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Irish central bank forces lenders to act on arrears

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14/03/2013
The Central Bank of Ireland has threatened Irish lenders with increased capital requirements and supervision if they fail to address the growing mortgage arrears crisis.
Irish central bank forces lenders to act on arrears

The Bank (pictured) has issued tough quarterly targets for lenders to resolve mortgage arrears cases, with half of borrowers in arrears due to be offered a ‘sustainable solution’ or payment plan by the end of 2013. The government expects three-quarters of terms to be met by 2014.

Plans must include a realistic valuation of the borrower’s property and an appropriate interest rate.

The announcement also echoed Finance Minister Michael Noonan’s calls for an increase in repossessions with an acknowledgement repossessions were “inevitable”.

In a report published late yesterday, the Bank said the number of accounts in arrears had more than doubled over a two year period and further action was urgently required: “The focus of the Central Bank in relation to the resolution of mortgage arrears in 2013 is driven by prudential and consumer protection objectives concerning the need to ensure the fair treatment of consumers and to minimise loan losses through improved management of arrears cases and distressed loans.

“For each institution, this will involve an appropriate workout strategy, a change in emphasis from extended short-term solutions to sustainable solutions and ensuring that there is proactive resolution of distressed loans on a-case-by-case basis.”

The current strategy of temporary forbearance led distressed borrowers to prioritise unsecured debts before their mortgage, it said.

Ireland’s attempt to resolve its arrears problem comes as European Union legislation to update and tighten the timeline on lenders’ forbearance practices has reached its final stages.

The draft directive, CRD IV, defines borrowers as being in default once they reach 90 days in arrears – common practice in many European countries but half the amount of time allowed to retail borrowers under UK law.

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