PROPOSALS to resolve disputes over mortgage arrears through arbitration or a special housing court have been put forward by the housing advice agency, Threshold.

Legal procedures for dealing with housing loan debts were unnecessarily formal, costly, time consuming and adversarial, according to Threshold manager, Ms Mary Higgins.

She stressed the scale of the problem was small compared to the United Kingdom, with only about 4,000 of the State's 450,000 mortgage holders in more than six months' arrears in 1994. However, lending agencies tended to institute legal proceedings before six months, usually when a borrower was three to five months in arrears.

"Financial institutions clearly do not wish to repossess homes and claim that legal proceedings are used by them as a means of bringing borrowers to `their senses," said Threshold. This was a reasonably successful tactic, as most cases were settled, with only a small number of repossessions.

However, the whole procedure involved great trauma to homeowners, who usually got into difficulties through an unexpected problem, such as unemployment or a bereavement.

The agency put forward three proposals as alternatives to the existing court procedures in Ireland.

These were court annexed arbitration, to which cases which came before the court would be referred contract based arbitration, where a condition of the loan would be an agreement that disputes or arrears would go to arbitration and a special housing court, attached to the district court system, which would hear cases in private and seek a resolution through mediation and arbitration.

The Minister of State for Enterprise and Employment, Mr Pat Rabbitte, who launched the report, welcomed the proposals. He said he would bring them to the attention to the Minister for Justice.

Mr Des Byrne, of the Irish Mortgage and Lending Association, which funded the project, pointed out there had been a significant reduction in repossessions last year, due both to lower interest rates and counselling.