The Financial Regulator called on banks to make more realistic provisions for losses on unsustainable mortgages.
Matthew Elderfield has also said he expects mortgage arrears to continue to rise this year.
Mr Elderfield said there was uncertainty about the size of unsustainable mortgages and it was unfair to borrowers to “kick the can down the road” in the most difficult cases where families were borderline insolvent.
He said this added to their debt when there was no prospect that forbearance would work.
The Central Bank wrote to all 21 mortgage lenders in the Irish market last year asking them to set out their strategy for dealing with mortgages in arrears.
Mr Elderfield said he has recently met with the CEOs of the top seven lenders and has given them specific dates for actions they must take to sort out their mortgage books.
As part of this, banks must quantify the amount of mortgages which will never be paid back and must consider the implications for their capital requirements.
He said that having clarity on this was important for the economy generally and the housing market.
On negative equity mortgages where a borrower could bring some of the debt with them in a new loan, Mr Elderfield said a pilot scheme, with two banks, was now being extended to all lenders. It is understood the initial lenders were Permanent TSB and Bank of Ireland.
Mr Elderfield was speaking at a gathering of the Harvard Business School Alumni Club in Ireland.
