Some homeowners have mortgage debts reduced

SOME HOUSEHOLDERS struggling to repay their mortgages have had the size of the debts reduced by the banks, the governor of the Central Bank, Patrick Honohan, told an Oireachtas committee yesterday.

He said that in a small number of cases customers had negotiated new contracts with their lenders where the overall level of debt was reduced.

He told the Joint Committee on Finance, Public Expenditure and Reform that it was important for banks and customers that they came to arrangements that were realistic.

Financial regulator Matthew Elderfield told the committee that such new contracts had to be “very bespoke” to individual borrowers.

Prof Honohan said reductions in borrowers debts had occurred in a small number of cases and it was part of a process that the Central Bank supported.

He told Fianna Fáil TD Michael McGrath that banks had to establish a realistic, comprehensive picture of a debtor’s situation and a “modification” could be introduced by the bank if that was necessary.

Prof Honohan said it might be possible to arrange that very stressed owner-occupier borrowers who had to surrender ownership could stay in their homes on a rental basis. There also could be intermediate shared-equity type solutions.

All of this would be on a case-by-case basis without imposing avoidable costs on the State.

“Ideas along these lines are being considered by the banks, and would not require legislative or regulatory action,” he said.

He was not satisfied with the level of resources the banks were devoting to dealing with customers who were having difficulty servicing their debts. “We think they are behind the curve.”

Mr Elderfield said some banks were allowing new mortgages for people who were in negative equity, but this was not suitable for most people.

Negative equity mortgages are designed to allow people move home and bring their negative equity with them.

Prof Honohan said these products were not for distressed customers but for those who were able to finance their debts.

The mortgage crisis needed to be addressed on a case-by-case basis by the banks, which must ramp up resources for dealing with the problem, Prof Honohan said. Banks must address the problem in a way that both treated customers fairly, and prudently managed bank capital.

He said the Central Bank was determined to make progress in the way banks were treating mortgage arrears. “Banks must put a framework and resources in place to examine the individual cases of distressed borrowers. The sooner they do this the better.”

He said the Central Bank was about to undertake a major thematic review of banks’ compliance with the code governing mortgage arrears.

He would advise bank chief executives to examine very carefully their compliance with the code on mortgage arrears and to ensure their processes and resources were up to the task.