* Ireland appoints academic who has worked with ECB
* Lane to face government challenge to new mortgage rules
* New chief to take over from Honohan later this year (Adds Honohan statement)
By Padraic Halpin
DUBLIN, Oct 20 (Reuters) - Ireland appointed Philip Lane, an economics professor at Dublin's Trinity College, as its new central bank governor on Tuesday, a role that includes a seat on the governing council of the European Central Bank (ECB)
Lane will take over from his former Trinity College colleague Patrick Honohan who announced in May that he would retire a year ahead of schedule, saying it was a good time to step down with the economy recovering and banks back in profit.
Despite the economic upturn, Lane will face legacy issues in the country's banks. The number of mortgage customers more than two years behind in their payments is still rising and there is opposition to the central bank's new curbs on mortgage lending.
"Professor Lane's outstanding economic, financial and policy making record ideally position him to lead the central bank in the coming years," Finance Minister Michael Noonan said in a statement.
Lane, who received a doctorate in economics from Harvard in 1995 and spent three years at Columbia University before returning home to Ireland, has acted as an academic consultant for the European Commission, International Monetary Fund, World Bank and a number of central banks, including the ECB.
Noonan said Lane's appointment by ECB President Mario Draghi earlier this year to chair the Advisory Scientific Committee of the European Systemic Risk Board "demonstrated the standing he is held in at European level."
Lane will take over as Noonan asks the central bank to review the new restrictions on mortgage lending. Honohan, who will step down next month, brought them in to ensure price rises do not return to unsustainable levels.
Noonan's department fought to have the proposals loosened last year and the minister expressed concern last month that they are keeping first-time buyers out of the market amid a severe shortage of housing in the country.
The appointment of leading academic economist Honohan at the height of Ireland's financial crisis in 2009 broke decades of tradition of promoting the top civil servant at the Department of Finance to the governor role.
Lane was chosen from a list of 100 potential candidates, Noonan said, and emerged from a shortlist of four that also included the bookmakers' favourite for the role, Robert Watt, who heads Ireland's department of public expenditure.
"I have known and worked with Philip for almost 20 years and I am confident that he has the capacity and commitment to lead the Central Bank of Ireland as it delivers on its mandate in the coming years," Honohan said in a statement. (Editing by Gareth Jones)