IMF urges banks to assist struggling mortgage holders

BANKS have been urged by the International Monetary Fund (IMF) to help struggling homeowners.

In a review of Ireland, the IMF, which oversees the global financial system, said now that the banks have more capital they could absorb the initial costs of some form of assistance for those who are finding it difficult to pay their mortgage.

It said the transfer of loans to NAMA and the revised capital ratios imposed by the Financial Regulator had moved the banks towards normalcy, adding that a scheme to assist homeowners in difficulty is overdue.

It said “narrowly targeted support measures for vulnerable homeowners would limit the economic and social fallout of the crisis”.

The IMF said “with their bolstered capital, banks could absorb the initial costs, perhaps basing themselves on the welfare system to identify eligible beneficiaries”.

Experts said this may suggest the IMF is hinting at a rescue package targeting the most in need.

It is estimated that one- third of mortgage holders will be in negative equity by the end of this year.

Irish Mortgage Corporation director Frank Conway said that while there appears to be “genuine efforts” from banks to work with homeowners who are facing difficulty, there is little evidence that policy includes any form of debt forgiveness.

“Just this week, it was reported that some banks are actually progressing a so- called ‘negative equity’ loan scheme to select customers. This would be anathema to making available what the IMF appears to be referring to. The great difficulty right now is negative income along with multiple creditors calling for payment,” he said.

The IMF said that while the Government has done much to re-establish its international credibility, challenges remain.

The IMF hinted at the possibility of social unrest and “consolidation fatigue” as the Government seeks to further narrow its fiscal deficit.

Minister for Finance Brian Lenihan welcomed the IMF’s report yesterday. A more detailed report is due out in the coming weeks.

The IMF’s research on Ireland involved a small team of IMF staff visiting the country in mid-May for a two-week period of consultation during which they met the minister and public and private sector bodies.