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Irish State Pushes Banks to Forgive Home Debt as Arrears Mount

Ireland’s banks need to forgive some unsustainable housing debt, John Moran, the most senior official in the Finance Ministry said, as the nation’s central bank pressured lenders to act as arrears spiral.

Ireland needs “to see solutions that involve much more dramatic write-off of debt in respect of households that are really in non-sustainable situations and have an inability to pay,” Moran said in a speech to bankers in Dublin today.

Some 30 percent of Irish home loans by value are in arrears or have been modified, the central bank said today. The government has pledged or injected 64 billion euros ($83 billion) into its banking system and nationalized five of its six biggest domestic lenders.

“The economic milk spilt in poor lending, the losses already incurred, have not even begun to be cleaned up,” Fiona Muldoon, the central bank’s head of supervision, said in a speech at the same event. “This is the stuff of denial.”

Ireland’s economy has shrunk around 15 percent since 2008, house prices have fallen by half and unemployment has more than tripled to 14.7 percent, as the ending of a property boom was amplified by the global financial crisis.

Progress in addressing arrears in the buy-to-let sector has been “even slower” than in the residential sector, Muldoon said today. By value, some 41 percent of buy-to-let loans are in arrears or have been restructured, according to e-mailed slides accompanying her speech.

In all, some 167,000 home loans with a value of 35 billion euros were in arrears at the end of June, according to the central bank. A further 51,000 loans with a value of 9 billion euros have been restructured and are not in arrears.

“I see too much lip service to ‘progress’ and ‘meaningful resolution’ and not enough to ‘reality,’” Muldoon said. “I see way too many ‘extend and pretends’ masking as solutions.”

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