A NEW agency with legal powers to enforce debt restructuring agreements between banks and struggling home owners is being considered by the Government to deal with the rise in distressed mortgages.
The Cabinet is awaiting a report from an expert group, which is due by the end of next month, before making any major decisions in this area.
However, a high-level Government source told The Irish Times yesterday it would avoid any measures “on such a scale that people feel they can abandon their mortgages”.
Government sources also stressed yesterday that the banks had been “over-capitalised” last March “on the basis of a very severe stress test”.
This was done so that the banks would have “a significant sum” for dealing with mortgage default.
Monitoring would have to be carried out to ensure there was a common approach by the banks, sources added.
They pointed out there were difficulties with debt forgiveness because taxpayers could take the view that they should not be expected to bear the burden, so it would have to be on a “case-by-case” basis.
Central Bank figures out this morning will show that about 55,000 home loans, or 7 per cent of the market, were in arrears at the end of June.
This compares to an arrears level of 6.3 per cent three months ago, and 5.7 per cent at the end of last year.
The first meeting of Cabinet since the summer recess takes place tomorrow. However, the issue will not be discussed in any depth for fear of pre-empting the expert group’s report.
There was a need for “some level of oversight” to ensure that genuine hardship cases were dealt with in a fair and humane manner, Government sources said.
The programme for government that was agreed between Fine Gael and the Labour Party contains a commitment “to helping homeowners in distress to weather the recession” and to examining a variety of proposals to this end.
One measure now under consideration is converting the Money Advice and Budgeting Service into a personal debt management agency, which would be given “quasi-judicial status” to enable it to “support families who make an honest effort to deal with their debts, including non-mortgage debt”.
These new legal powers would enable such an agency to require banks to achieve a resolution in these cases.
Another measure in the programme for government that is also under consideration is “fast-tracking” reform of the bankruptcy and personal debt laws.
Minister for Social Protection Joan Burton told RTÉ radio yesterday: “I don’t think that the banks and the mortgage institutions are actually engaging sufficiently with people.”
She said that while Irish banks had been focused on trying to save the core institutions, “they also have to concentrate on reaching out to the people that they lent to in the boom”.
Meanwhile, the mortgage crisis has surfaced in the presidential campaign, with Independent candidate Mary Davis stating yesterday: “I feel very strongly that banks, especially those funded by the taxpayer, have a particular responsibility to be reasonable and flexible with people and families in difficulty.”
Fine Gael candidate Gay Mitchell MEP said: “We need to do something to assist people who are in difficulty.
“The problem is, how far do you go without encouraging others not to meet their obligations, bearing in mind that we transfer to the taxpayer the cost of doing this, ” Mr Mitchell added.
The issue is expected to be raised when Minister for Finance Michael Noonan meets the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on Thursday morning.
“I am quite sure it will feature,” committee chairman Deputy Alex White of Labour said yesterday.
“I have no doubt that it will surface.”
