Haircut possible for mortgages

Banks say they may go as far as forgiving part of mortgages in an effort to make it easier for borrowers to pay off their debts and for banks to avoid losses from selling their loan portfolios to funds. Haircuts on mortgage loans have never been an option until now.

The first possibility under consideration concerns splitting the loan and forgiving a part of it: The first part would be calculated based on the market value of the property and the debtor's capacity for repayment. The part the borrower would have to pay would be half of the normal amount, with the rest being frozen for a period agreed with the bank. The lender could commit to writing off the rest of the loan at the end of the loan period if the borrower has been consistent in paying and does not have any other property that could be liquidated.

The second option for a partial write-off is just before the...