51 thoughts on “Expert Group on Managing the Household Debt Crisis”

  1. The first thing would be to understand the scale of the problem. Various numbers have been suggested, based on a wide range of assumptions.

    It seems to me that the focus should be on those with severe negative equity (at least greater than €25k) AND those who have trouble paying (i.e. are unemployed). Crunching the numbers, I would estimate the number of households that are the remit of this organisation (at the moment at least) at something like 20,000 – with another 30,000 vulnerable.

    Knowing that for certain (i.e. getting access to bank data) and knowing the exact plight of particular households should allow them to develop profiles of households in difficulty, which in turn should allow profiles for potential solutions.

    The last thing we need from this is a committee of non-experts, who in the end make either no specific recommendations or just one big one – a NAMA for the people – that is in no way helpful.

  2. @Ronan L
    I suggest the following. Copy a previously successful foreign scheme, making the smallest possible changes to allow for the Irish legal and mortgage systems. If the expert group tries to develop a special Irish response it has already gone terribly wrong – and will take an eternity.
    I expect that the only difference from similar situations abroad is that our problem will be unusually severe.

  3. @Ronan- the remit extends beyond mortgage debt to others debts.

    Headline figures are c147bn mortage and about 32bn in other personal debt not counting personally guaranteed small business debts which morph into personal debt as they default.

    MABS has e30,000 active cases and whilst many are its traditional case its experienced an increase in numbers. Mortgage interest supplements payable only to non-income earners are e30,000.

    However mortgage arrears are lag indicators as people prioritise these repayments. Unsecured debt is a lead proxy indicator – credit unions are reporting a 10% delinquency profile for last year. Bank data is lacking here as granularity on personal debt is not reported on. Moreover loan arrears data hides rather than exposes the scale of financial vulnerability and unnaffordable indebtedness – which is the basis of the Genworth Index approach – this looks at financial vulnerability along two broad dimensions – experience in the past six months and expected experience in the next six months – the last report indicated a 34% household financial vulnerability.

    I suggest the starting point is not only identifying the current default experience but modelling financial vulnerability, the current and the expected unnaffordable indebtedness experience -on both secured home mortgage debt and other personal debt.

    A twin track approach will be needed as mortgage debt differs from other debt and solutions differ as well.

  4. Can we afford this? I can understand why we have to save the bloody banks but can we afford to help eveyone that borrowed too much? How about all those that didn’t get caught up in the madness?

  5. Options include the following;

    “reduced rates
    longer maturity dates
    rolling-up of outstanding interest
    bank taking equity in the house
    bank taking ownership and leasing back the property to the resident with rent payments coming off the loan.”

    What about the dreaded two words “debt forgiveness”.

  6. @Robert Browne – “What about the dreaded two words “debt forgiveness”.”

    Love the idea but who’s going to stump up for it.

    As for the post – I am at a loss to think how can this group succeed without really good hard data on the problem to define the problem first. I just hope we don’t end up with one of those ‘Irish solutions to an Irish problem’.

    I will have a look at some figures later and post again.

  7. The government simultaneously gives incentives to borrow (mortgage interest relief) and to save (pension tax incentives).

    Why not allow people use some of the money they put into their pension to pay off their mortgage?

  8. I urge each to consider their desired lifestyle. This is a generational, secular, event one that occurs only every 70 years or so. All experience, but not knowledge, is to be turned upside down. This is dynamic and not static, it will worsen before it gets better. If you have capital at risk then rescue it even if it realizes a loss. Settle into the new lifestyle early and get ahead of the herd, using your competitive spirit.

    The future for the next two decades, is deflationary and for the next decade ahead, at least if NAMA “succeeds”, it will be recessionary also. Industries will disappear from Europe, if not the world. Lots of opportunity for those who like hard work. But a disaster for many.

    Survey yourself. What are your real needs? Give up the idea of keeping up with the Joneses, they will be bankrupt soon and joining them is not a lifestyle choice! What capital do you have will you reasonably acquire by inheritance in the next twenty years? For those in the public service, consider early retirement. Likewise anyone who has a defined benefit pension. Waiting may mean that all the secured status is lost and you may only rank as an unsecured creditor, as laws change over the next declining years.

    Consider those you love. Their plans and needs. Can they be met elsewhere? Remember the period where the reorganization of the real economy is likely to last many years most of which will be downs more than ups.

    Research what assets are worthwhile in a Kondratieff winter and spring. Realize what debt will do over twenty years, it is the exact reverse of compounding interest! Better to pay rent, as mortgages may be very difficult to move fromone lender to another. Rents mean that a career may be pursued at relatively short notice somewhere else than near a mortgaged house. Having a millstone around your neck is now a live saying. Debt is now evil. Avoid it!

    If you bet on the inflation scenario, do not invest in an annuity yet as interest rates are likely to increase very substantially. If you consider deflation likely, then an annuity may be a good idea, but only for some of your capital. Do not trust others with your money!

    Consider migration to Indonesia. Think Bali! The cost of living is very low and any income
    you have will go further than in the failed Switzerland of the east Atlantic. Panama, Costa Rica etc are all similar but a little more expensive. Internet access may be adequate for conducting business all over the world. And think of the fun! If you don’t like the idea, then stay and chronicle what you see.

    If you own land and have borrowings then consider disposal now as the value will only decrease, as in Japan. But if the land is extensive, first survey it by drill for water, oil and rock especially valuable minerals. This may have the effect of increasing equity by 100 times! Sell out unless you want to develop it yourself and with the help of your family.

    If you are too young for this and do not have a talent to fall back on from which to develop an income even of meagre extent, develop a talent.

    Interesting times!

  9. Rory O’Farrrel
    They should given the cirrent bank multiplier is less than one. All tax reliefs should now be abolished as we find the real floor to the economy.

    All of them. As tax rates are going to rise, you know it makes sense!

  10. Like Andrew, I’d like to see people on the quango who have the ability to forsee the consequences of their actions (and not just from an actuarial perspective). The preponderance of bankers and accountants is disappointing. A behavioural economist would surely seem to be required?

    In addition, cheerleaders for the housing bubble have devalued reputations. As someone who will be paying for any bailouts (since I have no debt and pay tax), I’d like to see people who can distinguish between greed, stupidity and bad luck.

  11. I like the idea of cashing in all or part of your pension today and use it to pay off mortgage arrears and be used to make mortgage payments for the next 12/24 months.

    There’s not much point having a big pension in 20/30 years when your on your knees today.

    Let’s sort out today’s problems today rather than delaying them.

  12. Why is it so difficult to find good hard data on this in Ireland?

    Can anyone tell me the total number of domestic mortgages in Ireland (give or take)? I’m just trying to get an up to date ‘handle’ and quantification of the problem.

    Would I be right in thinking that a reasonably educated guess is that most banks etc. (mortgage providers) will have a similar problem to Ulster Bank – reporting today that 3.3% of their mortgage book is over 90 days in arrears. I guess a reasonable best/worst case across all of them then would be between 2.5-4.5%….. and those figures would be rising e.g. as unemployed people run out of savings/redundancy, more people lose their jobs, wages get cut, etc.

    Another reasonably educated guess would be that the number that are 30 days and 60 days in arrears are about twice the number of 90 days in arrears?

    @Bill Hobbs – “Headline figures are c147bn mortage”

    Bill – I thought I last saw a Central Bank figure (admittedly last summer ) that suggested c113bn? May I ask, what is the source for the figure you are using and how recent is it?

    Does anyone know how many unemployed people are getting the means tested mortgage interest relief benefit (the last I saw was a written reply from Mary Hanafin back in July 2009 that suggested only about 12,500 – which seems very low given the number of unemployed people out there who must have a mortgage, particularly those who have more recently lost their jobs in the past 12-24 months).

    Grateful for any replies. Thanks.

  13. @Yogan, “Like Andrew…”

    Andrew who? (or have I missed something?)

    @Philip, the release says that the committee is going to look at “The ongoing deliberations of the Law Reform Commission … specifically reform of personal insolvency, bankruptcy law and debt enforcement.”

    I think this is critical, Irish bankruptcy laws are a Victorian relic that are extremely ineffective (to the extent that personal bankruptcy is not really an option). An overhaul of these is long past due.

    @Joseph, this might help http://www.centralbank.ie/data/MonthStatFiles/Breakdown%20of%20Outstanding%20Residential%20Mortgages%20-%20Dec%202009.xls

  14. Reform the Bankruptcy Laws

    Reform, fairly quickly, of the draconian and Dickensian, Irish Bankruptcy Laws – this was discussed previously on this blog – (BL update). With the present legislation it makes more sense to do time for murder or manslaughter than to declare bankruptcy – 12 yrs and life meaning life. Many – both private mortgage and many entrepreneurial are now so far over the edge that there is simply no way back. Why crucify them for life? The entrepreneurs will simply emigrate.

    I’m not holding my breath here …………

  15. Make the credit card companies lower the rate of interest that is charged on debt over 1 year old to the ECB rate plus three or four points. People still have to pay back their own debt but not at money lender rates as it is now. So even when interest rates go up the rate would still be only seven or eight percent and not fifteen or even eighteen as it is now. People might actually be able to pay down the balance on their cards and not just pay the interest each month.

  16. @LorcanRK

    Thanks for the link. Interesting. Worst case scenario could be a good few billion. I wonder how they’ll cover that then if it happens? It’s hard to see there will be much money left after the next round(s) of bank recap.

  17. Looking at the press release its title is “Government appoints experts to fulfil Programme for Government commitments on debt”

    So …. Is the act of appointing the experts ‘fulfilling the programme’? Or are the experts going to ‘fulfill the programme’?

    Call me cynical but I strongly suspect its the former.

    If not how are these ‘experts’ going to fulfill the program.

    But whats their budget? What is their mission? How are they going to force change? What authority do they have? How can we measure if they have done anything? What happens if/when targets aren’t met?

  18. It’s not a topic I have given a great deal of thought before, but, scanning the press release and what people have written here so far, I think I see a gap. The press release rightly talks about “a new system of personal insolvency regulations allowing for a statutory non-court-based debt settlement system” and David O’Donnell rightly talks about reform of the bankruptcy laws.

    The press release also talks about “keeping families in their home” as “a social and economic priority”.

    What strikes me is that there is likely to be a significant minority of families in serious negative net worth, who for whom the importance of resolving their insolvency far outweighs the importance of keeping their existing home. These need access to an efficient insolvency resolution regime that allows them to emerge from under the weight of debts including their mortgage, but also gives them confidence that they will not end up homeless or in impermanent or poor quality accomodation if they take this path.

    There’s no shortage of housing in the country, so there should be no fundamental barrier to guaranteeing suitable housing to those who go through a properly constructed insolvency regime in good faith.

  19. @David O’Donnell

    🙂

    Why? Is it a house of ill repute?

    If not, are they taking any houses of ill repute onto their books?

    Or is Willie O’Dea the only person who knows where the houses of ill repute are?

    Ooops – gone a bit off topic.

  20. 1. Reading the short press release it appears that only those at risk of losing their home at being considered. Those in negative equity seem to be outside the scope.
    2. There is no mention of government aid. My understanding of the US’s HAMP programme is that the lenders bear the brunt of the cost. Will Ireland be similar?
    3. Rewarding delinquency risks increasing delinquency rates.
    4. Foreclosures are part of the solution. In 2009, c. 2.8m foreclosed home in the US.
    5. Realistic and tough decisions must be accepted. ‘Failure to pay’ can take a number of forms from ‘inability to pay’ to ‘don’t want to pay’. Loss of income may be temporary and in such scenarios it is in the lenders interests to assist the borrower. But a cold look at individual circumstances will have less desirable outcomes.
    6. ‘Difficulty paying’ – this is probably a biggie (or, should I say, one that will get biggier over the next few years). Lower wages, higher taxes, banks needing to increase margins and the ECB rates can’t go much lower. Can we infer from this that bank ‘affordability criteria’ are wrong?
    7. The ability to walk away. I think making jingle-mail an easy option could lead to a horrendous level of defaults. However, the current system is too draconian. People must have hope of starting over within a reasonably short duration.
    8. Although there are very few new mortgages, when will new lending criteria come und the scope.

  21. @Sarah Carey

    Yes. Pragmatism and Clean the House ……….. otherwise, long term depression and entrepreneurial stagnation. The Zombies, of course, will fight this. In previous thread on this I suggested that this could be done and dusted by June ……….. hope springs eternal (-;

  22. “Apart from that, I do find it astonishing that the panel includes Brendan Burgess.”

    Ahh now, Hugh, you’re forgetting the sterling work he did as head of the consumer panel of the Financial Regulator. Remember all those warnings they issued about the overheated housing market, the availability of easy credit, and the dangers of interest-only mortgages.

    At least, according to my evil twin on Bizarro-World.

  23. To prevent the household debt problem happening again:

    (1) max mortgage duration = 20 or 25 yrs
    (2) max LTV = 80%, or maybe 85%
    (3) max mortgage = 4/5 gross incomes

  24. @Stephen

    The weird thing is – we used to have all those rules! They should gently slid away somewhere…never could figure out where…

  25. I’m glad we have a committee for this, for a while I was worried that we had a real problem brewing, but now that there is a committee I’m sure it’ll all be just fine. phew!

    now just have to wait for their findings with a total absence of market based solutions.

  26. @Paul Moloney.
    Funny that, you quote a comment that I made about the composition of the “expert” panel, but my comment doesn’t exist any more. Where did it go?

  27. @hugh
    Thought you might be interested in the following public quotes:

    “It would be wrong to ring-fence the home and mortgage and do a debt settlement on the other debt. Permitting such a proposal would encourage people to allow their other debts to expand in advance of applying for debt settlement while making normal capital and interest repayments on their mortgage.”

    “Calling it “the family home” in some way confers a sacredness on it. We should not be doing this. If people lived a very high lifestyle and are now overborrowed, then they have to pay the price.”

    “People buying their first home have very big expenses in the first few years. I recommend that they start with an interest-only mortgage. ”

    “Paying interest only, means that you have more money with which to adjust to the life of home ownership. If you are in the housing market for the long term, which most people are, then what happens in the short-term to prices is not very relevant.”

    “For those, interest-only in the first few years of their mortgage makes sense. They don’t have to blow the repayments saved on new cars and drink. They can use it to improve their home. They can even save it elsewhere to rebuild a savings fund.”

    “There is an old-fashioned idea that mortgages should be paid over 20 years and people should start contributing to a pension at age 21. These ideas need to be challenged and reviewed from time to time.”

    “IF YOU are investing in property, you should take out an interest-only mortgage, unless you are not on the top tax rate. In particular, you should always pay off your home mortgage before making any capital repayments against your investment property. You should borrow the maximum amount possible, bearing in mind the usual warnings about borrowing to invest. If you have an investment property, you should have an indefinite interest only loan. In other words, you should never pay it off while you still own the property.”

  28. @bill hobbs

    Here’s another good one from Aug 2007.
    “”I would invest in AIB or Bank of Ireland rather than putting money on deposit with them.”

    Let’s see, how did that work out?

    Aug 2007 (NY ADR Prices, not ISEQ)
    AIB, above 50
    BOI, above 70

    Feb 2010
    AIB, about 2.8
    BOI, about 5.5

    Wow, you’d have been better off buying a house.

    Mind you, this kind of view was the consensus in Ireland at the time. It’s only a small problem that it was WRONG.

    But hey, when did anyone in Ireland lose credibility by being wrong?

  29. “Funny that, you quote a comment that I made about the composition of the “expert” panel, but my comment doesn’t exist any more. Where did it go”

    That’s certainly odd, Hugh.

    P.

  30. @Paul
    “Ahh now, Hugh, you’re forgetting the sterling work he did as head of the consumer panel of the Financial Regulator. Remember all those warnings they issued about the overheated housing market, the availability of easy credit, and the dangers of interest-only mortgages.”
    @hugh & Paul

    Here’s some thinking captured in a document dating to 2002 post establishment of IFRSA:

    “A single panel will achieve more than two separate panels. It is wrongly assumed that the interests of industry and consumers are diametrically opposed. On most issues, a very broad level of agreement would be reached. …If there is a substantial minority view, then the panel can publish that as a minority view..”

    And more recently “Irish banks are very well regulated. Irish banks are very sound” mid Sept 2008

  31. A couple of loosely considered suggestions:

    1. People should be allowed to carry Negative Equity with them provided that they do not increase the amount of Negative Equity in a new house.

    This could be done arious ways and could be tweaked.

    e.g. If a person’s house is worth €100K and their mortgage is for €150K, then, if the person can get loan approval for €450K based on his income, he should be able to buy a house with a value of €400K. Requirements for deposits could be considered but I think they should be light.

    2. First-time buyers and single property owners of apartments that have 50+% of their value, or which there is no market for (because they are part of an unfinished estate or otherwise) should have recourse under their mortgages capped at the value of the property plus €35K or 20% of the current valus of the property.

    The banks should allow them out of their mortgage for a certain amount which they could pay towards with increase payments of in a lump.

    Additionally or alternatively, these purchasers should also be allowed to swap their property and move their mortgage to another property (NAMA or privately owned) of similar value (assuming schemes were fully finished and occupied) which the same bank holds a mortgage over for a developer which the developer is not servicing. This is to allow mobility and to consolidate apartment owners into viable developments. The other blocks should be sold, demolished or put to alternative use. The bank would still have charges over two apartments/properties and the borrower would only own one property.

  32. BTW – I do of course think bankruptcy reform is necessary toavoid debt slavery. People should be given the option to spend 6 years as a bankrupt sacrificiag their future credit rating rather than having to leave the country to run from their debts.

  33. Word search for “debt forgiveness” above reveals just two matches!

    Move on to the 19th of August 2011 it seems needs must when the devil drives!

    “The country’s banks have been pressed on the need for debt forgiveness in recent weeks. AIB chairman David Hodgkinson has admitted there needs to be an “industry-wide, government-supported approach” for debt forgiveness.

    Well, well gentlemen. Who would have guessed certainly not the expert group.

  34. After I initially commented I appear to have clicked the -Notify me when new comments are added- checkbox and from now
    on whenever a comment is added I receive four emails
    with the same comment. There has to be an easy method you are able to
    remove me from that service? Cheers!

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