Final Report of the Mortgage and Personal Debt Group

the report is here.

43 replies on “Final Report of the Mortgage and Personal Debt Group”

Look at the graph on page 14. Here’s the blurb above it.

3.1.5 It should be noted that repossession levels in Ireland remain substantially
lower than those experienced in the UK. For example, there were 11 repossessions per
100,000 mortgages in the second quarter of the year. This compares to 82
repossessions per 100,000 mortgages in the UK over the same period. See Figure 2
for illustration.

It looks like so far there seems to be an aversion to repossession (eviction) in Ireland. What happens when we get taken over by the IMF then? An eightfold increase in evictions?

The report has a few good recommendations regarding how repossessions should be handled, in particular how peoples bankruptcies should be handled and that people whose homes are repossessed should be put in social housing of some kind. I think a lot of Ghost Estates are about to be bought up by the Government for conversions into council estates for the former middle class.

“We do not recommend a formal debt forgiveness scheme…”

I never for one moment thought they would. Moral hazard only applies to the little people.

So how come some of the leading economists in the country wrote to the IT last week saying we should have (partial) debt forgiveness?

Haven’t read it all in detail but looks like the usual wishy washy report. I notice they mention reform of bankruptcy laws but don’t seem to mention what they think this should entail. Saw lots of reasons for not doing something but very few concrete suggestions.

Summary: no exit mechanism for troubled domestic mortgagees. These are generally little people, unimportant, and can be safely ignored and pushed out of sight to MABS and the charity sector.

Unlike AIB, which must be restored to its ‘former glory’, insolvent citizens are a shabby multitude and should be pawned off with high-minded waffle and then squeezed really hard.

This report is going to be very quickly out of date. The underlying assumption is that the past is the guide to the future but with the EU/IMF knocking on the door this is wishful thinking and I see an avalanche ahead. That was the reason for the skeletal proposal I put forward in the previous thread on this topic and I don’t see these recommendations with their associated acronyms as being an effective solution.

@ omf

“What happens when we get taken over by the IMF then? ”

as far as i can see right now there will be no IMF takeover.

Looking at all the news recently there seems to be no interest in the fact that our 6bn cuts for next month coming from everything except salaries.

if we do get any money from EU or IMF, that will most likely continue to be poured into inflated civil service salaries / professional services firms. if the govt are happy to pay the head of the DAA >500K per year of irish taxpayers money, there is no reason why they wont be happy to pay his salary from EU money.

if the EU/IMF can be happy with that, then surely they will also be happy to let people stay in their homes too IMO.

@ Ron

when Greece were at the brink, teetering before their bailout, little tidbits regarding their civil service/pensions/retirement ages etc began popping up all over the world. any sympathy for them was soon eroded. I think when the IMF/EU come in now to look at our set up, similar stories will begin cropping up across the globe regarding how well the irish like to treat themselves. i doubt all the other countries who will have to back our bailout will stand for any of it. as soon as it becomes a reality that they will have to borrow further to contribute to our bailout, just as we did for Greece, then the realities of our pay and pensions madness will be put out there for global consumption.


“So how come some of the leading economists in the country wrote to the IT last week saying we should have (partial) debt forgiveness?”

The last time Prof Lucey organised a collective letter from “leading” economists he got 48 takers, still a minority of that constituency (c.250) but reasonably impressive. This time he got only 7 or 8 including an impostor economist. One can presume that he canvassed at least the original gang of 48 (if not all 250) so the really telling aspect of this recent letter are the dogs that didn’t bark.

In any case the suggestion got roundly rubbished in this blog despite Prof Lucey’s normally loyal following in these parts.

This group has no input into reforming the law. The Law Reform Commission have no draft legislation for substantive reform.

Our Civil Service wholly dysfunctional in its inability to to produce draft legislation within the required timeframes. There is no documented process of how to draw up legislation in the Civil Service. They start from scratch every time and they all learn it differently. It is appalling.

The Minister for Finance said he was going to follow the recommendations of this committee. Their recommendations on personal insolvency is “we better do something”.

They did not comment on the very popular system of voluntary arrangements (IVAs) in the UK. They did not comment on the effect that a shorter period to get out of bankruptcy might have on the economy. There was no economic analysis of the effect that a reformed personal insolvency system could have.

The logic for having a longer period of discharge for larger debts (and us coming out of an almight bubble) is not justified properly at all.

The “consult till your ears drop off approach” model of reform is way past its sell by date. The Conservatives in the UK had draft legislation for major reforms ready before they went into Government and had it enacted within 6 weeks. Our Committee has recommendations after nine months of dire crisis.

My blood boils at the wholly ineffective response of our Civil Service to this crisis. It is wholly appropriate that this document should be published on the DoF website. I would not suggest that the entire DoF should be taken out and shot. However, like a country withdrawing from the Euro, it is no longer a wholly ridiculous suggestion.

Wow Zhou – that’s the most agitated I’ve ever seen you. Can’t blame you for feeling that way though.

Interesting, 4 friends/relatives have come up to me today and asked me if they should take their savings out of Irish banks. Is this being replicated across the land?


Can anyone out there persuade MK to come on to this thread and give us his views on this report?


You have more chance of getting Osama Bin Laden to come on to this thread and debate American economic policy.

The Great One does not do debate because he is infallible. He does not submit himself to questioning of his forecasts. I have requested what you have requested on numerous occasions. Complete waste of time. The Great One lives in a cave in the Wicklow mountains, popping out only occasionally to threaten doom and destruction in interviews given at secret rendezvous with Irish Times journalists who have been taken there blindfolded.

From the key findings:

The Group estimates, based on the Central Bank’s quarterly data on mortgage arrears and the lenders survey, that around 90% of mortgage accounts are being repaid in accordance with the contract. Two thirds of rescheduled mortgage accounts are paying at least full interest

How likely is it that this will not change and that a sufficient number of people with distressed mortgages will be able to pay the remaining one-third of the outstanding interest after 5 years if we are still in deflation?

A state-of-the-nation speech would seem to be required asap.

on arrears: I think this is relevant given that the Financial Regulator/Central Bank deny that Morgan Kelly’s figures are accurate

[from their press release earlier today “Mr Elderfield said the higher level of arrears, at 5pc of mortgages, would not mean the banks would need more capital. He dismissed suggestions by UCD economics professor Morgan Kelly that 100,000 people will end up defaulting on their mortgages.”]

Personally, I think Elderfield owes Morgan Kelly an apology

@Aine Ui Ghiollagain – “A state-of-the-nation speech would seem to be required asap.”

Communication – especially with the plebs – is not Cowen’s strong point. He only gives speeches at events where the audience are invited.

@BrianWoods II

I am not an ‘imposter economist’, rather the paper labelled me as an economist. Equally, actuaries are not economists – but to deny their analytical skill or mathematical expertise is an oversight [if you divide the world in to economists/non-economists].

I am an operations and compliance manager of a financial firm, a practitioner – with a passing interest in economics, but fairly good understanding of the residential mortgage market, so I was included for my specific knowledge in that area.

You mention the ‘dogs that didn’t bark’ but equally put forward no solution, what an interesting stance?

Your suggestion that the entire DoF should be taken out and shot is excessive.

The cost of the bullet merely adds to the national debt. If you wish to be radical then the entire DoF could be merely taken out.

[removes toungue from cheek]

Welcome to our world. 5% delinquent would be a good number in the US. We are nearing 15% as property values slide and show no sign of recovery. Here we have benefitted from extraordinarily low interest rates courtesy of our Central Bank and that has allowed those not in negative equity to refinance to take advantage of those lower rates. However about 25% of ‘homeowners’ now have no equity so this not a benefit to them. This palliative to declining property valuations does not seem an option for the Irish homeowner absent some concessionary financing from the EFSF.

Our banks have engaged in extend and pretend reworkings of home loans under various public and private initiatives too. That seems to be the gist of this report as well. If I understood one recommendation in this report it sounds very much like what got many US homebuyers in trouble and that is the temporary interest reduction to be added back on to the loan after 5 years. Those were used in the US to allow people to buy more house than they could really afford and were called option ARM loans. Won’t work, unless
property values are seen to be recovering. That is the problem with all the efforts to keep people in their homes through various financing gimmicks. At the end of the day people will not continue to pay a loan that exceeds the value of the home.

Banks however like to play this game because it allows them to conceal their losses.

Short sales, wherein a defaulting homeowner is allowed to sell his house for what he can get and have the bank accept that as payment of the loan is a reasonable alternative that is gaining traction in the US. The bank recovers more than it would through foreclosure and the homeowner is relieved of his debt burden. It would appear Irish law may make that arrangement difficult if not impossible if the bank can pursue a ‘deficiency judgement’.

One thing that both countries need to avoid and that is damaging the credit rating of those caught by circumstance in this situation. With an abundance of property banks will need to dispose of it makes no sense to hold an earlier
default against a person who still has the income and ability to buy a less expensive property.

@ Karl

Apologies, quirky sense of humour.

Slightly off topic, but wtf has gone wrong in the last two weeks? Shall I make a suggestion. When Professor Morgan Kelly’s armageddon prognosis went viral in international investment communities and FT type blogs, is it any wonder that there was a run on Irish bank assets. Nothing else has happened of any note – I doubt whether Kilkenomics was taken seriously by anyone.

@ Karl Deeter

Did anyone hear any loud barking from the actuarial enclosure in recent years?

These folks are the brightest of the bright if their reputations are anything to go by and supposedly are adept at mapping out future liabilities….

“Shall I make a suggestion. When Professor Morgan Kelly’s armageddon prognosis went viral in international investment communities and FT type blogs, is it any wonder that there was a run on Irish bank assets. ”
Perhaps, but only because his numbers were then backed up by a slew of data –
1. 100 bn of domestic bank loans on repo at the ECB at 1% and 34.5 bn at the Irish Central Bank at a max of 1.75%. Hence the ceiling of 2% funding.
2. A large number of tracker mortgages at low margin that are going to stay performing come hell or high water – they are too valuable to allow to go bust.
3. A decling ability to gouge variable rate mortgage holders.
4. Declining deposits on the back of low confidence and competition from other rates.
5. The private bond market is either closed or very expensive.
6. As Mortgage Broker points out, the number of ‘troubled’ mortgages is already nearly 100,000.
7. As Mortgage Broker also points out, the numbers for 30,60,90 days would be separately reported in most other jurisdictions.
8. The sheer size of the residential, BTL and top-up mortgage market.
9. Guess where recovery values are going…

@Hugh Sheehy – “The cost of the bullet merely adds to the national debt”

A friend of mine once went out to Thailand to run a company there. One of the first things he did was to cancel a contract that he was sure was fraudulently set up. The next day, the head of the company the order was cancelled with came into his office, put a live round on his desk and told him that a bullet in Thailand only cost 2 Bahts (about 5c). My friend didn’t stay in Thailand for very long.

Buy the bullets in Thailand. Even with VAT that’s only about 6c each. I will organise a whiparound.


“think when the IMF/EU come in now to look at our set up, similar stories will begin cropping up across the globe regarding how well the irish like to treat themselves.”

thats interesting. i had assumed that our FF boys would plámás and cajole their way around those lending us teh cash.

will be interesting to see if any fat can be trimmed out of our public systems.

IMO, this process would create space for graduates and younger members of our workforce to get some traction financially.

It is hard to take this report seriously. We are dealing with people, who are so brainwashed by the so called moral hazard issue that they are unable to think in a logical fashion.

How can it make sense to throw a person out of the house he is living in becauese he cannot pay his mortgage and then recommend that he be rehoused-probably free of charge-in a council or corporation house.
What a nonsense!
Especially when you consider.
1. The bank, which is now owned by the State was getting or could be getting some money from the first house.
2. The same State will get virtually nothing from the council house he or she is placed in following exit, except perhaps delinquency.

Nobody in the right minds would recommend that corse of action.

There are some good suggestions in report but it is clear the report has been heavily influenced by the banks, to the point that they as well have written it.


Ok, but none of that happened in the last two weeks. In fact there has been no new revelations recently, the Anglo corpse has stayed as roteen as it was, no more no less, the fiscal correction thing has been as it was for about two months. The only thing to cause such a seismic collapse in confidence in Ireland Inc, has been MK’s hugely publicised (internationally) armageddon prognosis.

Is there an official crime of high treason in this country?

“but none of that happened in the last two weeks.”
Um, yes it did. The ECB figures came out. The deposit flight figures came out (it started in August…). The bond and interbank markets closed (partly as a result of Frau Merkel) both to the banks and the sovereign. The number of trouble mortgages was released.

The report was always going to be biased towards the lenders interests given the make up of the group and its sponsor and inclusion of the usual pet poodle.
It lacks any reasoned analysis of the scale of the problem, plays up spurious moral hazard argument and is most concerned about the cost to banking.
The latest stats are telling in particular the nugget that 20/25% of rescheduled loans have gone into default.
No attempt was made to get behind the €30bn in unsecured debt nor predict the likely consumer household unnafordable debt scenarios. The notion of extending any non-judicial debt resolution term to account for residual unsecured mortgage debt is of course straight out of the IBF’s top drawer.

DIS – the mortgage for the celtic twilight.

Mortgage product features:
Interest only for the first five years
You only have to pay 66% of the interest
Parking the balance until year five
When you start making full capital and interest payments
But first must pay the accumulated unpaid interest.

Anyone spot the similarities with US sub-prime mortgages?


Is there an official crime of high treason in this country?

As I said, a Dolchstoß legend is now being promulgated. And my goodness. Now Kelly is not only the first person in Ireland who deserves to be dismissed with cause for his role in the financial crisis, but he’s the first one to deserve the death penalty!

zhou_enlai Says:
November 17th, 2010 at 5:08 pm

Completely agree! Now if you could have foreseen these events as others did, would you still have backed NAMA and full rescue of the banks?

It does appear that the contrary stance, was correct?

You misattribute the quote.

Personally, I would reserve the crime for those who follow failed political parties to the end, blocking and disrupting serious discourse 😉

Has anyone else picked up on the fact that homeowners in receipt of Mortgage Interest Supplement are not eligible for the Deferred Interest Scheme. Surely the 17,800 families in receipt of MIS are the ones deemed most at risk?
Also, the recommendations in relation to accesibility and eligibility to social housing are all worthwhile but the reality is that there is very little supply of social housing at the moment. Capital funding for family social housing no longer exists and the Leasing Scheme has not delivered to date. In fact, up to June 2010 only 175 houses had been approved for leasing and only 47 were occupied.
Disappointing report all round, hopefully the final report of the Law Reform Commission will contain more worthwhile recommendations.


Those stats confirmed what was well known. Hardly got any attention, certainly not prominent on any FT blogs. It was the professor’s view that the stats were meaningless, esp w.r.t mortgages that got all the attention.

As to your PS, I wouldn’t be ascribing any of the blame for this fiasco to your good self, sorry if that disappoints.

The MIS thinking if I read it right is about not creating a welfare trap – all the arguments in the paper are used to underpin the rationale for it’s DIS sub-prime product.

@Pat Donnelly

I probably would still have backed NAMA. I do not see how NAMA has worsened our situation unless one thinks the haircuts may have been too severe (which may be the case given NAMA made a €100m profit on a loan it paid €40m for recently) and therefore too much debt has been pushed onto the state. However, I will admit that I hoped the loan books would have been actively by the banks and not micro managed by NAMA’s small staff. To that end I would have included more subordinated bonds at low coupon to motivate them to do so (as recommended by P. Honohan).

I did not back the guarantee which I was very wary of. I simply pointed out that all the evidence was that Anglo was systemic. Saying that Anglo was systemic (after the fact of the guarantee) is not equivalent to saying Anglo should have been guaranteed. It is simply to dismiss an oft-repeated argument which appears to have been totally spurious. I can understand why the guarantee was given, and I have no doubt the Minister and the Taoiseach got poor advice at the time. Nevertheless, it was a serious mistake, particularly in respect of the the breadth of what was guaranteed.

I wish I could easily access all posts made by me to prove my point. Unfortunately that functionality does not exist on this site so I will have to rely on my recollection.

I see your point. I wonder though would it end up being more beneficial for some people to be part of DIS rather than be in receipt of MIS? The latest average figures I have for MIS is €280 monthly. Could the cost of MIS then be reduced?

By the way, does anyone have a list of the lenders who have not signed up to DIS? Speculation about who hasn’t agreed to it but I haven’t seen any definitive list.

With the Deferred Interest Scheme they have effectively said ‘we are smarter than policy makers in the USA and UK [who had HAMP and HMS respectively] because we have found something that will have a take up in proportion to the size of the problem and that will work’. That is either arrogance or ignorance and only time will tell which of the two it is.

Effectively – and not perhaps by intention, they have avoided moral hazard at all costs whilst shirking the moral responsibility they have to address the problem they were asked to fix.

@Karl Deeter

re Effectively – and not perhaps by intention, they have avoided moral hazard at all costs whilst shirking the moral responsibility they have to address the problem they were asked to fix.

Excellent summation.

Can anyone give me a working numerical example at how paying only 66% of your interest per month would save you 1,000 over 5 years?

It seems to be what the papers are suggesting.

The report on Mortgage and Personal Debt is unforgiving of house owners in negative equity. There seems to me a strong moral case for the banks (i.e. taxpayers) sharing the cost of this, especially for first-time buyers. For several years before 2007, virtually everybody who might have been expected to understand housing markets and financial risks urged young people to get on to the ”property ladder” as soon as they possibly could. From the tax authorities there were concessions on stamp duty for first-time buyers, as well as mortgage interest relief. Local councils subsidised purchases by eligible first-time buyers and tenants of social housing. Banks competed by offering increasingly generous mortgage terms. All political parties in the 2007 general election were relentlessly upbeat about future economic prospects. Taxpayers are going to have to bear some of the cost for what was clearly a collective lack of foresight.

Although the problem of impending mortgage arrears is distinct from that of negative equity, there is a link. Where there is positive equity, selling a house is one way to escape an unaffordable mortgage obligation.

With the current surplus of houses, negative equity will probably never be inflated away. It depresses household demand at a time when economic revival is critically dependent on the recovery of consumer expenditure, especially of local services. Since individuals cannot escape mortgage obligations by abandoning their homes, they remain locked into houses that may be quite unsuitable for their changing demographic circumstances. Worse, they may be unable to move in response to new work opportunities, reducing the flexibility of the labour market just when this is especially crucial, and quite possibly increasing the budgetary cost of unemployment.

As a first step, banks which are dependent for their continued existence on the taxpayer should be required to offer home-owners with mortgages in negative equity the opportunity to write down the value of their loans by a proportion large enough to eliminate negative equity for most buyers. The interest rate on these loans would be increased in the same proportion, so loan payments would remain the same. To prevent refinancing of the reduced balance at a lower rate, early repayment of these mortgages would be allowed only where the house was sold. The book value of the bank’s assets would shrink, but its operating income would not fall or its solvency, such as it is, be reduced. Indeed the capital-adequacy ratio would increase.

Since this step does not reduce the repayment schedule, it does not solve problems of mass mortgage arrears, since a widespread sell-off would depress house prices. A transparent, widely available, interest-only scheme is greatly preferable to individually structured loan reschedulings which can very readily give rise to problems of moral hazard.


No problem – I was addressing my comment to you, but I didn’t mean to imply that the JtO quote was yours.

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