Noonan said that the vast majority of those in arears will be offered sustainable solutions while the repossession of a family home will only come at "the end of a long sequence"'.

Where can I go for help?

Distressed mortgage-holders can get free, independent financial advice from more than 2,000 accountants nationwide from the Mortgage Arrears Information and Advice Service. It is run by the Citizens Information Board and includes the website www.keepingyourhome.ie and the Mortgage Arrears Information Helpline (0761 07 4050), both of which provide information to people who are having difficulties meeting their mortgage repayments.