Expert group likely to seek more time on analysis of mortgage debt forgiveness

THE GOVERNMENT-appointed group set up to assess how to deal with mortgage borrowers in distress is expected to say in its interim findings that more time is required to analyse the cost of a debt forgiveness scheme and whether it could work in Ireland.

The group is expected to raise difficulties about how the State could devise and pay for a mechanism whereby troubled borrowers would have some debt written off.

The group, headed by insolvency accountant Hugh Cooney, is expected to present initial recommendations to Minister for Finance Brian Lenihan this week.

No comment is being made by the group ahead of any public announcement by the Minister.

The expert group on mortgage arrears and personal debt was set up last February to devise solutions to help borrowers struggling to meet mortgage repayments.

The work of the group is ongoing, with meetings still being held this week and work on the interim report being finalised.

The group is expected to make recommendations on dealing with mortgage arrears initially before addressing the issue of general personal debt at a later date.

The suitability of a debt forgiveness scheme in an Irish context and the cost of such a scheme to the State given that the Government is injecting billions into the banks over losses on property development loans is expected to be among the issues raised.

There are concerns that a debt forgiveness scheme could exacerbate mortgage losses for lenders, which are informally restructuring mortgages for many borrowers.

A member of the expert group, the Central Bank’s head of financial regulation, Matthew Elderfield, has said there was “no silver bullet solution”.

He raised concerns last month about the moral hazard and cost of devising a way to help struggling borrowers.

Mr Elderfield said that care had to be taken to ensure that any solution doesn’t provide financial incentives for arrears to worsen.

The cost of any mechanism to assist households in difficulty would have to be borne by those who avoided excessive borrowing and meeting repayments, he said.

The group may recommend that lenders offer distressed mortgage holders the opportunity to extend the length of their mortgage term or allow them to pay interest-only for a period or take a break in repayment to help them.

One in every 25 residential mortgage holders is more than three months in arrears.

The regulator said last month that 32,321 mortgages – 4.1 per cent of 791,000 mortgages in the State – were in arrears for more than 90 days during the first quarter of the year.