IDEAS home Printed from https://ideas.repec.org/p/cbi/wpaper/6-rt-21.html
   My bibliography  Save this paper

Delivering Debt Relief through the Banking Sector: Lessons from the Irish Mortgage Market

Author

Listed:
  • Labonne, Claire

    (Federal Reserve Bank of Boston)

  • McCann, Fergal

    (Central Bank of Ireland)

  • O'Malley, Terry

    (Udemy, inc.)

Abstract

How do banks design mortgage modifications when under regulatory expectation to issue them widely and quickly? Who do they allocate modifications to, and how deep are repayment cuts? How many modified loans end up re-defaulting? A large-scale Irish program allows us to tackle these questions using household- and loan-level data from 2012 to 2016. We show that the issuance of permanent modifications is not uniform across the credit risk distribution: those with a moderate ability to repay are more likely to receive a modification than those in deepest financial difficulty. Repayment cuts however are more generous as repayment capacity weakens, as long as borrowers have some surplus income available to service debt. Finally, deeper repayment cuts and lower payment-to-income ratios lower redefault rates, confirming prior evidence on the importance of liquidity for mortgage distress.

Suggested Citation

  • Labonne, Claire & McCann, Fergal & O'Malley, Terry, 2021. "Delivering Debt Relief through the Banking Sector: Lessons from the Irish Mortgage Market," Research Technical Papers 6/RT/21, Central Bank of Ireland.
  • Handle: RePEc:cbi:wpaper:6/rt/21
    as

    Download full text from publisher

    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/06rt21-delivering-debt-relief-through-the-banking-sector-lessons-from-the-irish-mortgage-market-labonne-mccann-and-omalley.pdf?sfvrsn=8
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Mortgage Default; Mortgage Modification;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:wpaper:6/rt/21. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fiona Farrelly (email available below). General contact details of provider: https://edirc.repec.org/data/cbigvie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.