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.
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.