Struggling borrowers in Ireland could claim debt forgiveness

Mortgage Finance Gazette, Joanne Atkin, August 7, 2012

From next year borrowers in the Republic of Ireland who have unsustainable mortgage debt may be able to ask for debt forgiveness.

This is due to the Personal Insolvency Bill which was published on June 29 and is due to come into force in Ireland in 2013.

However, Moody’s have said this will increase banks’ losses on existing mortgage books.

Currently Irish mortgage borrowers who default on their loan can lose their home and be liable for the total outstanding debt for at least 12 years.

From 2013 mortgage borrowers who qualify as insolvent will be able to enter a Personal Insolvent Arrangement (PIA) with their creditors, if at least 65% of total creditors agree, which for most people will effectively mean their mortgage provider.

This arrangement would see the mortgage reduced to the current market value of the property, while the borrower would continue to live in it.

Although this may resolve the mortgage arrears and negative equity situation for the banks and eventually aid the recovery and strengthen the bank’s balance sheets, mortgage audit company Rockstead says this legislation will not benefit holders of Irish residential mortgage backed securities (RMBS).

In February 2012, Moody’s said that originators of Irish RMBS would not be required to buy back loans subject to PIA. As the majority of the servicing is undertaken by the originator in Ireland, the power to veto a PIA will therefore rest with the originator.

Rockstead says it is generally acknowledged that the Irish market has significant issues to address and the lack of qualified staff in collections, recoveries and quality assurance oversight has not helped asset holders to address these issues with urgency.

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