Central Bank may force banks to write down value of problem mortgages

The Central Bank of Ireland plans to force banks here to writedown the value of problem mortgage loans in arrears of 90 days if they have not been subjected to a "sustainable" restructured arrangement.

This could force lenders to reduce the value of the loan to the level that would apply if they were forced to take possession of a property and could leave the banks scrambling to raise additional funding to maintain their capital ratios .

In the case of AIB, Permanent TSB and Bank of Ireland, this could involve a further bailout from the exchequer. All three have already received significant State funding since the collapse of the economy in late 2008.

This is one of the key measures included in proposals from the Central Bank to deal with mortgage arrears. The regulator wants the banks to have put proposed sustainable solutions to 20 per cent of those in arrears or more than 90 days by the end of the June.

This is targeted to increase to 30 per cent by the end of September and 50 per cent by the end of the year. It wants the terms of these agreements to be met by 75 per cent of those in arrears in 2014.

The Central Bank said it would carry out periodic audits to ensure compliance with the targets. Banks found not to be dealing in a sustainable way with their arrears customers will be forced to take the provisioning hit in their 2014 financial accounts.

The new rules will apply to ACC Bank, AIB, EBS, Bank of Ireland, ICS Building Society, KBC Bank Ireland, Permanent TSB and Ulster Bank.

The Central Bank is also proposing changes to the Code of Conduct on Mortgage Arrears. This would involve lifting the three contacts a month limit that is currently imposed on banks in their dealings with customers.

The regulator is also considering if there is "merit" in allowing a lender to move a borrower in arrears off a tracker rate if they are offered an advantageous alternative arrangement such as a debt write off.

At the end of December 2012, there were 94,000 private residential mortgages in arrears of 90 days or more, of which 46 per cent were on interest only or less than interest only arrangements with their lenders.