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Report rules out blanket debt forgiveness on mortgages

Under proposals contained in the report, struggling homeowners would give up their houses but be allowed to rent them back from State bodies or local authorities.

Michael Noonan speaks following the publication of the report today.
Michael Noonan speaks following the publication of the report today.
Image: Eamonn Farrell/Photocall Ireland

A REPORT INTO the problems faced by mortgage holders in arrears in Ireland has ruled out the possibility of blanket debt forgiveness but has made a number of other recommendations to help thousands of struggling homeowners.

An inter-departmental panel set up by the government and chaired by the accountant Declan Keane has recommended a number of proposals to help homeowners including trade-down mortgages, split mortgages and sale by agreement.

The main crux of the report centres on a scheme which would see homeowners lose ownership of their homes but be allowed to rent them back.

The Mortgage Arrears Working Group report proposes the introduction of two mortgage-to-rent social housing schemes that will see housing bodies that have State approval take ownership of houses in certain situations and/or banks lease property to the local authorities who would provide them for people.

The report found that there were 32,000 households who have been unable to pay their mortgages in the last six months. But it stressed that there could be no blanket debt forgiveness as had been called for in some quarters.

Previous estimates at the cost of this scheme came in at €6 billion but the report estimated that it would cost around €14 billion to clear all negative equity in the Irish property portfolio.

The cost alone of clearing mortgages taken out in the years 2006 to 2008 would be in and around €10 billion whilst the report also notes that 50 per cent of the arrears so far are outside the “covered banks”.

Specialised advice

There is also proposal for measures to be introduced which would allow people to trade down to smaller homes.

The report also recommends as a “viable solution” the splitting of distressed mortgages in two whereby part of the mortgage is “warehoused” for a repayment at a later date for example when the house is sold, and the affordable part of the mortgage is paid down under an agreed repayment model between the lender and the mortgage holder.

A more specialised mortgage advice service should be established, that could link into MABS, to provide specialist advice and assistance to mortgage holders in difficulty, the report says.

It also adds that reform of  bankruptcy and personal insolvency laws in Ireland is fundamental. It states that without this the mortgage problem will not be resolved.

The panel was convened by the Department of Finance in July and has been working on proposals alongside the departments of Social Protection and Environment.

Welcoming the report, the Minister for Finance Michael Noonan said today:

This report sets out important measures to address the problem of mortgage difficulty.   It is incumbent on the State authorities and the banks to fully consider these and for the financial institutions to bring forward other innovative solutions which help address this difficult and complex problem.

The Government will now propose that the Dáil have an opportunity to debate the findings and recommendations of the report and will make time for a debate next week.

This will give all sides of the House the opportunity to contribute in a constructive and realistic manner to the deliberations on this important issue.

Commenting on the release of the report the housing charity Threshold said that it was the first step in providing long-term help to homeowners but noted that it would not be appropriate for any mortgage-to-rent schemes to be operated by the banks.

Aideen Hayden, chair of Threshold, said:

The Keane Report is recognition at last that people need to have permanent resolution for their mortgage difficulties.  Many of its recommendations are measures for which Threshold has previously called. So we are broadly welcoming it, although we need more detail on how some of its recommendations will actually be rolled out.

Read the full report by the Mortgage Arrears Working Group >

About the author:

Hugh O'Connell

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