Moody’s Says 25% of Irish Mortgages Risk Writedown Under Plan
February 08, 2012, 7:40 PM ESTBy Joe Brennan and Colm Heatley
Feb. 8 (Bloomberg) -- Moody’s Investors Service said Ireland’s proposed personal insolvency laws may leave as much as 25 percent of the country’s mortgage debt open to write-off.
The proposal, published late last month, may mean “many mortgage loans will be written down and many borrowers will become discouraged from maintaining their mortgage-loan repayments,” the company said today. “A quarter of all Irish mortgage debt is susceptible to a writedown” under the plan.
Ireland is reshaping its bankruptcy and insolvency laws after a real-estate bubble collapsed in 2008, trebling unemployment and leaving some homeowners unable to meet their loans. Almost 13 percent of private residential mortgages were either more than 90 days in arrears or had been restructured at the end of September, according to the country’s central bank.
“It is premature for any rating agency to make any call” on the proposal, Finance Minister Michael Noonan said today. “We have to deal with debt in this society.”
Irish homeowners seeking to get mortgages at least partially written off need the agreement of their lenders under the proposals published Jan. 25. Any agreement will need the support of at least 75 percent of creditors who have security on their loans. Borrowers may be able to obtain debt relief, including a possible write-off of as much 3 million euros ($4 million) where creditors and the debtor agree.
‘Truly Unable’
Moody’s said the proposals are credit negative for Irish residential mortgage backed securities and the details of insolvency laws used to identify borrowers “truly unable to pay their debts” together with banks’ responses “will determine the impact of our expected loss assumptions.”
The government proposed cutting the term of automatic discharge from bankruptcy to three years from 12 years and it plans to publish the final legislation by the end of April.
Moody’s said it expects home prices to fall 60 percent from their 2007 peak, pushing the total share of mortgages in negative equity to 75 percent.
“In the unlikely event that all negative equity loans were to be written down to the market value of the home, we estimate that 25 percent of all mortgage debt would written-off,” it said.
--With assistance from Cormac Mullen in Dublin. Editors: Simone Meier, Alan Crawford
To contact the reporters on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net Colm Heatley in Belfast at cheatley@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
