A recent Boston Fed working paper examines the rationale for government intervention to subsidise mortgage mitigation. The paper is sceptical about the benefits of this approach and they conclude the following:
“An important implication of our analysis is that policies designed to reduce foreclosures should focus on ameliorating the immediate effects of job loss and other adverse life events, rather than modifying loans to make them more “affordable” on a long-term basis”.
I would respectfully call on our own Central Bank to start producing and publishing this type of research and my apologies to them if they already have and I am not aware of it. I am basing my belief that this research is not in circulation from looking in detail at the publications section of the Central Bank website. In general, I cannot find any good publications written in the Irish context on the implications of falling house prices on household financial positions and the policy issues associated with this. These policy issues are clearly different in Ireland than in the United States due to very different legal methods for dealing with mortgage default. We need a document though that spells out the different options available if a sizeable proportion of mortgage holders in areas where values have plummeted (and may never recover) start being unable to make their repayments. I am aware that all sorts of arrangements are currently being used in individual cases but this is hardly a substitute for a fully outlined statement of policy options that could be debated on forums like this and by smaller groups of experts.
To date, Ronan Lyon’s two blog posts seem to be the most sophisticated data analyses of negative equity and related issues in the Irish context. I cannot see how the monetary economists working in Ireland can claim to have a full grasp of the current situation without an understanding of these micro-features. I have absolutely no axe to grind here and I look forward to being shown the error of my ways.