Ireland eyes mortgage debt restructuring

City A.M. Reporter
The Irish government is likely bring in legislation to restructure mortgage debts for thousands of troubled loanholders as it does not have the resources to fund a significant debt forgiveness programme, a junior minister has said.

Ireland's ruling coalition has promised to examine ways to ease the burden on mortgage holders struggling to cope with a financial crisis that forced the country into an EU-IMF bailout and sent unemployment rates soaring.

Junior minister for housing Willie Penrose, a member of junior coalition partner Labour, on Sunday said the government should consider a proposal to write off up to €6bn (£5.2bn) worth of mortgage debt.

But Fine Gael's Brian Hayes, the junior minister in the department of finance, said this was not realistic.

"It would have to be a state-wide compensation fund, that the state would put billions (of euros) in it. Quite frankly the state doesn't have that kind of money at the moment," Hayes told Reuters.

Almost 90,000 mortgages are either in arrears or have been restructured, some 11 per cent of the total residential mortgage market, according to the last Central Bank figures released in May.

Many mortgage holders are stuck with their huge loans as house price falls of around 50 per cent in some areas prevent them from selling the property to pay off the debt.

High repayments on mortgages taken out during a dramatic property bubble are a significant drag on the domestic economy, which is struggling to recover from one of the deepest recessions in the euro zone.

The government appointed KPMG accountant Declan Keane to consider options of how to ease pressure on struggling mortgage holders and he is due to report in September. The government will likely make a decision in the autumn, Hayes said.

"I don't see it as radical as some economists have suggested. The cost of it would be prohibitive, " he said, referring to a proposal by University College Dublin economist Morgan Kelly, who last week called for a blanket forgiveness programme of €5-6bn.