Ireland gives banks more power to chase up late mortgage payments

DUBLIN, June 27 (Reuters) - Ireland's central bank said on Thursday it will give commercial lenders more powers to chase homeowners for delayed mortgage payments as it looks to speed the clean-up of bad loans from a burst property bubble.

Irish mortgage arrears have risen to record levels, with one in five home loans not being fully repaid.

Local banks, predominantly state-owned, have largely held off repossessing properties and writing off the loans to avoid a hit on their balance sheets and a public backlash.

But avoiding the problem could delay Ireland's exit from its EU-IMF bailout and make the eventual writedowns more costly for the banks - as has happened in Spain..

In changes that come into force on July 1, the Central Bank said it would scrap a rule introduced in 2010 that allows banks to contact struggling borrowers no more than three times a month, confirming a Reuters story.

Banks will for the first time be allowed to make unsolicited personal visits to a borrower's home and, as a last resort when the only alternative option is repossession, revoke loss-making 'tracker' loans.

Banks say some clients in arrears on tracker mortgages have avoided contact out of fear any new deal would involve a switch to a much more expensive floating rate loan. Banks' only option then has been to repossess the property, which they have been reluctant to do as it would involve crystallising large losses.

Tracker mortgages, which follow the ECB rate and are expensive to fund, have caused significant losses at Irish banks.

The amount of time a bank must wait after arrears arise before commencing legal action has been cut to eight months from 12, but they will have to give borrowers at least three months' notice that they are moving to repossess.