Honohan tells banks: 'act on home loan arrears' - Independent.ie
Good, strong statement from Honohan on this. With 1/6 homes (Seriously Independent editors, you guys can't even get basic ****ing fractions right) in arrears, a format for restructuring the loans of those who can't address their mortgages needs to take place.Patrick Honohan said he was not satisfied with the pace of loan restructuring and said that senior management at the Central Bank were "tearing their hair out" at the lack of action from banks to get people "back on target".
He said addressing the slow rate of progress on the mortgage crisis would be the Central Bank's priority following the securing of a deal on the nation's debt problems.
And he warned that the Central Bank was so concerned about the lack of progress on mortgages that it was close to issuing directions to the banks on how to deal with the matter.
That doesn't have to mean a write down (I'd certainly argue that it shouldn't), but extending the terms of the mortgage, taking part ownership of the property, payment holidays etc need to be considered.
The crucial compromise to be on this would seem to be that if you go for a formal writedown of the debt (i.e 200k to 150k) the bank forgoes the interest on the extended mortgage. So if for instance (picking numbers out of the air) a €200k mortgage is due in 20 years and is going to garner €88k interest for the bank and cost the customer €1200 a month. The bank keep that interest amount when extending it out to 25 years (i.e, giving up the additional 5 years interest you're due).
This does involve a hit to the bank, as they lose 5 years interest, but it still makes sure you'll get the principle back with enough to pay off what you've borrowed the money back (in most cases. Tracker mortgages are a nightmare that won't go away for banks).
So the banks gets it's money, it just gets it later than they agreed initially and without the corrosponding interest. In real terms for the customer, using my example, puts your monthly repayment at €960 (a 20% saving).
This seems pretty simple to me. But there's been no united front from the banks, no effort from govt to put a policy together, no effort to define what's a genuine effort from a customer to repay and who's just looking for a debt holiday. There needs to be more focus on this in order to provide mortgage payers with a stable way out of their debts.