As many as 10,000 people could see ownership of their homes transferred to local authorities under a scheme proposed by the Inter-Departmental Working Group on Mortgage Arrears, which published its report this morning.
Taoiseach Enda Kenny said the move was one of a number of options which would be considered as part of efforts to cure the debt crisis.
The report says the State has a significant role to play in resolving the mortgage debt crisis and proposes the introduction of two "mortgage to rent" social housing schemes that will 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.
Other proposals aimed at helping mortgage holders in difficulty were outlined in the report, but it stressed there will be no blanket debt or negative equity forgiveness programme.
Defending the decision not to implement a blanket guarantee, the report states it would cost in the region of €14 billion to clear the negative equity in the Irish mortgage portfolios, while tackling the mortgages taken out between 2006 and 2008 would cost in the region of €10 billion. It also notes that 50 per cent of the arrears to date are outside the Covered Banks.
The report, commissioned by the Government earlier this year, was drawn up by a group chaired by Declan Keane, from the Department of Finance. It includes officials from his department and the departments of Social Protection and Environment. Although it took submissions for banks and advisory groups, none were asked for assistance in drafting the final report.
Commenting on the report, Mr Kenny said: “In many cases, people went to banks and lending institutions and over-borrowed and were over-lent, and unfortunately, because of the economic decline and the impact of the recession, people with mortgages are having difficulties,” he said. “Some can’t pay, some have arrears and struggle to pay, and there are others who don’t want to pay.”
It said the solutions put forward were “not intended to be exhaustive or proscriptive” and that other solutions would need to be developed over time.
The possible solutions that will need to be advanced by banks to address mortgage over indebtedness include trade-down mortgages; split mortgages and sale by agreement.
Associated with this, the group also proposes the mortgage interest supplement scheme should become time limited.
In place of the mortgage interest supplement scheme, Minister for State with responsibility for housing Willie Penrose is to unveil 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 rollout.
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. Mr Penrose’s officials will be kick-starting this process next week.
The report said that the issue of mortgage difficulty can only be considered on a case by case basis having regard to the individual circumstances of distressed mortgage holders. It said “mortgage forbearance measures are appropriate in many cases” but warns long term forbearance will not be sufficient in all cases.
The report says borrowers and lenders will have to recognise that some mortgages are currently unsustainable and that more sustainable solutions will have to be advanced for such cases.
It proposes a more specialised mortgage advice service be established - that could link into the Money Advice and Budgeting Service (Mabs) - to provide specialist advice and assistance to mortgage holders in difficulty to enable them to evaluate their options with mortgage lenders.
Underpinning possible solutions, the report also states reform of the bankruptcy and personal insolvency law is fundamental and that without this the mortgage problem will not be resolved.
Minister for Finance Michael Noonan said the document set out “important measures to address the problem of mortgage difficulty” and said it was “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”.
Mr Noonan has also 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.
AIB said it would implement pilot programmes to some of the proposals contained in the report, describing the recommendations as a "comprehensive response to longer term challenges".
"The solutions proposed within this report will enable all lenders to work towards a long term solution for customers in significant financial difficulty taking account of their specific circumstances," the bank said. "All solutions, short term or long term, will require the co-operation of the customer working with their lender to reach a resolution of their individual situation."
The Irish Banking Federation (IBF) welcomed the publication of the report, saying although existing forbearance measures provided critical support for borrowers, further measures would be necessary for those in an unsustainable solution.
"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," it said.
However David Hall, businessman and co-founder of the New Beginnings group, which is lobbying for a balance of responsibility in mortgage debt solutions, branded the report "absolutely pathetic".
"Nobody was approached. No organisation on the frontline of dealing with this was approached - Mabs, the Free Legal Advice centre, New Beginnings, none," he said.
"There was no formal request from the report authors to ask us to contribute, to advise."
Additional reporting: PA
