Bloomberg News

Ireland May ‘Warehouse’ Mortgages to Ease Repayment Burden

October 12, 2011

Oct. 12 (Bloomberg) -- Ireland’s banks may “warehouse” portions of home loans, enabling cash-strapped borrowers to pay down a smaller sum for a period, according to a government- appointed committee’s proposals to ease mortgage burdens.

So-called split mortgages “could be a viable solution in certain circumstances,” the Inter-Departmental Working Group on Mortgage Arrears said in a report published today in Dublin. The distressed loan would be split into an affordable mortgage and “‘warehousing the balance.” “Further deterioration” in mortgage arrears is likely, the group said.

The report, which said some 55,000 mortgages are more than 90 days in arrears and another 70,000 have had repayment terms relaxed, will be debated next week in the Irish parliament. Ireland has pumped about 62 billion euros ($85 billion) into the financial system after its real estate crash resulted in the nationalization of Anglo Irish Bank Corp. and pushed other institutions to the edge of collapse.

With split mortgages, the warehoused loan could be settled at the end of its term with the proceeds of selling the property or lump-sum pension payments, the report said. The mortgage- arrears group consists of government officials, central bankers and financial executives.

Bank Impact

Irish Finance Minister Michael Noonan said today that the group’s proposals wouldn’t result in new capital deficiencies for the nation’s banks.

“We don’t want evictions, we don’t want people removed from their own homes,” Noonan said at a press briefing in Dublin today. “There must be a clear distinction made between those who can’t pay and those who won’t pay.”

Noonan said he plans to move to implementation of some of the proposals “straight away” after a debate on the report next week in parliament. The finance ministry will bring forward “an implementation strategy” on the proposals, he said.

In some circumstances, borrowers and banks should reach a “reasonable and appropriate” accord on how the gap between a property’s sale price and the outstanding mortgage balance should be handled, the report said.

Allied Irish Banks Plc said it would pilot test some of the proposals sketched out by the group, after dealing with more than 5,000 customers under a mortgages resolution process.

“For many customers in difficulty, the existing forbearance initiatives will allow them the time and breathing space they need,” the Dublin-based lender said in an e-mail statement.

--Editors: Keith Campbell, Dara Doyle

To contact the reporters on this story: Finbarr Flynn at fflynn3@bloomberg.net;

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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