Bailout chiefs have urged the Government to get a firmer grip on the situation as they warn that credit card bills are being prioritised by struggling families instead of home loan repayments.
With the Coalition yet to issue firm guidelines for the new Insolvency Service aimed at helping people in financial distress, the EU/IMF/ECB troika has told ministers to treat the issue with more urgency.
A top level report on how the economy is fairing which is set to go before the Oireachtas and its German counterpart gives a strict warning on dealing with the debt issue.
“The high level of loan defaults on banks’ balance sheet raises concerns about potential future losses,” the document states.
“In particular, the high level of mortgages in default is a persistent source of concern.”
The troika zeroes in on households prioritising credit card debt as a destabilising factor.
The report claims debtors may have fallen into an area of “moral hazard” because they know repossession is harder after a 2011 High Court case which put a legal brake on many such actions.
“Specifically, banks report that a significant number of consumers are prioritising unsecured debt over the repayment of their secured mortgage debt,” the document states.
“It may also reflect the moral hazard generated by legal uncertainty about the banks’ ability to recover the collateral.”
Enda Kenny has made it clear that the Dáil will move in the next few weeks to change the law and make it easier for lending institutions to repossess homes.
The fact that half of distressed loans are in arrears for 720 days or more is a source of sharp concern for the troika, which has urged banks to engage in a more meaningful way with debtors after describing the sector’s performance so far as “disappointing”.
The report also confirmed that some measures in the last budget were regressive and impacted more heavily on the lowest-earning 20% people than on the highest-earning 20%.
The document also urges the Government to deal with mass unemployment “forcefully” and remarks that reforms and engagement taken by the Department of Social Protection has not been strong enough.
The Insolvency Service guidelines are due to be published in the middle of this month following weeks of leaks which have led to widespread concern about the stern nature of writedown deals to be offered to families in debt distress.