Ratings agency Moody's has warned that the Personal Insolvency Bill has mixed credit implications for Ireland.
The ratings agency says that the legislation will have implications for mortgage-backed securities, banks and covered bonds.
Moody's expects debt forgiveness, rather than repossession, to become the preferred option for lenders dealing with borrowers that have unsustainable mortgage debt.
The agency does say, however, that the legislation provides an efficient mechanism to deal with mortgage arrears and negative equity.
In the long term this is a positive move for banks and their covered bonds. In the short to medium term however, the agency expects that the legislation will increase arrears and losses on existing mortgage loans, a negative for mortgage backed securities, banks and covered bonds.
Standard & Poors has also raised concerns about the legislation since its publication.
Moody's warns that the bill, in reducing the bankruptcy period from 12 to 3 years will reduce the potential moral hazard and borrowers' incentive to repay.
