Patrick Honohan outlines 'sustainable' mortgage solutionsThursday 23 May 2013 23.05
The Central Bank Governor has said "imaginative design" of debt restructuring arrangements can help ensure that even insolvent homeowners do not lose their houses.
He said the idea of a split mortgage which allows borrowers to service only a portion of their debt at least on a temporary basis, could be "fleshed out" to reduce debt burdens and allow people to stay in their homes.
Patrick Honohan made his comments at a speech at the Institute of Bankers in Dublin.
He said split mortgage arrangements could not be considered sustainable if, at the end of the mortgage term, the outstanding or "warehoused" amount due to the bank was still greater than the value of the property.
"The modification agreement should specify that, at the end of the term, any shortfall in the warehouse after sale of the property would no longer be owed," he said.
Mr Honohan said one of the inherent difficulties with the split mortgage approach was that it was difficult to structure the arrangement in such a way that the bank was entitled to a higher level of repayment in the event that the borrower's financial situation improved without this acting as a disincentive to borrowers.
He said, ideally, agreement would be reached upfront about a revised payment schedule that "would link future payments to a review or to some indicator of changing ability to pay".
"For this to be considered sustainable, though, the claw-back mechanism should be sufficiently moderate that the borrower is not too much disincentivised from improving their income," he said.
ESM could provide capital to Irish banks - Chopra
The European Stability Mechanism could be used to provide further capital to banks in Ireland, according to IMF director Ajai Chopra.
Speaking at the Dublin event, he said the ESM was workable, feasible and created the right incentives. He said “our view is that it should be implemented.”
Mr Chopra's remarks at the IBF event follow the publication by the Central Bank of a review which showed Irish banks had €26bn of mortgages in arrears but only had €9bn of excess capital.
He was responding to a question regarding whether the ESM could be used to provide future funds to Irish banks.
He said: “We would like to see banking union done quickly.”