Sinéad Pentony: The issue of mortgage indebtedness has re-emerged. The number of mortgage holders in arrears for more than 3 months has reached 50,000 and this figure will continue to rise. Although we often hear that the level of repossessions in Ireland is low compared to our nearest neighbour the UK, the latest Global Distressed Property Monitor survey from the Royal Institution of Chartered Surveyors published today puts the scale of the problems in the Irish property market in a global context.
The survey finds “that Ireland has the highest projected number of foreclosures and sales by owners who cannot meet rising repayment fees”. The RICS survey also highlights the problems in the Euro periphery (Ireland, Spain and Portugal) where “the property market in these countries is riddled with both a high number of foreclosures and brand new homes which can't attract buyers. To boot, investment funds have lost interest in these markets as their economies try to balance bank bailouts and rising government deficits.”
The issue of mortgage over-indebtedness has been exacerbated by austerity measures, with more and more people going into arrears as their income declines through pay cuts and through unemployment or underemployment. Unsustainable mortgages are not just a problem for individual mortgage holders; they are a problem for the wider economy - given the scale of the debt overhang. Over-indebtedness has a strangling effect on the economy as a growing proportion of spending goes towards trying to service debts from a declining income.
The economy is caught in just such a debt deflation stranglehold. Historical experience has shown that lingering private debt overhangs delay the exit from stagnation because private spending takes longer to recover. The next three years of cuts will amplify this phenomenon.
Although Ireland is not unique in experiencing the problem of unsustainable mortgages the vast scale of the problem requires some fresh thinking and consideration of measures that have been tried and tested in other countries. Debt forgiveness (write-down) and debt restructuring are just two such measures.
In recent months there have been reports of individuals negotiating a write-down of their mortgage debt following the sale of distressed properties. However, these measures need to be part of a robust policy framework that mortgage holders and lending institutions can work within. Radical problems sometimes require radical remedies, and while proper analysis of the likely knock-on effects is required, it makes no sense to take any option off the table at this point.
Showing posts with label mortgages. Show all posts
Showing posts with label mortgages. Show all posts
Thursday, 25 August 2011
Wednesday, 24 November 2010
Equity Option Incentive Plan
Ger O’Toole, a property business professional, has come up with an Equity Option Incentive Plan as one solution to the mortgage debt problems that many households are facing. As the name implies, the basic idea is to give the banks equity in exchange for reducing the amount of money that is directly paid back to them. The site is also running a survey of mortgage holders - although there will be a self-selection bias in the sample - and invites comments.
Monday, 18 October 2010
Bacon's Mortgage Suggestion Does Not Add Up
Nat O'Connor: Peter Bacon has suggested that semi-state assets be sold, and the money used to pay off the negative equity part of mortgages, where younger households are struggling. (Interview in the Irish Independent, and further article on mortgage debt). On a purely economic level, this is an argument to increase demand and boost the economy. But on a social and political level, it represents an appalling machination that could damage the economy in order to bail out only a small part of the population.
Bacon is correct to identify a need to do something about huge mortgage debt, although the articles do not give a lot of detail about what economic reasons motivated his suggestion. However, one can speculate. On a purely economic basis, bailing out our 'prodigal' sons and daughters would increase their spending, and thus boost aggregate demand in the economy. Releasing younger people from some of their debt would help maximise the productive capacity of the younger generation, and this could benefit the whole economy. But it is not clear that such benefits outweigh the inequality of the suggestion.
Young households who rent, or who bought smaller homes, or who are still living with their parents would receive nothing. Worse, their share of our semi-states would be given over to those younger households who bought more than they could afford.
And selling semi-states at the bottom of the economic cycle is like selling the family silver when everyone else is doing the same, and the price for silver has hit rock bottom in the market. These strategic assets have a role to play in generating annual revenue to bailout the entire country, and should not be sacrificed for the benefit of a minority group.
There are good economic arguments for the state doing something to help those struggling with mortgages, but there are far better methods. For example, the state could subsidise interest rates, so that people continue to pay back their loans, but are not overwhealmed. Keeping the mortgage repayment money flowing to the banks would reduce the cost of bank recapitalisation while helping people pay their debts. Alternatively, the state could set maximum amounts that householders have to pay on their housing costs, like a third of net income, through a deferral scheme. They'd still pay their debts, but more slowly.
Bacon is correct to identify a need to do something about huge mortgage debt, although the articles do not give a lot of detail about what economic reasons motivated his suggestion. However, one can speculate. On a purely economic basis, bailing out our 'prodigal' sons and daughters would increase their spending, and thus boost aggregate demand in the economy. Releasing younger people from some of their debt would help maximise the productive capacity of the younger generation, and this could benefit the whole economy. But it is not clear that such benefits outweigh the inequality of the suggestion.
Young households who rent, or who bought smaller homes, or who are still living with their parents would receive nothing. Worse, their share of our semi-states would be given over to those younger households who bought more than they could afford.
And selling semi-states at the bottom of the economic cycle is like selling the family silver when everyone else is doing the same, and the price for silver has hit rock bottom in the market. These strategic assets have a role to play in generating annual revenue to bailout the entire country, and should not be sacrificed for the benefit of a minority group.
There are good economic arguments for the state doing something to help those struggling with mortgages, but there are far better methods. For example, the state could subsidise interest rates, so that people continue to pay back their loans, but are not overwhealmed. Keeping the mortgage repayment money flowing to the banks would reduce the cost of bank recapitalisation while helping people pay their debts. Alternatively, the state could set maximum amounts that householders have to pay on their housing costs, like a third of net income, through a deferral scheme. They'd still pay their debts, but more slowly.
Wednesday, 7 July 2010
The 'Prodigal Son' Dilemma in Irish Mortgage Debt
Nat O'Connor: Mortgage payments are on a lot of people's minds these days, and there has been a fair deal of coverage in the media about negative equity. One stark snippet from the Irish Time's today is that "Irish households are among the most indebted in the world – more so than any of their euro zone counterparts. The vast bulk of their debt is accounted for by mortgages." This should worry us all greatly.
The interim report of the Mortgage Arrears and Personal Debt Expert Group suggests some good practice guidelines for lenders. The detail of these has been reported elsewhere (e.g. Irish Times gives an outline, a Q&A, and an analysis, as well as reporting the Financial Regulator's reaction).
I think there is a background assumption around the perception of state intervention in personal debt that needs to be teased out. An extreme contrast illustrates what I see as the 'prodigal son' dilemma. The story is something like what follows. John worked for ten years, saved €500,000, and bought himself a house. That house is now worth €300,000. John can kiss goodbye to €200,000. The value of his investment went down, not up. Meanwhile, Seán got a 110% mortgage to buy an identical house priced at €500,000, next door to John. He borrowed the extra €50,000 (10%) to do up the house, but managed to fit in a holiday and several cases of champagne while he was at it. Seán's house is also now worth €300,000. Both John and Seán are complaining of negative equity. Seán is looking at the spectre of rising interest rates in the medium term and his ability to pay is coming under strain. John would be sickened if Seán got bailed out in some way, as he paid the full price for his house and €200,000 of his money is gone and no one is suggesting he should get it back. State intervention to help Seán often invokes the term 'moral hazard' – that is, encouraging prodigal, reckless, extravagent behaviour.
Some version of this prodigal son idea seems to me to vex a lot of people. Yet, like the original parable, envy or spite might be masking a more reasonable reality.
John has no monthly payments to make, and so he is comfortably off. He lost €200,000 on his investment, but he must take some personal responsibility for choosing to buy when and where he did. Meanwhile, Seán borrowed €550,000, but with interest rates over a long period (say 30 years), Seán will pay back at least €800,000 in total (assuming interest at a relatively low level, like 3 per cent). And Seán could well pay back over €1,000,000 if interest rates go to 5 per cent, and they could go much higher. Meanwhile, house prices may not make any significant rise for the next 30 years. After all, other countries, like Germany, have a very stable market. So Seán could be paying €1,000,000 for a house that in 2040 will still be worth something like €300,000, maybe €400,000, in today's money. Of course, not all of that €1 million will be paid in 2010 prices, but it is still a lot more money than the house is now worth or will be worth. In sum, Seán has 30 years of steep payments to make, while John can live comfortably, save money and make other investments. In the long-term, it was Seán who made a worse investment than John.
It would be one thing if John were to shrug his shoulders, say 'you win some, you lose some' and look to tomorrow. John lost money on his investment, and equally the bank (as a business) will lose money on the loan to Seán if they have to write off part of it. But banks are no longer operating as purely private businesses. John knows that the banks are all being bailed out by the taxpayers. So John is, in a real sense, being asked to swallow his own losses and then help his ‘prodigal’ neighbour too.
Yet clarity on this issue may again be blinded by envy and spite. John is not a heartless capitalist. He believes that the state has a role in providing people with their human rights, such as education, access to healthcare and housing. This is where John needs to put aside his emotions and think business again. He is willing to pay tax to house people who need to be housed. And if the state has to rehouse Seán in social housing or through rent supplement payments, this may represent worse value for taxpayers’ money than assisting him to pay his mortgage. Even if that means writing off €100,000 or €200,000 of his debt.
John might initially think that instead of writing off €200,000, why doesn’t the state buy a house with that amount of money and stick Seán in it. The problem is that if this happens, Seán may default on the whole €550,000 mortgage. And the banks won’t absorb that loss, the taxpayer will – including John.
The best scenario is thus for Seán to be kept going in his house, paying as much of his debt as he can afford, while still living a reasonable quality of life. ‘Affordable’ for housing costs is typically defined as a third of after-tax income.
And because the state is different from commercial entities, it doesn’t even need to write off any amount of Seán’s debt. Instead, the state can take a long-term equity stake; effectively freezing a large chunk of Seán’s mortgage but clawing it back whenever Seán sells the house. The state can even wait until Seán dies and, like the tax inspector, have first claim on Seán’s estate. The state won't make the kind of profits banks make from charging compound interest, but Seán's debt to the state could be linked to house price inflation to avoid it dwindling away.
All of this can be worked out in a businesslike way. What blocks this kind of transaction is the ‘prodigal son’ culture, which could otherwise be termed class prejudice. John doesn’t want to live beside Seán. If Seán is getting state assistance, John wants him to live in inferior quality housing, in a less desirable location. Or at least, John feels that he should get better quality housing in a better area because he paid for it all by himself.
Yet, housing studies consistently argues that social mix creates the most thriving residential areas, with busy shops, less crime, etc. There are also sound economic as well as social arguments for keeping people in their homes, while making their mortgages more affordable.
Ireland can solve its crisis of mortgage debt. But it can only do so through solidarity. The example of John versus Seán is extreme, but as people nurse their wounded pride (and their ‘loss’ in their ‘investment’ in housing), they need to be persuaded of the rationality of helping their prodigal fellow citizens, while also reassured that more responsible borrowers in negative equity will also benefit.
And don’t forget that one in four households pay rent in private or social housing, and they all pay tax too. These are the citizens who are not too interested in the jealousy between one middle class homeowner versus another, as they wrangle over bailing out themselves and the banks. The renter households in Ireland need to be convinced that any mortgage rescue for others, will also involve a whole new national housing policy that will benefit them. That means the state’s role in providing housing must be to ensure everyone receives equally good housing, in a good location with good amenities. We have the means through NAMA, massive quantities of vacant housing and plenty of skilled people who can build the amenities like schools, transport infrastructure, etc that are required to add ‘locational value’ to Ireland massive stock of badly located housing.
And it is the locational value – proximity to services like schools, shops, playgrounds, public transport, green space, etc. – that is the real fundamental in the housing market that will determine quality of life through quality of the built environment.
In this context, the Mortgage Arrears Group’s recommendations really pale into insignificance. They are taking some steps to stop the banks making the situation worse some people by getting them off lower interest tracker mortgages. But the group’s remit does not extend to dealing with the massive crisis in Ireland’s housing system.
In fairness, it is an interim report. The Irish Times reports that “It had been hoped by those struggling with excessive mortgages that the group would recommend some element of debt forgiveness, or introduce debt-for-equity swaps, which would help them to reduce the overall size of their loan. However, this report makes no such suggestions ... In a follow-up report, which is due to be completed by the end of September, the group indicated that it will address the issue of ‘borrowers with unsustainable mortgages’.” But this is not just a problem for those borrowers. The cost will be passed by the banks to all taxpayers. Hence, we need a radical rethink of how we as a society will respond to a crisis that affects all of housing policy.
The interim report of the Mortgage Arrears and Personal Debt Expert Group suggests some good practice guidelines for lenders. The detail of these has been reported elsewhere (e.g. Irish Times gives an outline, a Q&A, and an analysis, as well as reporting the Financial Regulator's reaction).
I think there is a background assumption around the perception of state intervention in personal debt that needs to be teased out. An extreme contrast illustrates what I see as the 'prodigal son' dilemma. The story is something like what follows. John worked for ten years, saved €500,000, and bought himself a house. That house is now worth €300,000. John can kiss goodbye to €200,000. The value of his investment went down, not up. Meanwhile, Seán got a 110% mortgage to buy an identical house priced at €500,000, next door to John. He borrowed the extra €50,000 (10%) to do up the house, but managed to fit in a holiday and several cases of champagne while he was at it. Seán's house is also now worth €300,000. Both John and Seán are complaining of negative equity. Seán is looking at the spectre of rising interest rates in the medium term and his ability to pay is coming under strain. John would be sickened if Seán got bailed out in some way, as he paid the full price for his house and €200,000 of his money is gone and no one is suggesting he should get it back. State intervention to help Seán often invokes the term 'moral hazard' – that is, encouraging prodigal, reckless, extravagent behaviour.
Some version of this prodigal son idea seems to me to vex a lot of people. Yet, like the original parable, envy or spite might be masking a more reasonable reality.
John has no monthly payments to make, and so he is comfortably off. He lost €200,000 on his investment, but he must take some personal responsibility for choosing to buy when and where he did. Meanwhile, Seán borrowed €550,000, but with interest rates over a long period (say 30 years), Seán will pay back at least €800,000 in total (assuming interest at a relatively low level, like 3 per cent). And Seán could well pay back over €1,000,000 if interest rates go to 5 per cent, and they could go much higher. Meanwhile, house prices may not make any significant rise for the next 30 years. After all, other countries, like Germany, have a very stable market. So Seán could be paying €1,000,000 for a house that in 2040 will still be worth something like €300,000, maybe €400,000, in today's money. Of course, not all of that €1 million will be paid in 2010 prices, but it is still a lot more money than the house is now worth or will be worth. In sum, Seán has 30 years of steep payments to make, while John can live comfortably, save money and make other investments. In the long-term, it was Seán who made a worse investment than John.
It would be one thing if John were to shrug his shoulders, say 'you win some, you lose some' and look to tomorrow. John lost money on his investment, and equally the bank (as a business) will lose money on the loan to Seán if they have to write off part of it. But banks are no longer operating as purely private businesses. John knows that the banks are all being bailed out by the taxpayers. So John is, in a real sense, being asked to swallow his own losses and then help his ‘prodigal’ neighbour too.
Yet clarity on this issue may again be blinded by envy and spite. John is not a heartless capitalist. He believes that the state has a role in providing people with their human rights, such as education, access to healthcare and housing. This is where John needs to put aside his emotions and think business again. He is willing to pay tax to house people who need to be housed. And if the state has to rehouse Seán in social housing or through rent supplement payments, this may represent worse value for taxpayers’ money than assisting him to pay his mortgage. Even if that means writing off €100,000 or €200,000 of his debt.
John might initially think that instead of writing off €200,000, why doesn’t the state buy a house with that amount of money and stick Seán in it. The problem is that if this happens, Seán may default on the whole €550,000 mortgage. And the banks won’t absorb that loss, the taxpayer will – including John.
The best scenario is thus for Seán to be kept going in his house, paying as much of his debt as he can afford, while still living a reasonable quality of life. ‘Affordable’ for housing costs is typically defined as a third of after-tax income.
And because the state is different from commercial entities, it doesn’t even need to write off any amount of Seán’s debt. Instead, the state can take a long-term equity stake; effectively freezing a large chunk of Seán’s mortgage but clawing it back whenever Seán sells the house. The state can even wait until Seán dies and, like the tax inspector, have first claim on Seán’s estate. The state won't make the kind of profits banks make from charging compound interest, but Seán's debt to the state could be linked to house price inflation to avoid it dwindling away.
All of this can be worked out in a businesslike way. What blocks this kind of transaction is the ‘prodigal son’ culture, which could otherwise be termed class prejudice. John doesn’t want to live beside Seán. If Seán is getting state assistance, John wants him to live in inferior quality housing, in a less desirable location. Or at least, John feels that he should get better quality housing in a better area because he paid for it all by himself.
Yet, housing studies consistently argues that social mix creates the most thriving residential areas, with busy shops, less crime, etc. There are also sound economic as well as social arguments for keeping people in their homes, while making their mortgages more affordable.
Ireland can solve its crisis of mortgage debt. But it can only do so through solidarity. The example of John versus Seán is extreme, but as people nurse their wounded pride (and their ‘loss’ in their ‘investment’ in housing), they need to be persuaded of the rationality of helping their prodigal fellow citizens, while also reassured that more responsible borrowers in negative equity will also benefit.
And don’t forget that one in four households pay rent in private or social housing, and they all pay tax too. These are the citizens who are not too interested in the jealousy between one middle class homeowner versus another, as they wrangle over bailing out themselves and the banks. The renter households in Ireland need to be convinced that any mortgage rescue for others, will also involve a whole new national housing policy that will benefit them. That means the state’s role in providing housing must be to ensure everyone receives equally good housing, in a good location with good amenities. We have the means through NAMA, massive quantities of vacant housing and plenty of skilled people who can build the amenities like schools, transport infrastructure, etc that are required to add ‘locational value’ to Ireland massive stock of badly located housing.
And it is the locational value – proximity to services like schools, shops, playgrounds, public transport, green space, etc. – that is the real fundamental in the housing market that will determine quality of life through quality of the built environment.
In this context, the Mortgage Arrears Group’s recommendations really pale into insignificance. They are taking some steps to stop the banks making the situation worse some people by getting them off lower interest tracker mortgages. But the group’s remit does not extend to dealing with the massive crisis in Ireland’s housing system.
In fairness, it is an interim report. The Irish Times reports that “It had been hoped by those struggling with excessive mortgages that the group would recommend some element of debt forgiveness, or introduce debt-for-equity swaps, which would help them to reduce the overall size of their loan. However, this report makes no such suggestions ... In a follow-up report, which is due to be completed by the end of September, the group indicated that it will address the issue of ‘borrowers with unsustainable mortgages’.” But this is not just a problem for those borrowers. The cost will be passed by the banks to all taxpayers. Hence, we need a radical rethink of how we as a society will respond to a crisis that affects all of housing policy.
Tuesday, 22 June 2010
Portable Mortgages
Nat O'Connor: Two contradictory pieces in the news about mortgages. On the one hand, it was reported that some lenders are preparing to offer 'negative equity' mortgages of up to 125 per cent (Irish Independent). However the Central Bank proposes to restrict how much customers can borrow (Irish Examiner article and Irish Independent take on same story). Presumably, the new lending rules will make negative equity mortgages difficult, if not possible. Yet, do we want people 'trapped' in their homes, when job opportunities or other circumstances might require them to move?
An example of the negative equity mortgage goes as follows: John buys a house for €300,000 with a mortgage for €250,000. However the current market price of his house is only €200,000. Hence he is in 'negative equity'. Let's say John wants to move and has located another house priced at €200,000 that he wants to buy. Normally the bank won't permit him to sell, as his original mortgage is secured on his first house. However, the 'negative equity mortgage' is a loan of €250,000 to buy the house for €200,000. In other words, John ends up in the same position of negative equity but gets to move to a new house.
The negative equity mortgage could be a good thing, if it allows John to move to where there are job opportunities or if it allows him to move closer to his social networks. Currently, renting is not going to cover the mortgage, so it's not a viable option. Hence, John is either stuck in his first house or he needs to sell it.
But there are risks. The first risk is that house prices may continue to fall. But that's not a major problem as that would affect John in his first house anyway. The worst scenario would be if John bought a new property for €200,000 that was more over-priced than his current house, but it's really John's responsibility to shop around and get advice.
The second risk is that John will incur extra costs in moving that will weaken his ability to pay his mortgage. Stamp duty is the main cost there. Brian Cowen recently strongly defended his decision to not cut stamp duty, but it is a significant barrier to labour mobility. (Aside: Mr Cowen argues that the tax dampened property prices and speculation. It may have deterred quick buy-and-sell of property, but it seems likely that much of the pricing of houses was designed to recover the cost of stamp duty; so stamp duty may actually have boosted price inflation rather than dampened it. At any rate, it might be phased out in favour of property tax. The sooner the better).
Another cost is that John might lose first time buyer's mortgage interest relief (if applicable to his first house). And moving house inevitably costs money (from movers to legal fees), but then again John has to compare his income in the first house and his income in the second. If a job opportunity beckons, it might be worth the cost. Of course, there are many other factors in the cost-benefit analysis. The new house might be closer to friends or family, or to schools, or whatever.
A third possible risk is that people would seek a negative equity mortgage as a way of gaining access to cash. In our example, that might involve John seeking to borrow €275,000. This could be to pay the stamp duty or it could be to get cash for doing up the new house. In any case, there is a risk that adding to his mortgage debt could be the final straw and bring about an inability to pay.
Despite the above risks, it seems likely that there are some scenarios where something like the negative equity mortgage would be a good thing. If the proposed central bank regulations do not permit this to occur, then maybe some other options need to be considered. For example, in other countries mortgages can be portable. The legal detail is different, but it would work the same way as the above scenario. John would simply move his existing mortgage and secure it against the new house. He'd buy the house for €200,000 and still owe his bank €250,000.
Portable mortgages would also prevent a situation where people 'top up' their mortgage and take on extra debt. It would also benefit those who have mortgages without negative equity. Overall it would be a way of getting movement in the property market. Hopefully the Central Bank's rush to control risk will not elimate the possibility of innovative solutions to the housing crisis that could allow people to continue to make choices to improve their own situations.
An example of the negative equity mortgage goes as follows: John buys a house for €300,000 with a mortgage for €250,000. However the current market price of his house is only €200,000. Hence he is in 'negative equity'. Let's say John wants to move and has located another house priced at €200,000 that he wants to buy. Normally the bank won't permit him to sell, as his original mortgage is secured on his first house. However, the 'negative equity mortgage' is a loan of €250,000 to buy the house for €200,000. In other words, John ends up in the same position of negative equity but gets to move to a new house.
The negative equity mortgage could be a good thing, if it allows John to move to where there are job opportunities or if it allows him to move closer to his social networks. Currently, renting is not going to cover the mortgage, so it's not a viable option. Hence, John is either stuck in his first house or he needs to sell it.
But there are risks. The first risk is that house prices may continue to fall. But that's not a major problem as that would affect John in his first house anyway. The worst scenario would be if John bought a new property for €200,000 that was more over-priced than his current house, but it's really John's responsibility to shop around and get advice.
The second risk is that John will incur extra costs in moving that will weaken his ability to pay his mortgage. Stamp duty is the main cost there. Brian Cowen recently strongly defended his decision to not cut stamp duty, but it is a significant barrier to labour mobility. (Aside: Mr Cowen argues that the tax dampened property prices and speculation. It may have deterred quick buy-and-sell of property, but it seems likely that much of the pricing of houses was designed to recover the cost of stamp duty; so stamp duty may actually have boosted price inflation rather than dampened it. At any rate, it might be phased out in favour of property tax. The sooner the better).
Another cost is that John might lose first time buyer's mortgage interest relief (if applicable to his first house). And moving house inevitably costs money (from movers to legal fees), but then again John has to compare his income in the first house and his income in the second. If a job opportunity beckons, it might be worth the cost. Of course, there are many other factors in the cost-benefit analysis. The new house might be closer to friends or family, or to schools, or whatever.
A third possible risk is that people would seek a negative equity mortgage as a way of gaining access to cash. In our example, that might involve John seeking to borrow €275,000. This could be to pay the stamp duty or it could be to get cash for doing up the new house. In any case, there is a risk that adding to his mortgage debt could be the final straw and bring about an inability to pay.
Despite the above risks, it seems likely that there are some scenarios where something like the negative equity mortgage would be a good thing. If the proposed central bank regulations do not permit this to occur, then maybe some other options need to be considered. For example, in other countries mortgages can be portable. The legal detail is different, but it would work the same way as the above scenario. John would simply move his existing mortgage and secure it against the new house. He'd buy the house for €200,000 and still owe his bank €250,000.
Portable mortgages would also prevent a situation where people 'top up' their mortgage and take on extra debt. It would also benefit those who have mortgages without negative equity. Overall it would be a way of getting movement in the property market. Hopefully the Central Bank's rush to control risk will not elimate the possibility of innovative solutions to the housing crisis that could allow people to continue to make choices to improve their own situations.
Monday, 31 May 2010
Mortgage arrears and the case for assistance
Tom O'Connor: The comments last week by the Financial Regulator Matthew Elderfield display a callous indifference to the plight of 77,000 people currently in arrears with their mortgages. Mr Elderfield rejects government help for these people, as it would cost the taxpayer money. This is astonishing when we consider that he is supportive of the €33 billion in recapitalisation of the banks and the overall cost (including NAMA) of €73 billion according to the ESRI. This includes €10.44 billion to Anglo Irish Bank, which has very few ordinary people as customers and is well known as the bank of the property developers.
We are not being told of the extent of arrears. However, there are 77,000 householders in arrears. Even if every single one of these housholders had arrears totalling €20,000, this would still only add up to 1.54 billion. This is just 2% of the €73 billion being given to the banks. Now, even though it is the taxpayer who will be liable for the €73 billion, they are being denied what amounts to 2% of this figure to keep 77,000 people in homes.
The government’s 12 month moratorium on repossessions has ended for many, and will end for all in September. The truth of the matter is that if we are to take Mr.Elderfield's advice, then the government should stand idly by and watch the unfolding of a social catastrophe.
Mr Elderfield's justification is that other mortgage payers have 'gritted their teeth and are meeting their obligations'. So he is essentially blaming the 77,000 for their plight. This is an outlandish comment because: the vast majority of defaulters are victims of poor government policy arising from its cosy relationship with the construction industry which forced them to buy houses at hugely inflated prices; the government gave people no other option, building only 4,000 social and affordable housing units of the 80,000 a year demanded by the population over the period Celtic Tiger; and the mismanagement of the economy and the bursting of the housing bubble has seen unemployment hit 435,000 while the government does nothing to solve the problem. In fact, its taskforce met once last year before being disbanded.
Surely €1.54 billion could be set aside to pay these arrears. This could be given as re-mortages to defaulters by the Irish government. The defaulters could be asked to make minimum payments, covering interst on mortages at most, if possible, until they are in better financial circumstances. A further €460 million fund could cover the difference between the minimum payment and the actual monthly mortgage payment over the next 12 months until people get back on their feet. The situation could be reviewed at that stage. This is only one obvious way to tackle this problem. There are others.
The government would be foolish to listen to Mr.Elderfield. He is a financial regulator, not a policy maker, and has no democratically elected mandate. It is really time for people to demand a payback from the state, given the risk that they as taxpayers are being asked to take to solve the financial mess which they did not create themselves. The minium is to allow people stay in their homes. People need to stand up and not allow themselves be trampled on any further.
We are not being told of the extent of arrears. However, there are 77,000 householders in arrears. Even if every single one of these housholders had arrears totalling €20,000, this would still only add up to 1.54 billion. This is just 2% of the €73 billion being given to the banks. Now, even though it is the taxpayer who will be liable for the €73 billion, they are being denied what amounts to 2% of this figure to keep 77,000 people in homes.
The government’s 12 month moratorium on repossessions has ended for many, and will end for all in September. The truth of the matter is that if we are to take Mr.Elderfield's advice, then the government should stand idly by and watch the unfolding of a social catastrophe.
Mr Elderfield's justification is that other mortgage payers have 'gritted their teeth and are meeting their obligations'. So he is essentially blaming the 77,000 for their plight. This is an outlandish comment because: the vast majority of defaulters are victims of poor government policy arising from its cosy relationship with the construction industry which forced them to buy houses at hugely inflated prices; the government gave people no other option, building only 4,000 social and affordable housing units of the 80,000 a year demanded by the population over the period Celtic Tiger; and the mismanagement of the economy and the bursting of the housing bubble has seen unemployment hit 435,000 while the government does nothing to solve the problem. In fact, its taskforce met once last year before being disbanded.
Surely €1.54 billion could be set aside to pay these arrears. This could be given as re-mortages to defaulters by the Irish government. The defaulters could be asked to make minimum payments, covering interst on mortages at most, if possible, until they are in better financial circumstances. A further €460 million fund could cover the difference between the minimum payment and the actual monthly mortgage payment over the next 12 months until people get back on their feet. The situation could be reviewed at that stage. This is only one obvious way to tackle this problem. There are others.
The government would be foolish to listen to Mr.Elderfield. He is a financial regulator, not a policy maker, and has no democratically elected mandate. It is really time for people to demand a payback from the state, given the risk that they as taxpayers are being asked to take to solve the financial mess which they did not create themselves. The minium is to allow people stay in their homes. People need to stand up and not allow themselves be trampled on any further.
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