Debt Forgiveness

[Orangemac]

Media is on fire this week with this. Some people in neg equity salivating at prospect of getting their mortgage wrote down whereas other argue only those in serious arrears should be helped.

Costs range from €6bn to €40bn. Interesting to see some commentators such as Constantin Gurdgev and Morgan Kelly turn from doom mongers to advocates of this. Personal interest perhaps?

Surely a reformed bankruptcy procedure where it is cheap, quick and short (3 to 5 years) in terms of coming out of it would solve this. Debtor would lose the house but could get on with their lives. There is also a narrow focus on mortgage debt when a lot of people need help with other forms of debt such as credit cards.

Where does anyone stand on this?

[mc_grens]

Media is on fire this week with this. Some people in neg equity salivating at prospect of getting their mortgage wrote down whereas other argue only those in serious arrears should be helped.

Costs range from €6bn to €40bn. Interesting to see some commentators such as Constantin Gurdgev and Morgan Kelly turn from doom mongers to advocates of this. Personal interest perhaps?

Surely a reformed bankruptcy procedure where it is cheap, quick and short (3 to 5 years) in terms of coming out of it would solve this. Debtor would lose the house but could get on with their lives. There is also a narrow focus on mortgage debt when a lot of people need help with other forms of debt such as credit cards.

Where does anyone stand on this?

Being totally self serving here in that I think it's the way to go on mortgage debt. Also u think all mortgages should be treated in the same way, otherwise, as always, those struggling to do the honest and correct thing and keeping their mortgages right at the cost of other areas if their life will be the ones to suffer.

In the larger context debt forgiveness on mortgages would free up money for spending by the likes of me, it would potentially grease the wheels on the housing Market, both things that would be very good for the economy in general. Of course it all depends on where the dough comes from?

[lynchbhoy]

the only fair solution is completely unworkable
giving a fixed sum to EVERY house owner in the state for them to use to pay off their mortgage or have as a wee bonus if they didnt have debt or didnt have a mortgage.

As we have effectively given this 'gift' aready to ALL the banks and mortgage lenders, i think that this is a fair and equal solution.

Otherwise I cannot see how the selection criteria will be valid or fair.
I know of people in all different aspects of trouble. some are not able to pay anything and are on a 'mortgage holiday' for 6 months, some are paying interest only for 12 months and as thus effefectively 'paying' their mortgage, some changed their mortgage to extend it over a longer period so they could afford to pay mortgage and eat - one suce family only had 8 or so years left to pay and its back up to 20 years now - in spite of none of these people hardly able to survive (some working , some not - some ex construction industry workers and those working are no in constructon).

so it will depend on what the package is, the above examples might not all fit into the category of eligibility for receiving financial aid - but they all need it.

these above are generally the folk that lost their jobs and cant get work or are getting wages way lower than before - wont get into the argument about those who over extended themseved through greed and whether they deserve being bailed out or not.
Negative equite another real issue - poor feckers cant sell their houses and need to.
Then there are th folk who dont owe and didnt get themselves into trouble etc - why dont they deserve to get an equal amount of money?

For me it everyone to get a few quid -thats the easiest and fairest way.

[AZOffaly]

From a humanitarian point of view, anything that can relieve stress on mortgage holders that cannot make their payments would be a good thing of course, however...

a) What about those people who are making their payment, not in arrears, but are just about making ends meet? Should they be told 'hard luck' because they haven't actually gone into default.
b) What about people with 2 or more houses that are struggling? I can't countenance them being 'let off'. There was some woman on Eddie Hobbs nearly crying because she couldn't make the payments on her 5 houses. 5 houses? Sorry love, you gambled that some other poor sucker would pay an inflated price on 4 of them. If the houses were taken off them, and the debts written off, then maybe so, and leave them with their family home.

[mc_grens]

From a humanitarian point of view, anything that can relieve stress on mortgage holders that cannot make their payments would be a good thing of course, however...

a) What about those people who are making their payment, not in arrears, but are just about making ends meet? Should they be told 'hard luck' because they haven't actually gone into default.
b) What about people with 2 or more houses that are struggling? I can't countenance them being 'let off'. There was some woman on Eddie Hobbs nearly crying because she couldn't make the payments on her 5 houses. 5 houses? Sorry love, you gambled that some other poor sucker would pay an inflated price on 4 of them. If the houses were taken off them, and the debts written off, then maybe so, and leave them with their family home.

Couldn't agree more.

[Canalman]

The place would just erupt if this was to happen. Pensioners/people in their 50s would go ape. For want of a better term the Lace Curtin Irish would just not let it happen.

[Lone Shark]

I was wondering when this would come up on here.

First up, cards on the table time. I am currently renting, have been since I left school, and had several offers of mortgages from my bank for the last seven or eight years (until a 2007 anyway), and at no time was in a position to buy due to (1) I could never be sure that I was going to stay in the same location, and (2) Since I was first offered in 2004, the property market has been wildly overvalued, by any normal metric. It remains so in my own opinion, for what it's worth. The average house should cost three times the salary of the kind of person you'd expect to live there, plus one time the second salary. So if you look at the kind of house that would normally be owned by a two minimum wage workers, it should cost €80k or so. The kind of house owned by two teachers should cost €200k or so, and so on up the line. We're still a long way off that.

The key points to this debate from what I can tell, are these:

(1) "Too many people cannot pay their bills"

Agreed. It doesn't help any society for a large chunk to be unable to pay both their food bill and their electricity bill. A lot of people bought simply to have a home to raise a family, didn't "release equity" and continue to do their best by cutting every corner possible. If you asked me would I be willing to pay more tax to help these people out - absolutely. Personal viewpoint, but mine.

(2) "The banks got a bailout, so should we"

I equate this to a statement like "I know a guy who mugged someone on the street and didn't get caught, I should be allowed rob someone too".

The bank guarantee was the single most destructive, malevolent and treasonous act ever committed upon a country, and anyone who hand a hand, act or part in it deserves to be remembered in Irish history alongside Oliver Cromwell and the Black and Tan commanders. It does not serve as equivocation for any act, and the fact that people aren't hanging in front of a crowd baying for blood does not mean we should commit further such atrocities, albeit on a much lesser scale.

(3) "If people had more money to spend, the economy would kick start again"

Firstly, this is not a zero sum game - taking money from one set of taxpayers, or out of the capital budget, to bail out mortgage holders, does not increase the amount of money being spent in the economy - it just changes who gets to spend it. Secondly, this argument is not a good one in a economy where we are so open that most of what we spend goes abroad anyway. If I have no money and an old car, what little I can afford gets spent on Irish mechanics who keep it ticking over for me. If I have more money, I buy a new car, and the money goes abroad to the good people of Volkswagen/Citroen/Opel/Toyota etc. Increasing domestic spend in the Irish economy is nonsense as a policy, and is only adding up more debt for later with very small benefit on aggregate.

(4) "Nobody could have seen this coming"

It's funny how the people saying this, want to tax the savings/income of those of us who did see this coming and acted appropriately. Right now I have a decent deposit, reasonable income, and yet because I'm self employed and my fiance is on temporary contracts and can't get permanent because of the public service recruitment ban (even though she's absolutely vital to the whole department who could not function without her) then there is no chance we'd get a mortgage now, even if it would cost less than our rent. By taxing everyone to pay for this, you make home ownership even farther away for a large swathe of the community, ironically in many cases the people who didn't just dive in in the first place but instead thought about what they were doing - creating a two tier society, essentially.

The information was there for those who wanted to find it. I accept that many people aren't clued in on these things, but there were a lot of people who put less thought into buying a house than they would into buying a shirt. Such laziness has a cost, and here it is.

(5) "The Banks have already made provision for losses, it's in their books"

Sure - and if we were brilliant at forecasting, and knew exactly which loans were going to turn bad and which would be paid eventually, then that would be fine. But we don't - we don't even know that the provision that has been made is sufficient. If the banks have to take this hit, then they have to be recapitalised to take into account the loans that are not yet bad, but will turn so.



Above all, I have no faith in this country to execute anything properly. We got into this mess because we are a nation of people who like the short cut, who like to get the inside track and pull a stroke here and there, and this thing would be a cheat's charter. Already I know three people who are not paying their mortgage even though they can afford it in order to make sure that they are at the head of the queue for "forgiveness" when the time comes around. In fact why wouldn't you do that - it would be foolish to stretch yourself to pay a mortgage until this is resolved one way or another.

We have to get people out from under mountains of debt, and that will cost money - I'm okay with that - however I couldn't even begin to support this until the following rules are adhered to.

(1) Lose the debt, lose the house. There is no shortage of rental/empty accommodation out there and I hate the tone of debate in this country where not owning your own home is often portrayed as being "out on the street". You are not homeless, you just rent, like the rest of us have to do. Increase security of tenure for tenants alongside this too, to make renting more family friendly. But crucially, you cannot put in place a system that keeps family A in a big, six bedroom, five bathroom house that they can't afford, and do so by taxing people who made better decisions but as a result will never get the same standard of living.

(2) Make bankruptcy easier by all means, but make the punishment for trickery so much more severe. Severe penalties for any concealed assets, married couples can only go bankrupt together so no transferring of assets between them, and a charge on their estates to make sure that when the time comes, any assets they have upon death revert to the state to discharge a share of the bill, which accumulates at a moderate interest rate in the background.

(3) A public register. This might seem like naming and shaming, but if you're willing to take this option, this will be a barrier to people hiding assets since good old fashioned Irish begrudgery will ensure that people pulling stunts will get shopped.

(4) All assets are on the table for forgiveness. Debt can be forgiven, but not while pension schemes, assets or savings go untouched.


We need to have a restart, but a restart means just that - start again from scratch - not start again, while keeping some of the assets accumulated in the Celtic Tiger era, either savings or the house. Do that, and you'll get support.



The final aspect of this that I'd like to touch on is the fact that the spinners for this are taking advantage of the Irish dislike for Maths. The cost being discussed is €6bn - let's just break this down.

There are roughly 800,000 mortgages in Ireland, of which roughly 50,000 are in arrears and a further 40,000 have previously been restructured and are not in arrears at the moment, but obviously represent a much higher risk of falling into arrears in the future.

If we say the 6bn is for mortgages in arrears alone, then that's roughly €120,000 per mortgage, which would be enough to take the pressure off. However that does nothing for those who were restructured to interest only and are technically "performing" even though a return to capital plus interest would be crippling. It does nothing for people who are eating through savings keeping things going.

More importantly, and this is the bit that the average Paddy and Mary are missing, it allows nothing for the mortgage which is in huge negative equity, but is being met.

According to the Financial regulator, mortgage debt in Ireland is approximately €116bn. Half of this debt is new debt that was taken on since 2005. That means that based on the average level of negative equity right now, 58bn of this is backed with only 30-35bn of assets.


6bn is a blatant lie, a drop in the ocean, and we need to start debating it with correct figures, not nice palatable ones, basically a spoonful of sugar to make the medicine go down easier. We've had enough of that in this country.

[ludermor]

Great post LS.
I have to say im in two minds about the notion of debt forgiveness. Currently i am living in London working to pay for my rent here as well as my mortgage at home. It would grind my f**king gears if people who cannot pay their mortgage gets some of their mortgage written off while i am working away from home to pay for my full mortgage.

[Billys Boots]

Good man LS, nice well thought-out rant.

[Hound]

I'm in favour of debt forgiveness, being the following:

Give the bank the keys to your house, and they accept that in full settlement of your outstanding mortgage. The bank can't go after you for the negative equity, but they can go after you for any payments you missed prior to handing in the keys.

IMO that would be fair and just, and there'd be no question of a disadvantage to those who've been scrimping and saving to pay their way, versus those who've been living it up and mismanaging their debt.

[Fear ón Srath Bán]

Good man Lone Shark, and just to distil one of your well grounded observations: we're the most morally hazardous shower on the planet! 

[AZOffaly]

Good man LS, nice well thought-out rant.

Is that not an oxymoron? 

I agree with most of that LS, in fact nearly all of it, but I do think family homes are more than bricks and mortar, and that should be factored in to see if something can be done to help there. I don't think repossessions do much good for anybody really. Investment properties, by all means, but I think there should be some capacity for the family home to be kept in any debt forgiveness package.

[Lone Shark]

I agree with most of that LS, in fact nearly all of it, but I do think family homes are more than bricks and mortar, and that should be factored in to see if something can be done to help there. I don't think repossessions do much good for anybody really. Investment properties, by all means, but I think there should be some capacity for the family home to be kept in any debt forgiveness package.

Up to a point. Every step should be taken to keep a family in their home, however not if it's a disproportionate home that's way beyond anything they could ever realistically afford, or if they refuse to give up savings and live reasonably frugally in an attempt to pay as much as possible.

What you could do is something like (for a mortgage of €400k, house valued at €250k):

Reduce the balance of the Mortgage to €200k, ownership reverts to 50/50 State/householder.
Householder services the €200k as a normal mortgage and looks to pay that off.
The state stake increases in line with either the official inflation rate, or a properly monitored and maintained house price index. (Not the kind of asking price based rubbish we have now)
Householder is obliged to pay all income subject to the top rate of tax off this balance, after tax is deducted. No obligation to pay anything else, but the balance is always subject to inflation, and the option is there to pay it down at any time if disposable income/a lump sum becomes available. The income compulsion means that people who improve their prospects in the long run then become liable, but everyone maintains a basic standard of living.

This balance then becomes a charge on the full estate of the individual/couple on death, or a charge on disposal.

Since house price inflation usually tracks long term inflation in the long run, it should balance out. Houses in more than 50% negative equity are fecked, but anyone in >50% negative equity simply couldn't afford that house in the first place so there's no saving that kind of situation. Bankruptcy is the only way out there.

[Lone Shark]

I'm in favour of debt forgiveness, being the following:

Give the bank the keys to your house, and they accept that in full settlement of your outstanding mortgage. The bank can't go after you for the negative equity, but they can go after you for any payments you missed prior to handing in the keys.

IMO that would be fair and just, and there'd be no question of a disadvantage to those who've been scrimping and saving to pay their way, versus those who've been living it up and mismanaging their debt.

My only issue with that is top up mortgages, or investment mortgages. If I have three properties and two of them are doing fine and one is in negative equity, I could selectively default on one, and yet retain wealth for myself while sticking the state with the bill. It would have to be PPR only, and those who took "equity release" are not eligible.

Otherwise it seems reasonable.

[AZOffaly]

That sounds possible. And I should clarify, I'm not talking about where Joe Bloggs has decided his family home is going to be a 10 bedroom mansion in Dalkey or anything else completely out of all reason.