Call to ban full recourse mortgages

Monday 14 June 2010 19.23
Houses - Mortgage holders responsible for full loan
Houses - Mortgage holders responsible for full loan

Full recourse mortgage lending has exacerbated the property implosion and the financial crisis facing homeowners throughout the country, according to the Irish Brokers Association.

The association has called for a ban on this form of mortgage lending, calling it unreasonable and anti-consumer.

With a full recourse mortgage the mortgage holder is fully liable for the total debt due on the loan agreement, even if the actual value of the property decreases.

This means the mortgage holder bears full responsibility, and the banks do not have to pay any price for their imprudent lending practices, the Irish Brokers Association said.

Full recourse mortgage lending, while well established in Ireland, 'hugely undermines confidence for those affected, resulting in a curtailment of consumer spending and an extended recession, Irish Brokers Association CEO Ciaran Phelan said.

'It is because of full recourse mortgage lending that we are now faced with a situation whereby due to the crash in property prices thousands of people are left owing much more than their property is worth and by law the bank can go after the family's other assets or funds to recover the debt,' Phelan said.

The representative body has said that the industry should learn from its mistakes and implement changes to safeguard the Irish public from a financial crisis such as this further down the line.

It contends that banks should underwrite mortgages based on two key factors: the borrower's ability to meet the monthly repayments and the security offered which they say is a reasonable proposition.

The IBA is suggesting that a non-recourse system be put in place whereby the loan is secured by a pledge of the actual property, but for which the borrower is not personally liable beyond that asset.