Banks’ reply to home debt ‘inadequate’

BANKS have been criticised by the Central Bank governor over their inadequate response to the mortgage crisis. He has announced a full review into their handling of borrowers facing arrears.

But Patrick Honohan said banks were beginning to write off mortgages in a small number of cases.

It came as Financial Regulator Matthew Elderfield revealed changes were planned to prevent banks contacting customers incessantly over debts. He also appealed for hassled borrowers to contact him and he pledged to act against lenders breaking the code of conduct.

Meanwhile, Mr Honohan suggested setting up a debt resolution agency. But he warned against a wide-scale debt relief scheme that could burden the state in a similar way to the bank guarantee.

He told the Oireachtas Finance Committee that some banks did not have the right staff or sufficient numbers handling arrears cases. “It is clear that many lenders have been slow to acknowledge the extent of this problem and to put in place sufficient operational infrastructure to deal with it.”

He called on banks to “ramp up” their efforts to solve the problem while treating customers fairly.

“We think they’re behind the curve,” he said, adding that lenders had been in “denial” and that he was not satisfied with their actions.

More was needed than just reducing interest rates, he told TDs and senators.

Banks will be scrutinised as part of a major review of their compliance with the code of conduct on mortgage arrears.

The Central Bank plans to visit lenders and check how distressed mortgage holders are being treated, and to see if banks are offering them relief options, as legally required, Mr Honohan said.

Options being considered by banks include allowing owner-occupiers who have to surrender ownership to stay in the property on a rental basis. It is understood that an inter-departmental group, set to report later this month, is looking at the idea and the involvement of local authorities.

Mr Honohan said banks were also considering helping borrowers by offering them shared-equity-type solutions on properties. Lenders had also sanctioned writing off mortgages in a small number of cases, he said, as well as a number of “negative equity” loans where homeowners carried their debt with them when moving property.

Photo: Nick Bradshaw

More in this section

Puzzles logo
IE-logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day.

Puzzles logo
IE-logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day.