Central Bank to push lenders on escalating mortgage arrears

LENDERS ARE being pressed to identify borrowers who are unlikely to be able to repay mortgages and to push for agreed sales of properties and the repayment of any shortfall under plans being devised for the Central Bank.

The regulator said it was “not comfortable” with the level of mortgage arrears and wants the banks to do more to tackle the worsening mortgage crisis.

The Central Bank will meet the boards of AIB, Bank of Ireland and Permanent TSB over the next two months to ask them to “take a direct and personal interest” in making sure the banks follow their plans to resolve troubled mortgages.

Matthew Elderfield, the Central Bank’s deputy governor in charge of regulation, said the banks were unprepared for the crisis and had been “geared” to sell mortgages.

“The scale of the problem has overwhelmed the banks,” he said.

Lenders needed more staff and better expertise and systems to deal with problem mortgages.

Intensified efforts to tackle the crisis are being taken as the portion of loans where borrowers have missed repayments of 90 days or more has passed through 10 per cent or 75,000 mortgages in the first quarter of the year.

The arrears rate for buy to let mortgages is much worse than the situation in residential mortgages.

Central Bank governor Patrick Honohan said the high level of arrears was not unexpected but that the banks had “no immediate need” for additional bailouts.

The banks must decide by the end of the month which loans can be modified for borrowers who can afford them but require short-term forbearance, and which loans struggling borrowers will never be able to repay.

In the worst cases, the banks must reach agreement with customers for the voluntary surrender of their properties and entry into the new bankruptcy regime, said Mr Elderfield.

“If someone is deeply in arrears . . . simply putting them on interest only isn’t going to work. You have got to tackle that,” he said.

AIB, Bank of Ireland and Permanent TSB plan to identify loans where “assisted” or “agreed” sales are the only option and they must negotiate with customers on post-sale shortfalls. The State’s largest mortgage lender AIB, and its subsidiary EBS, will test a number of these “voluntary sale for loss” or “short-sale” cases over the coming months.

The Central Bank is also pressing banks to move more quickly on struggling buy-to-let investors with large investment portfolios by appointing receivers to collect the rents.

Increasing mortgage arrears was “another red flag” for Government to speed up its reform of debt laws, said Free Legal Advice Centres, which helps borrowers. The Government has said it will publish the draft legislation by the end of next month.