Ireland has been dealing with a mortgage crisis for some time. To find ways out of this situation, it has turned to the International Monetary Fund (IMF) for guidance and possible financial assistance. In a rather unusual move for the IMF, rather than suggesting that Ireland needs to tighten its lending policies, as has been the case in most countries with similar problems, the IMF has proposed liberalization.
To achieve its proposed goals, the IMF suggests that Ireland overhaul its entire mortgage lending system. This would require the country to enact a new set of rules that would allow lenders to take a more complete view of a borrower’s credit situation and ability to repay loans by measuring their debt levels. The current system only allows lenders to consider the borrower’s income levels. This new, more complete view, would allow those with lower incomes but strong repayment histories to obtain higher levels of financing than currently available.
In turn, these looser lending requirements might give the Central Bank a little room to maneuver and review its current lending cap system. The Bank already has plans to review its cap system on an annual basis, but this new system could create a “more appropriate limit…given that it takes all of a borrower’s debts into account.”
Such an overhaul, however, will not be without its hurdles to overcome. First, the new system would require the creation of a Central Credit Register (CCR), which would operate in a fashion similar to the credit bureaus in the American system. Such a system could not be implemented before next year at the very earliest.
According to the Central Bank, trying to create the IMF’s proposed system “would be premature,” and would make it nearly impossible to enact realistically enforceable regulations on an individual’s total debts. Until a CCR can be created, the Bank feels lenders must educate themselves about a borrower’s total indebtedness, but offers no advice on how to ensure that it has done so completely.
The IMF, however, remains optimistic that once the CCR system comes into being, the new lending process should be easy to introduce. It went on to say that in the current, post-bailout Ireland, the caps "appear to have mitigated pressures in the residential property market by curbing expectations of further price appreciation … These measures should be maintained as a permanent feature of the mortgage market to safeguard the resilience of banks and households against shocks."
For its part, the Central Bank appears to be wholly behind that suggestion, having noted that, in its view, the current mortgage caps should be permanent.
“The view that we are taking is that really these have to become structural, permanent and we are looking at the moment from a medium- to long-term perspective, as opposed to a very short-term one… We are going to look at the impact of the measures on borrowers. We are going to look at the impact of the measures on banks and their lending behaviour… We are going to look at the allowances... We are going to look across the whole spectrum."