Central Bank starts mortgage debt talks

The Central Bank brought the banks, credit unions and other lenders together yesterday to reach a compromise on the explosive issue of secured and unsecured debt in resolving the mortgage arrears crisis.

Another meeting is scheduled for tomorrow, although informed sources say it could take up to two months before a workable agreement is put in place.

“It was a very productive meeting. I believe all issues were surfaced and are now on the table. We will work through them now one by one. Collectively those present agreed a path forward to progress the mutual objective of a framework for multi-borrowed distressed borrowers,” said Fiona Muldoon, Director of Credit Institutions and Insurance Supervision at the Central Bank.

According to one of the parties who attended the meeting, as it stands both sides are unwilling to compromise.

“The positions at the moment are entrenched and polarised. Right now it is hard to see how an agreement could be reached, but as with all negotiations, everybody starts with their strongest position on the first day.

” However, given that everybody is in the room and the Central Bank is overseeing negotiations, then you would be hopeful that something can be agreed.”

The issue at stake is how unsecured debt is treated in a personal insolvency arrangement. The banks are trying to tackle the mounting mortgage arrears crisis. However, a big stumbling block to agreeing a debt restructuring is the issue of credit card debt and credit union loans.

The banks insist mortgages, which is secured debt, should take priority over unsecured lending. The credit card companies and credit unions argue that the banks should compromise and allow unsecured debt form part of any revised repayment schedule.

At Bank of Ireland’s results presentation on Monday, chief executive Richie Boucher, said that if there was any diminution in the status of secured lending, then it would have massive industry-wide implications. Most importantly it would have implications for a bank’s ability to borrow and offer 25-year mortgage products at circa 4% interest rates, he added.

The management teams of Bank of Ireland, AIB, Permanent TSB, Ulster Bank and KBC,the League of Credit Unions,MBNA among others were in attendance yesterday.

Negotiations over the next few weeks are likely to likely to touch on a number of sticking points. The chief executives of Bank of Ireland and Ulster Bank have both ruled out any form of debt forgiveness in the range of solutions offered to customers in mortgage arrears. “We have responsibilities to our shareholders and depositors,” said Mr Boucher on Monday.

“They all have responsibilities to shareholders not to burn capital, including the unsecured lenders,” said another person who was at the meeting.