Patrick Honohan has said the Central Bank is "ramping up" its engagement with banks in recognition of the fact that, until recently, they seemed to be "behind the curve" in addressing the problem of mortgage arrears on a sustainable basis.

Speaking at the bank's conference on distressed property, the Central Bank Governor said household financial distress is at unprecedented levels.

This can be seen, he said, from the "extraordinary" rates of arrears on the servicing even of mortgages secured on owner-occupied homes.

He said that while most borrowers continue to service their loans, long-term debt modification is relevant for cases of over-indebtedness involving or bordering on insolvency.

However, he said permanent debt relief is "not something that will be offered to all of those who have suffered a loss of wealth" and that negative equity is not in itself a rationale for debt relief.

He said repossessions may be inevitable for many investment properties, but should be avoidable for the majority of owner-occupier cases where borrowers are doing their best to maintain repayments.

In order to relieve pressure on borrowers, changes to a mortgage must also take into account other factors, such as money owed to credit unions and utility companies, Mr Honohan said.

However, he added: "There must be consequences for an uncooperative borrower refusing to make a reasonable effort."