Honohan wants banks to "flesh out" split mortgages

Honohan wants banks to "flesh out" split mortgages


The Central Bank Governor has said “imaginative design” of debt restructuring arrangements can help ensure that even insolvent homeowners do not lose their houses.

He said the idea of a split mortgage which allows borrowers to service only a portion of their debt at least on a temporary basis, could be “fleshed out” to reduce debt burdens and allow people to stay in their homes.

Patrick Honohan made his comments at a speech at the Institute of Bankers in Dublin.

He said split mortgage arrangements could not be considered sustainable if, at the end of the mortgage term, the outstanding or “warehoused” amount due to the bank was still greater than the value of the property.

“The modification agreement should specify that, at the end of the term, any shortfall in the warehouse after sale of the property would no longer be owed,” he said.

Mr Honohan said one of the inherent difficulties with the split mortgage approach was that it was difficult to structure the arrangement in such a way that the bank was entitled to a higher level of repayment in the event that the borrower’s financial situation improved without this acting as a disincentive to borrowers.

He said, ideally, agreement would be reached upfront about a revised payment schedule that “would link future payments to a review or to some indicator of changing ability to pay”.

“For this to be considered sustainable, though, the claw-back mechanism should be sufficiently moderate that the borrower is not too much disincentivised from improving their income,” he said.


There are 2 comments for this article
  1. Paddy at 10:12 am

    Patrick Honohan speaks common sense here, the sooner the banks move on this difficult topic, the better. It should also be possible to carry negative equity to a new mortgage, once the free market value of the new property is greater than the old and the total loan does not exceed 3-times the income of the buyer (only one person’s income to be considered).

  2. Bobby Perez at 11:44 am

    Alternative options developed for people in mortgage arrears include the national mortgage-to-rent scheme and the Deferred Interest Schemes run by some lenders. An implementation group in the Department of Finance is dealing with the options of “trade-down” or “split” mortgages. The Central Bank has set out general criteria for lenders under which it will consider allowing negative equity mortgages and it continues to engage with the banks to encourage new approaches to loan modification.

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