A negative equity loan agency is being examined by the mortgage arrears review group to help over-indebted borrowers clear their home loans and move into more affordable housing without defaulting.
The proposal suggests using the unsuccessful Home Choice Loan programme, which has a lending mandate and €500m funding line, to provide subsidised bridging finance to cover the shortfall when a house's sale price comes in below the mortgage value. This would allow the borrower to effect a so-called "short sale", fully clearing the mortgage, but carrying a smaller debt forward.
The plan came out of a presentation given to the group last week by Karl Deeter, operations manager with Irish Mortgage Brokers. According to the proposal, "Negative equity loans are a method that allows a person in financial difficulty to gain forbearance without giving up responsibility, as well as allowing the market to set prices accordingly between willing sellers and willing buyers."
The idea, according to the proposal document, is to get borrowers to restructure their debt to a level appropriate to their income by removing the obstacle of negative equity from the sales process.
The expert group, which was set up in February by ministers Eamon Ryan and Brian Lenihan, has been considering a range of approaches to the problem of mortgage arrears and negative equity in regular meetings over the last few months. Deliberations are not made public, but it is understood representatives from the Free Legal Advice Centre and the Law Reform Commission thought the plan was too easy on the banks, which would recoup their outlays with more public money.
The panel reports to the ministers on an ongoing basis and is expected to "bring forward innovative recommendations on debt management and enforcement".
Mortgage arrears continue to rise as more and more homeowners fall behind in their debt payments. Irish Life & Permanent, the largest mortgage lender in Ireland with €27bn in outstanding loans, reported last Friday that the number of borrowers with loans more than 90 days past due continued to rise, although there were signs that "early arrears" (under 90 days past due) were levelling off.
AIB also reported last week that its arrears continued to increase and future loss levels would largely be determined by unemployment, which has been holding steady at the elevated level of 13.4%.