Mortgage Balances and Projected Losses

I’d written the comments below before seeing Stephen’s post on this, so I’m not trying to correct anything in it, just adding my own two cents.

I didn’t attend Morgan Kelly’s talk at ISNE yesterday so all I know about it is what I’ve read in today’s newspapers (e.g. this piece in the Irish Times) in which Morgan is quoted as saying “We are talking sums in the region of €5 billion to €6 billion which would be necessary to spend on mortgage forgiveness”. This evening, I heard a piece on RTE’s Drivetime in which Brendan Burgess of askaboutmoney.com was questioning various figures that were attributed to Morgan and arguing that Morgan was unnecessarily scaring people about the scale of mortgage defaults.

I’d like to make two (hopefully) clarifying points on this issue. First, the sizes of the owner-occupied and buy-to-let mortgage books for Irish properties of the four guaranteed Irish banks are not something that there needs to be any disagreement about, as the balances as of December 31 last year were published in the Financial Measures Programme (FMP) report of March 31 (page 19).

Second, rather than being a scary figure, Morgan’s estimate of between €5 billion and €6 billion for a substantial mortgage relief programme is, if anything, a bit low relative to what the Central Bank’s figures in the FMP report indicate is necessary.

On the size of mortgage books, here are the facts. As of December 31 last year, BoI, AIB, EBS and INBS had a combined €97.7 billion in Irish residential mortgages with €74.4 billion being owner-occupied and €23.3 being buy-to-let (Table 7, page 19 of FMP report).

On estimates of losses on the owner-occupied portion of Irish residential mortgages, the FMP estimates total lifetime losses on the €74.4 billion portfolio at €5.7 billion in their base case and €10.2 billion in the stress scenario. The amount of these losses to be realised over the next three years is estimated to be €3.5 billion in the base scenario and €5.7 billion in the stress scenario (see Table 9 on page 23).

This shows that Morgan’s estimate of between €5 billion and €6 billion corresponds to either the lifetime losses assumed by the Central Bank in the base case or the three-year losses associated with the stress case.

As I said above, I don’t know how Morgan came about his figures but the five to six billion figure for mortgage writedowns seems to me to be in line with the Central Bank’s official policy.

Furthermore, my reading of statements by Jonathan McMahon, head of banking supervision at the Central Bank (e.g. here and here) is that he is keen to see the banks get on with implementing debt writedowns that are in line with the Bank’s assumptions about mortgage losses. The banks have been recapitalised under the assumption that the losses in the FMP base case are going to occur, so it is surely time to start dealing with this problem.

Perhaps rather than have an unnecessary debate about figures that are actually published and can’t really be disputed, Morgan’s talk can serve as a useful starting point for a debate about exactly how mortgage debt write-downs should be implemented.

128 thoughts on “Mortgage Balances and Projected Losses”

  1. Excellent contribution from Karl here and last paragraph rather than being nose led by the banks, should be on top of the Government’s agenda.

    Hopefully it will nail the Polyanna rubbish propaganda attacking Karl all week with glowings on our surging economy unbelievably against the spectre of EMU imminent collapse

    Left comment on this on Stephen Kinsella and DmcW

  2. @ Karl,

    I agree with virtually everything you have written and think it is a great contribution.

    One tiny point. The banks covered by the original FMP are AIB, BOI, EBS and PTSB. INBS was not included but details of the loan book here can be found in the addendum to the FMP.

    The get an indication of the overall size of the owner-occupied mortgage marker in Ireland we can use the mortgage arrears statistics from the Financial Regulator. This shows that there are €116 billion of owner-occupied mortgages in Ireland. Two-thirds of this is in the covered banks. There are 782,000 mortgages in the statistics with an average balance of around €145,000.

    For some reason Morgan Kelly uses a figure of €55 billion as the size of the mortgage market in Ireland. This is less than half the actual figure.

    Using his debt-forgiveness solution – a 50% writedown for the 20% of borrowers who get into difficulty – he gets a cost of €5-€6 billion.

    The true cost of the scheme proposed by Morgan Kelly is likely to be around €15 billion.

    150,000 mortgages x €200,000 average balance = €30 billion
    €30 billion x 0.5 writedown = €15 billion.

    I agree that a figure of €5-€6 billion is not scary and if we could get out of our mortgage mess for that I would nearly be in favour of it. As it is the proposed scheme would have a cost of closer to €15 billion. I would be opposed to such widespread debt forgiveness.

    There is no doubt there are a lot of mortgages that are unsustainable, but it will unlikely approach 150,000. There may be that many people who get into some difficulty but a lot of them will only need a short-term measure to allow them to get back on track. In these cases debt-forgiveness would offer a permanent solution to what is a temporary problem.

    There will have to be some write-downs but I think this has been more than accounted for in the loss provisions made in the stress tests. The write-downs should be done on a case-by-case basis to show that the loan is clearly unsustainable.

  3. @Karl Whelan

    Good post, particularly in relation to how this issue is dealt with. That said Morgan Kelly’s figure of €5 to €6 billion is too low.

    There are #50,000, €9.5 billion in arrears at end of March.
    There are a further #36,000, €6.0 billion which have been restructured but are not (again) in arrears. To me, this means that there are approx #90,000, €15.5 billion that will be not be able to be servcied by the owners without some kind of ‘assistance’.
    So what are the principles involved.

    1. This is a bank problem and any resolution of it is part of the cost of bank restructuring, not a seperate exchequer line item.
    2. The raison d’etre for dealing with issue is a family, social and community issue, not primarily an economic one.
    3. It is of fundemental importance that loss of family home and evictions are avoided. The people should remain in the homes.
    4. Following from this any resolution scheme should be confined to owner occupier properties only, where the ‘owner-occupier’ intends to continue to reside in the property. Buy-to-let or investment properties should not be part of any scheme.
    5. As debt-relief would be a very contentious issue, any scheme of arrangement must involve State ownership or part ownership of the property.

    That any State should permit the situation referred to by Stephen Kinsella (previous blog) is just appalling.

    As part of newbeginnings I speak to those having their homes taken from them quite a bit. I spoke to a lady today going through a repossession and eviction. It is not easy when you hear these stories.

    So a State that has pumped over €60 billion into banks to ‘get the banks working again’, is to allow the same banks get full on into eviction and repossesion?
    So that the same State will have to rehouse the dislocated dispossed and attempt to fire-sale an empty property. The attached link show that the legal profession is doing and will do very nicely under the status quo.

    http://www.financialregulator.ie/press-area/press-releases/Documents/RESIDENTIAL%20MORTGAGE%20ARREARS,%20REPOSSESSIONS%20and%20RESTRUCTURES.pdf

    This is a debate that is long overdue.

  4. @Joseph
    It seems some unwieldy mechanism will come into play which will treat the symptoms rather then the cause – this will give the state some poltical capital if it is allowed to engage in this Punch & Judy show.
    Expect some poltical fireworks between domestic creditors & debtors as this process plays itself out as the dumb Irish will now be able to identify the apperent miscreants & malcontents………………..
    Same as it ever was same as it ever was.
    I always knew we were a sad little country but even a cynical soul such as myself is surprised at the nature of Irish “capitalism”
    I guess this crisis has one advantage – it forces us to grow up and not believe in Euro fairies.
    But where do we go from here ?
    Given that our betters wish to court the power structure at all costs we can only survive using our wits as entropy slowly but surely breaks down the fabric of civilisation whatever that is.
    I am sure late Roman society must have felt the same emotions we are feeling now – something has always been rotten here.

  5. I’m for reform of bankruptcy laws. 3 years sounds reasonable.

    It seems to me the tax payer is already involved, NAMAs existance is probably keeping rents and prices higher than they should be, the social welfare is subsidizing 20% of the rental market and probably creating an artifical floor for it via rent allowance, interest relief got expanded for those that bought in the ‘boom’ and the bailed out banks are loosing a billion a year to tracker mortgage holders (generally given out during ‘the boom).

    Moral Hazard of course can be argued but when you consider the Financial services sector hasn’t exactly suffered, instead of contribtung to science, working for the greater good or doing something useful for society, these guys have spent their careers essentially working out ways to destroy it with Xcel spreadsheets. If there was any justice most would be in jail, instead of getting rewarded with vulger bonuses via Tax payer bailouts. Yeah when you compare it to bailing out these guys it seems quant to argue moral hazard for bailing out some poor sod who believed Berite Aherns ‘Boom times are getting Boomier’ rant.

    Having said that my hope is that, as a country we eventually shake off the ‘be a professional’ and own a house and rent out a few apartments idea of wealth and/or success. I’m rooting for set up a business, fail, set -up another fail again, set-up another make a million and employ a few people. Eventually leading to a – hold on to the business and give the country a Nokia.

    How about those in distress apply for bankruptcy, it takes say 3 years but immediately they get a mortgage ‘exception’ for bidding on only their own property when it goes to auction. They’re not allowed to attend the auction, the auctions have to be run by a company that does it well eg Allsops, their max bid being what any lender would allow them based solely on (hopefully a sensible multiple of) thieir salarie(s).

    There’s plenty of ideas, the above could be rubbish, it’s more of a think out loud. Either way lets get this property mess behind us. And for the love of God, make sure the politicans aren’t involved anywhere. Can you imagine the nonsense/clientism and the following enquiry.

  6. This is a mess really.
    If this simple solution was really always viable – why all the apocalyptic stuff. Think MK is being forced into providing easy answers. He can describe problems but that doesn’t mean he can fix them.
    Maybe the key is to change the bankrupcy laws and let people walk away. It’s time for a jubillee

  7. @ Seamus

    “For some reason Morgan Kelly uses a figure of €55 billion as the size of the mortgage market in Ireland. This is less than half the actual figure.”

    As I said in the post, I don’t know what Morgan’s figures are based on.

    However, as best I can tell from the reporting, Morgan is subtracting off some amount of the total Irish residential mortgage book of the Irish banks to arrive at the €55 billion figure. I’d be inclined to assume that there is a reason for this rather than to go for the “for some reason” “half the actual figure approach”.

    Based on his long track record of being more right than many people (including me) I’d recommend going easy on the “for some reason” stuff.

  8. @John
    We cannot put this behind us unless private debt is destroyed which the state has no duty to make whole – unfortunetly this is not the case now as the banks have bequeathed their losses to the state – or the state is allowed to produce or borrow much more money at low / zero interest so that private actors have the money to pay down the private debts.
    Any state no matter how well run would implode under the above contradictory but very real dual circumstances.
    Ireland is the sickest joke on a very sick planet.
    Setting up another complex legalistic politicalized debt transfer mechanism will add another level of cronyism to a already very sick twisted broken society.
    The debt will remain in the Good Book.
    Mortgage priests will become a quite extraordinary phenomena.

    What exactly is this place ?

  9. @Eureka
    The state owns the debt now – it will not just go away……… unless deposits or bonds are defaulted or inflated on.

    This debt forgiveness is just shuffling the cards – we don’t really own the casino chips as we have no control over our money supply.

  10. @Karl
    Sure Karl – I guess the symbiotic nature of money and the state is quite redundant now.
    Put please explain what exactly is this place if it is not a State and just happens to be in a State.
    I am lost in your narrow civil servent space.

  11. Don;t want to go off the thread here but the high and mighty attitude of some of the comments above would be amusing were it not for the “legal transfers” which Michael D referred to as “you all sat on each others remuneration committees” and the difficulty of getting the money back as a result of another stunt. Was it Edward Walsh who reckoned we would save 7,5 billion a year if these transfers were eliminated by reference to what is paid out for similar work in the UK or Northern Ireland.

    What about these transfers that are taking place between the exchequer and certain sections of Irish society? There is debt forgiveness and then there is naked debt transfers. At least debt forgiveness is once off. I am against taking stakes in peoples houses this smacks off debt vindictiveness rather than debt forgiveness. Lets remind ourselves of our history and that as a society we have not put a single white collar criminal in jail.

  12. @ Dork
    On Bond, Eoin Bond’s recommendation I read The Ascent of Money. It’s far from a perfect book but the key message I took from it the absolute primacy of trust in any money system.
    In normal life we “forgive” because it allows a broken relationship to be re-established. That is why the solution to this crisis will be a creeping debt forgiveness.
    I think MK’s error (and this is only an opinion) is that the solution he proposes is tinkering with an aspect of the dysfuntional system rather than the problem of an overcomplicated international web of debt.
    It’s almost as if all the criticism has gotten to him. He can be forgiven for that.
    It’s not about 6 billion being pumped into a debt system – it’s about the need for bankrupcy laws that allow people to start again.

  13. @Eureka
    Yes but perhaps you miss my point – I am stating the debt is not forgiven as in Babylonian times but it is socialised – it enters goverments books.

    Our “goverment” cannot or will not write off debt as it has no money power.

    If these mortgage holders are free from debt they will have more spending power in a economic ecosystem incapable of providing greater life support so therefore there will be a transfer of EXISTING wealth to these people.
    A not dissimilar transfer of wealth is happening as Gold holders get the fiat surplus from a broken debt system but no knew wealth is created.
    But the goverment now does not have the MONEY to spend increasing or even maintaining wealth or more fundamentally life support – particullary in the utility sphere.
    I happen to think we are dealing with a fundamental energy crunch as a result of the dollar / oil bubble so therefore new money should be used to create more elegant or productive systems such as rail services , nuclear etc – but these will not be provided if all money services interest on failed investments.
    Unless money is created into existence for core wealth utilities that work as opposed to Parlon like initiatives we will soon enter a breakdown crisis in my opinion.
    Central bankers only see the volume of credit – they seem blind to its quality control for some reason.
    Its as of they never played with building blocks and sand castles when youngsters.

  14. @Eureka
    Yes but perhaps you miss my point – I am stating the debt is not forgiven as in Babylonian times but it is socialised – it enters goverments books.

    Our “goverment” cannot or will not write off debt as it has no money power.

    If these mortgage holders are free from debt they will have more spending power in a economic ecosystem incapable of providing greater life support so therefore there will be a transfer of EXISTING wealth to these people.
    A not dissimilar transfer of wealth is happening as Gold holders get the fiat surplus from a broken debt system but no knew wealth is created.
    But the goverment now does not have the MONEY to spend increasing or even maintaining wealth or more fundamentally life support – particullary in the utility sphere.
    I happen to think we are dealing with a fundamental energy crunch as a result of the dollar / oil bubble so therefore new money should be used to create more elegant or productive systems such as rail services , nuclear etc – but these will not be provided if all money services interest on failed investments.
    Unless money is created into existence for core wealth utilities that work as opposed to Parlon like initiatives we will soon enter a breakdown crisis in my opinion.
    Central bankers only see the volume of credit – they seem blind to its quality control for some reason.
    Its as of they never played with building blocks and sand castles when youngsters.

  15. i see brendan burgess is allowing a “Morgan is wrong” thread on askaboutmoney…great to see that debate but of course, his site prohibits discussion of house prices Whig makes if somewhat hard to comment with any sense.
    Bb has been consistently persistently wrong on the crash. Mk hasn’t.

  16. Debt forgiveness means more money in people’s pockets. It means more consumer spending. It means more money for investment. It means more money people could put towards starting a business.

    I hardly see how debt forgiveness isn’t an economic issue and is just shuffling casino chips.

    Right now people are spending large percentages of their shrinking incomes on their mortgages. That money is going to banks who are not spending money. Debt forgiveness is becoming more and more of a no-brainer.

  17. @Karl

    I strongly object to the notion that accounting write-downs of loans should have any connection to requirements on banks for debt forgiveness. There is some hints of that idea in your last paragraph — and it has been suggested directly by others including Morgan Kelly.

    This mixing up of accounting loss appraisal and debt forgiveness confuses an honest attempt to guess at likely losses (loss appraisal) with a completely separate activity which is trying to recover as much as is reasonably possible (debt management). Mixing up these two activities in this way would destroy the objectivity of bank accounting standards. It goes against every principle of accounting objectivity if accountants giving an honest appraisal of likely losses generate a change in bank cash flows. How could a bank accounting system by expected to be objective about loss appraisal in that case? Very bad notion.

  18. @Kevin Lyda

    “Debt forgiveness means more money in people’s pockets.”

    More accurately it means more money in some people’s pockets and less money in others. It is a zero-sum game between under-the-water mortgage holders and taxpayers (as owners via the State of almost all the relevant bank equity). “Forgiveness” doesn’t enter into it – you can argue about how much or how little wealth transfer there should be between taxpayers and mortgage holders, but you cannot argue that there will be a net gain unless you identify the outsiders that will take the hit and the process by which this will be achieved.

  19. @Gregory Connor

    Agree. The amount of loan loss provisions made by the banks is irrelevant in this context. If losses are less than estimated the State could reclaim some of the contingent capital it injected into the banks and use it for something more productive (and if losses are greater than estimated more recap funds would be needed). The loan loss provisioning estimates are separate from the debt management issue.

    I don’t think I’ve seen a debt forgiveness proposal that explicitly recognized the zero-sum nature of situation and that built its arguments in that context, justifying the tradeoffs involved.

  20. One aspect of the mortgage situation that never really seems to get considered is the role of “advice” or even “professional advice”.

    Many of the transactions that have ended up as losses to the state were very large investment trades in effect – and that includes non-BTL.

    Most buyers would not have listened to advice that a purchase was too risky from a simple non-diversification viewpoint, nor would most have listened to advice that the investment outlook was unsound and could very easily head South bigtime.

    But it is really remarkable that say, the Irish financial regulator, has people spending years jumping through hoops to be allowed to give comparatively inconsequential advice on a punter’s savings scraps that are left over after his mortgage commitments. Meanwhile punter’s all around the place were making what were effectively whimsical decisions about what might be their only really big investment decision, based more or less on whether they could access a big enough credit line.

    Now I know you have to be realistic about this – a lot of retail financial advice is just crap, plain and simple. It is often poluted by remuneration considerations and dished out by p[eople who are expert on the basis they know 5% more than the people they are talking to. But at least going through the process of obtaining it makes people stop and think for a bit, that they are actually making a risk / reward type decision – it is much harder for them to drift into the mindset that they are simply dealing in reward.

    Perhaps if you are going to start a process of “mortgage forgiveness” it should be accompanied by a sea change in the level of understanding of the deal being entered into in the first place by individual buyers. If the state might end up bailing these guys out, maybe they are going to have to be able to demonstrate an understanding of the relevant economics – or have obtained advice to provide that understanding – before gaining access to what might, one day become a non-recourse loan, at least in part.

  21. I suppose the relevance of the loan loss provisions is that there it represents an acknowledgement by the banks that they are not going to get this money back, yet they continue to put the individuals in the hard cases under severe stress without trying to address the issue.

  22. @ grumpy

    ‘If the state might end up bailing these guys out, maybe they are going to have to be able to demonstrate an understanding of the relevant economics – or have obtained advice to provide that understanding – before gaining access to what might, one day become a non-recourse loan, at least in part’

    This island is the extreme western periphery of Europe. Our state has been captured by vested interests. In the US, at least the lobbyists are visible as such. Here they are merrily ensconced in the executive and legislature.
    Although we are not the most corrupt state in the world, our privileged classes are practised at ignoring to conflicts of interest. The old boys club, the clan connection, the sports club affiliation and the party allegiance are constantly at work. These generally conservative forces shape all significant political decisions. It’s not so long since Opus Dei was stirring the pot after all.
    The trade unions have been watching the panto of the middle classes for decades. In their eyes, the permanent public sector job and pension is the economic equivalent of a property holding. All the TU leadership are guilty of is going after a slice of the loot. We are all human.

    As commentator Ahura recently said on a namawinelake thread:

    ‘ There are probably 10k+ individuals that have a portfolio of investment properties with debt in excess of 1+ million. In additional many of these piled into leveraged property funds (it’s quite plausible that some may have ‘released equity’ to the tune of hundreds of thousands to get into geared funds)’
    http://namawinelake.wordpress.com/2011/08/14/gotcha-morgan-kelly-gotcha-right-back-sunday

    To the extent that these folk are well connected, they will probably manage to have their losses covered one way or another. Our legislators and civil servants are well practised in constructing Irish solutions to Irish problems. The trip to Australia is for lesser folk, who don’t fall within the Pale

    @ John Foody
    ‘Having said that my hope is that, as a country we eventually shake off the ‘be a professional’ and own a house and rent out a few apartments idea of wealth and/or success. I’m rooting for set up a business, fail, set -up another fail again, set-up another make a million and employ a few people. Eventually leading to a – hold on to the business and give the country a Nokia’

    We have a few Nokias. They just don’t employ many people in Ireland any more. The reasons include some of those above. If the state goes wallop, of course, we might get a more enterprise friendly constitution. Or God knows what.

  23. @Gregory Connor

    I don’t know what kind of Chinese wall can be put between the process of assessing a figure for a loss provision against a loan and the recovery of the maximum amount possible from the debtor. In my view it is an interative process.
    It should also be noted that rcovery of the maximum amount possible is best achieved by ensuring that the debtor continues to function as an income producing entity.
    Since the start of the recession it is widespread practice in commercial life to simply forget about and write off an clearly uncollectible debt and continue to trade with the same person albeit usually on reduced or stricter credit terms.

    @All
    Many people at present are having mortgage interest supplement paid by the State. I don’t know what the amounts are but surely this is a hidden subsidy to the banks concerned.
    Does the State recoup this money from the banks concerned? And how much does it amount to annually?

  24. @ Karl,

    Yes, I agree that Morgan’s record is a shining light when many people (including me) weren’t even looking in the right direction.

    A debt-forgiveness scheme will be a divisive issue. If there are some people excluded because of their lender or the type of mortgage they have it would be even more so.

    The best I can conclude about the €55 billion is that it is mortgages in the covered banks, excluding securitised loans. That is only a guess on my part so I did not include it above.

    The headlines over the past few days are that there is a solution to our mortgage crisis that would cost €6 billion. In the light of the cost of the land and development loans transferred to NAMA this is indeed “good news” and it would not be unreasonable for people to expect this to be implemented. But €6 billion will not allow a 50% writedown on 20% of mortgages.

    I am opposed to such a general debt-forgiveness scheme. The majority of Irish households are meeting their loan repayments. The loan liabilities of households are falling by about €3 billion a quarter. A case-by-case approach to determine which loans are unsustainable would be more appropriate.

  25. @ Karl,

    Re: “Thanks Colm. For a second there I worried I’d been under attack all week and had missed it!”

    Well, the worry is not whether you were attacked by the press during the week, but why you wern’t:)

    So, here’s my contribution to your last paragraph above:

    1. Reform of the bankruptcy laws in this country to be brought in line with best practice in UK and US. The homeowner gets to hand back the keys to the banks but falls under a 3yr bankruptcy system similar to same in the US.

    2. A NAMA for homeowners with toxic mortgages: the State offers to buy back the mortgage at an agreed discount, which maps that used by NAMA to buy toxic commercial loans from the banks.

    3. The homeowner gets to choose 1 above or alternatively can choose a Family Protection Bundle. The FPB would be a binding contract on the homeowner that:

    a) They get to occupy the house for life.

    b) They pay a TBA Rent or Lease on the property which is a percentage of their income. The percentage would be scaled from say 5%, if they are on Social Welfare, to 40% if they reach income ceilings to be decided. If the contract is broken, the property reverts to the state.

    c) Upon death of the property owner, the same offer is extended re Rent/Lease is offered to the person’s next of kin to whom the property reverts per Will of the deceased.

    d) A clause in the contract allows for the state if it chooses at any time to make an offer against the property to the Rent/Leaser, to allow the Rent/Leaser buy back the property.

    The above has some rough edges, it has a humanitarian component. I’d like some experts in the field to evaluate it.

    It should work well:)

  26. @ Dork

    ‘Central bankers only see the volume of credit – they seem blind to its quality control for some reason.
    Its as of they never played with building blocks and sand castles when youngsters’

    + 1. Still believing that money is a veil over real economic activity, and in general equilibrium theory etc. I agree it looks hopeless when that’s what passes for global expertise.

  27. I fully endorse Gregory O’Connor’s point.

    Let’s say a bank expects to lose 1bn over the next few years on its mortgage book. Now if, like the Mafia, the bank could give the names and addresses of those which make up that 1bn then of course MK and Karl is right, why wait? – just write to these lucky folk and say they are being forgiven.

    But the 1bn is a projected average. Some will manage their way through and some will not. These categories cannot be identified in advance. Anyone who argues that projected bank losses should be recognised now by selective or even blanket debt forgiveness is naive in the extreme.

  28. While the number of Euro billions required for this scheme is important I would like to know why I as a taxpayer should fund a debt-forgiveness scheme at all ?

  29. There are currently aprox. 440-470,000 people unemployed. Most of these probably do not have mortgages – those that do are unlikely to be in a position to pay a mortgage at any reasonable level, so debt forgiveness does little to help them. A bankruptcy law is likely to be more helpful to this group. In addition to these people, a significant proportion of people are working reduced hours or have received large paycuts and may face new taxes. These are the primary group we should be concerned with.

    With so many people unemployed we are suffering a massive skills depreciation combined with despondency, apathy and disconnection from society. There do not appear to be a lot of things we can do in this country for free which exacerbates the situation. Nepotism in recruitment further alienates those unable to find a job. Prices remain high as do rents. How will these people feel when they see schemes being introduced to help people who will one day own outright assets worth 150k, while their situation has deteriorated?

    By all means make it possible for people in chronic debt (not just mortgage) to escape from unsustainable situations since by definition they will be unable to pay anyway but do so in a way which does not leave these people in a superior situation to those that did not engage in reckless borrowing or who pay there debts in full.

    The unemplyed/underutilised should be our major focus – what happens to the 50-100k people who over extended for whatever reason is of less concern – reform bankruptcy laws but do not be concerned with keeping them in their homes, sad though it is that they cannot afford them that is the reality.

  30. @Paul
    It far better to spend money into existence that will pay down private debt – but this money must be spent on sustainable productive endeavours.
    I would however fear the CRHs of this world will move into this goverment sphere again.
    I am simply making the observation that we don’t produce any car parts or oil in this country – so therefore it makes sence to reduce the resourse intensity of this limited island and also simultaneously provide the money to pay down private debt.
    I am not proposing that unskilled labourers build famine relief boundary walls or some such.
    http://www.geograph.org.uk/photo/1958316
    But are the guys who were building the western rail corridor sitting around watching telly now ?
    Setting up a New NAMA like agency to administer who gets free famine relief and who does not is a appalling vista.

  31. @Colm Brazel

    You live in a Utopian dream world as per your last posting. According to you homeowners have no responsibilities. I am old enough to remember and be involved in dealing with debt forgiveness for farmers in the 70s and 80s. It was done on a case by case basis with the Banks and there were writeoffs appropriate to each persons circumstances. The negative equity of homeowners is already being dealt with on this basis at present and if the Personal Bankruptcy laws were properly amended the Banks would resolve the issues much quicker. The writeoffs for negative equity cases are included in the bank recapitalisation capital requirements of the Banks done by BlackRock in March but the resolution mechanism needs to be put in place by Government and the Banks.

  32. To risk redundancy, there is no “forgiveness” in the sense that the debt disappears, instead, the loss is transferred to the taxpayer. I disagree with dork when he says Ireland is a sorry place, it’s actually a creative, productive place with some very incompetent, and frankly, immoral leaders, but that is no different to the US, the UK or a whole list of other countries.

    The debt can’t be forgiven because the state used all of it’s firepower to forgive the insider developers, bankers and politicians. Now the country risks bankruptcy and we are controlled by the troika, we cant add more losses to a state balance sheet, when the one we have is already so close to cracking.

    The US can do debt forgiveness, and even then it is difficult, because the US prints a global currency and already the tension cracks of the global monetary system are appearing. I often ask myself, if the US FEd really believe that gold has no value as a monetary asset, why is it that the US has never sold one ounce of the stuff in all of the time since the fall of bretton woods?

    So the real choice we have to make NOW, is if we add €6th to Ireland’s public sector deficit, can we be sure that we can hold the losses at €6 or, by crossing that rubicon, will it explode to €10th or more. Also, if the huge back and forth we saw a few months ago when Mr Kelly said eventual public debt would be €250bn, (clearly un-payable) then what happens to the figures of those economists who said no, the eventual debt was €190bn (potentially barely payable depending on growth)?

    We shot our wad looking after the insiders, and now we can talk about forgiveness, but frankly, it’s not possible. Our politicians have dried the well and the plebe now get to repay their own mortgages, those of their betters (developers, bankers and politicians) and now potentially those of their neighbors too! Great plan.

  33. I had some thoughts on how to work it (from an operational perspective) http://www.mortgagebrokers.ie/blog/index.php/2011/07/28/debt-forgiveness-an-outline-of-how-it-would-work-if-i-was-in-charge/

    As for some little facts I picked up along the road in work: PTsb only did 5 mortgages of >€1m in homeloans, on loans for investments there are lots of them but not all on one property – often one mortgage is cross secured by several underlying properties.

    I might beat the bushes some more next week and find out how many are in each covered bank, I think it would help advance the debate generally.

  34. @Brian Mercer
    While the number of Euro billions required for this scheme is important I would like to know why I as a taxpayer should fund a debt-forgiveness scheme at all ?

    One point worth adding to this discussion is the outrageous 9% stamp duties levied by the State on many house transfers during the worst of the bubble years; these cashflows forming a large part of tax take at that time, which enabled cuts in direct taxation and the expansion of public sector scale and reward. Paying either this duty or a similar amount of VAT on materials and building services was an unavoidable transfer by those wishing to own their homes to other taxpayers generally.

    Given the fact that the State brazenly capitalised on an unsustainable bubble for which it had some responsibility I’d say that is one clear link between feckless fools such as myself – who should have known better I grant you – who handed over huge duties to the state so that all direct taxpayers could pay less. I see no reason why some of such transfers should not be reversed in the circumstances, at least in those cases where buyers of that period are at risk of being destroyed financially.

  35. @Gavin
    Bitcoin Gold ? maybe – I never really understood the concept really – although I noted official concern from the bankers federation which may be a good sign.
    However this guy -Stellaconcepts – rips into the concept of money that is not a unit of account , he is always worth a listen – he sold all of his silver a day or two before the Spring crash !!

    http://www.youtube.com/watch?v=oHw6fldrObo
    In the second video it is obvious the Bitcoin supporter does not know what he is talking about.
    http://www.youtube.com/watch?v=7bE24t8vj7Q

    I would prefer to head for the Scottish hills with a pan then get involved in a concept I don’t fully understand.
    http://www.youtube.com/watch?v=MeKcv2w6Qvk.
    (ps the guy at the end overvalues the gold price enormously)

  36. While we are in the mood for debt write downs and retention of the asset, perhaps those that invested in bank shares for their retirement should also be compensated.

  37. Can some of the advocates of mortgage “forgiveness” have a go at a bit of a puzzle.

    Say family A managed their finances reasonably prudently during the boom, perhaps they were even wise enough to not really trust the possibly bubbly property market. They took out a mortgage they were unlikely to had difficulty paying in most scenarios, but this meant they could only buy a modest house and not one near enough to the best schools.

    Family B went for it. They stretched their imaginations to maximise all sources for a deposit, obtained the biggest mortgage they possibly could and bought a nice, big house that would give their children access to a really good school education.

    Family A can still pay their mortgage.

    Family B are having a lot of difficulty doing so, and are behind with the payments. The bank hasn’t foreclosed, and is not likely to for reasons most readers of this blog will be familiar with.

    Taxes paid by both family A and B are used to recap the bank family B owes a lot of money to.

    Should that bank “forgive” enough of family B’s mortgage to allow them to keep living in the nice big house, in the nice neighbourhood, while their children continue to go through school obtaining a superior education to the children of family A?

    Now I know there are lots of cases where this sort of perverse situation doesn’t come into it, but that does not mean it is OK to just wave your hands around a bit, say we shouldn’t get too hung up about “moral hazard” and ignore this and similar questions.

    Where are the details, the properly though through proposals on mortgage “forgiveness”?

    By the way, what has been done so far by the “new” government so far about the rule preventing creditors going after family mansions? There was pre-election talk of an upper limit on the value of a “family home”. Anyone know where the legislation to correct that absurdity has got to?

  38. Grumpy,
    with respect, you do not get it. Social solidarity demands that the prudent compensate those that made poor decisions to an even greater extent than heretofore .

  39. Debt forgiveness implies charity/free money…defaults on the other hand are more of a necessity.

    I wonder how many mortgages are truly in the red ? As in how many have an outstanding balance more than rthe current value, and have people not paying/paying too little ?

    Then the bank needs to figure if the mortgagee, might impove their income prospects (e.g. new job). The problem is that Ireland is a small, open economy – so such a prediction would in fact be equivalent to predicting global recovery.

    I think what is needed, is for the banks to choose a (somewhat arbitrary) ‘day of reckoning’. The smoke may never clear globallty, so I suggest June 2012.

    The question then is, what do the banks do with properties they foreclose on ?

  40. @Tull
    “While we are in the mood for debt write downs and retention of the asset, perhaps those that invested in bank shares for their retirement should also be compensated.”
    But these people have already had writedowns and still retain their asset (a small piece of electronic paper…).

  41. Hogan,
    the net worth of those that invested in bank shares has been destroyed and the net worth if those that bought houses has equally been destroyed. However only one actor is to be compensated by transfer from the taxpayer. Why, I ask?

  42. @Tull
    The net worth of those that invested large scale in property or in senior bank debt has been protected; those that invested in a senior career in the banks have done even better…

  43. @ Gregory Connor.

    “Mixing up these two activities in this way would destroy the objectivity of bank accounting standards.” Bit late for that Gregory. What standards? What objectivity? I’am surprised that a seasoned commentator would say this. The triple ‘A’ rated loans were collateralised, the banks audits were worse than misleading, prudential lending went out the window, fiduciary obligations were completely ignored in the pursuit of bonuses and salaries. I would love to know or see the objective figures that were put in front of the late Brian Lenihan and who cobbled them together. The auditors should be before our courts explaining themselves, instead they have found lucrative employment winding down the organisations and developer portfolio’s their former bank clients could not get enough of. In fact, it is boom time recession proof employment, with the likes of NAMA’s Frank Daly even having to issued a few hollow sound bites on regretting “having” to employ the big 4. If this were the US they would be in serious, serious, trouble. BoI expanded its’ loan book by 100bn between 2004 and 2008 after taking 221 years to reach 100bn. They did this with full cover from auditors and the accountancy profession who never uttered a syllable of protest.

    In Anglo’s case the auditors might, just might, have to answer for some of their rather quaint accounting conventions.

  44. @ grumpy: “Can some of the advocates of mortgage “forgiveness” have a go at a bit of a puzzle.”

    Careful with the Fallacy of Composition on this one. There needs to be very carefully crafted legislation to handle the wide disparity in personal financial circumstsnces that are likely to arise; legislation to deal with the ‘unknown unknowns’. Some trick if our legislators can pull that one off.

    However, before anyone ventures down into that sort of swampy territory, I suggest we get a truthful explanation from all the financial institutions about their exact lending policies from Jan 2000 until Dec 2009.

    Hence, the first piece of legilation has to deal with that little piece of dog-s***. We must know exactly HOW those who got private residential mortgages actually got them. I have a bad feeling that many folk would be more than a tad vexed if they knew the full truth of the nature of the misrepresentations that were perpetrated – on both sides since there are TWO sets of signatures on the original docs.

    I am adamant that no progress whatsoever will be forthcoming until we know the truth about private res mortgages. Then we can write-off all unpayable mortgages and re-structure those where there is some hope of some pay-back. The cost of any write-downs must be borne by shareholders and bondholders and not the taxpayers. Try any funny stuff on this one and you get a reprise of Japan 1990 – 2011.

    Brian Snr.

  45. @ Brian Woods Snr

    Well, we already had I think it was Olivia Green Mr, Fingleton;s personal secretary, telling us in an RTE documentary that loan cheques were delivered before loan documentation was even filled in and completed. Of course that was for important people. Oh! and of course people were being given more than the asked for almost as a matter of course.

  46. @grumpy I fully agree. There may be a reasonable public policy objective in allowing people remain in modest houses, there is none in allowing people remain in large expensive houses while having a large part of their loans forgiven.

    There needs to clarity as to what the objective of this process is. To minimise social disruption, to allow people move, to allow people spend more on other things?

  47. Forget debt-forgiveness, it’s guaranteed that those who benefit will not be those who deserve to benefit. If you can’t afford to pay your mortgage then there should be a method for the bank to (very quickly) take ownership of the property and allow you to rent it. If you can’t afford the market rent, then move somewhere else. It’s just a house. The banks can then call in Allsop’s and get some cash back on their balance sheet. 50-60% of the book price today shouldn’t be sniffed at.

    I say this as someone who owns a dog-box apartment and needs to cover the the guts of 100k before I’ll ever be able to shift it. But this is my problem and I’m willing to tough it out. What I’m not willing to do is pay for someone else to live in the style to which they’ve become accustomed.

  48. @Niall Dunne
    You have illustrated the core of the problem – when / if you default the banks own you rather then the property.
    Thats quite some contract.
    If the banks loaned based on the rental return rather then the credit inflated asset price of the house they would not have gotten us into this mess.
    But this sharing of losses all the way up to the state level is toxic.
    Its what happens when there is no real division between the state and the CB which is a very European phenomena.
    Same as it ever was , same as it ever was.

  49. I have never understood why the Govt didn’t just buy the mortgage books off the banks, wind the banks down and set up a single state bank.
    Owning mortgages would allow the state to adjust interest rates etc and actually make some money from the performing loans.
    Seems daft to have ploughed in so much capital just for overseas investors to make some dough

  50. @Eureka
    One of the smartest things I have read here.
    Tip of the hat
    …. unless someone else really dumps on the idea hard.

  51. @Grumpy

    Speaking as a Family A representative, I’ve given the matter a lot of thought and concluded as follows. (Quoting now from a 2009 column…)

    “Demanding that borrowers pay back every last cent, but giving them a lifetime to do so, will add to our problems, not cure them.

    How does weighing down a generation with debt, and expecting gratitude for not putting them on the street help the economy? We need to get things moving again and anchoring tens of thousands to their past mistakes will fatally prevent this.

    The right thing to do for the economy, if not for the moral imperative to pay what we owe, is to let people wipe the slate clean and start over – declare bankruptcy. Pay what you can and do a Phoenix. When banks, developers and businesses do it we spit bile, but the reason we let them do it is because it benefits everyone in the long run.”

    Forcing people to pay back all that money renders them economically useless for their whole lives. We just have to accept – as Americans do – that making financial mistakes happens and in order for everyone to benefit in the long run – we have to forgive and forget….The spending won’t start til the debts are gone….

  52. @ Niall Dunne

    Nialll, I wonder will your reasoning change over time? I can only guess your age? What if you met someone and they did not want to share a dog-box apartment, as you call it or perhaps they wanted to live somewhere other than the said dog-box?

    For what it is worth Niall, I think you, and people like you, should have a €100,000 knocked off what you owe for your dog-box apartment. The site value was over inflated, it was poorly constructed and designed. The valuation which you paid for was grossly in error, the bank were imprudent in the extreme to give you the money and since you are paying all sorts of taxes to keep the insolvent banks afloat is it not obvious to you that the government and banks have responsibilities other than we need, we need. But then again Noel who am I to throw a man a life line if he insists on drowning in debt.

  53. Hogan,
    you are right and wrong. The property investing class at the peak is largely bankrupt. The various people called Sean illustrate this. The senior owners have been looked after courtesy of the ECB.

  54. @Tull
    “The property investing class at the peak is largely bankrupt. The various people called Sean illustrate this. The senior owners have been looked after courtesy of the ECB.”
    Courtesy of NWL, we have had 9 bankrupts so far this year. Now, you can try and tell me that they comprise the property investing class of the peak, but I doubt I’ll agree with you.

    That they owe more on their debts than their assets are worth, I’ll grant you. That they will be called to pay as much as they can, I doubt very much.

    Which brings us nicely to @Eureka:
    “I have never understood why the Govt didn’t just buy the mortgage books off the banks, wind the banks down and set up a single state bank.”
    If the government wanted the mortgage books and were going to wind the banks down, they needn’t have done anything so stupid as to buy them, they could just have liquidated them.

    It does beg some questions:
    Who would pay depositors and bondholders back?
    Who would collect mortgage payments?
    Who would enforce payment?
    Have a look at water rates and see how successful councils are at collecting them. The state is very poor at collecting money owed to it.

    But the main point, if you think NAMA is bad and corrupt, how much more bad and corrupt would state mortgage banks be in allocating who gets writeoffs and to what proportion?

  55. @Hoganmahew
    The state need not collect more taxes to spend – indeed taxes do not fund goverment – only cash & bonds do that.
    It just needs to turn term deposits to post office bonds and divorce itself from the banks and their “assets”.
    Of course we have no independent state even in fiscal matters so the conversation is entirely acedemic.

  56. PS dramatically increase the tax on cars – (a extra 1000 euros should do it ) and less money will leak from the country as people reduce our imports and thus have more money to save & spend locally.
    Carpools would be all the rage for 2012

    Dress it up as a environmental measure blah blah blah – of course our state is not independent even in fiscal matters so the conversation is entirely acedemic.

  57. @Sarah
    “how does weighing down a generation with debt…..help the economy?”

    It doesn’t but the point is that the ” weighing down” has already happened and unless you want the money supply to enter a tailspin (and economic activity to go with it) the debt has to be repaid…that’s the point! That unfortunate generation has already been weighed down with debt and “forgiveness” is really only a discussion regarding who should bear the burden that ALREADY exists.

    Some say the burden should be shared, that the prudent should step up and, through higher tax rates on their production, they should accept to pay…obviously many prudent people say no to this…..

  58. @sarah

    The choice is not between “Demanding that borrowers pay back every last cent, but giving them a lifetime to do so” and “we have to forgive and forget”.

    For this to be broadly equitable, and acceptable to family As with a less binary view than yours, you have to draw a line somewhere. The ridiculous situation where family home protection from (often quite poor and modestly housed) defaulted upon creditors is used to maintain the occupancy of very grand houses is an example of what can happen when you don’t think things through properly.

    I suggest respectfully of those pushing for mortgage write-offs – do the work up-front, then the idea can be sold to the public.

  59. @ Eureka + Al: What Eureka suggested was one of the non-discussed options. Why, I wonder? Oh yeah! The sky would fall down! No, that is not good enough; There will be TANKS in the street!!! Oh! Irish army has no tanks, so it has to be the sky! 🙂

    [Anyone rem the 10 week bank strike (er, lockout) some time back. Sky is still up there. And banks ????]

    @ Niall: My son is in a somewhat similar situation – and lost his job to boot! He’s on crutches (me on the left, his ma on the right!!!). Calvary!

    @SC: Hi! You are being irrational again! 😉

    @RB: Thanks Robert. This mess is set to run a tad longer and we have only been served up the hors-d’oevre so far. Just wait until the entree arrives! Hope you like nettle, briar and thistle souffle!

    @ hoganmahew: No one gets paid back H – that’s the biggie. You press the ‘RESET’ button: you lose all unsaved files. Owners of res property are left with assest worth 1/10 of original – but all properties are ditto. The owners are let out of Debtor’s Prison, is all! They will have to pay something for shelter, but it will not impoverish them. All options are bad.
    Shareholders and bondholders will have to file. That’s Capitalism for you.

    Brian Snr.

  60. Grumpy,
    I think you are right. If you are going to reform banruptcy laws and allow wiping the slate clean you have to go the whole hog and foreclose on properties. Otherwise every family A should strategically default and wipe its slate clean. In this event there is nobody left to hold the bag…unless we can fool the Germans.

  61. @Al
    Dem acedemics are terrible chancers……… nah just being a simple Cork Dork – must rush to the pub now for my Beamish ration…………………….

  62. BW snr.
    Shareholders have been wiped already, subbies all but as well. Depositors are protected by domestic politics and bondholders protected by the ECB. So it is the prudent that have to pay for the imprudent.

  63. @Brian Woods Snr
    “Shareholders and bondholders will have to file. That’s Capitalism for you.”
    Shareholders have already been fileted… bondholders have already been repaid. The state is the main owner of the banks now. You would be robbing wodewick the wobber and then giving him part of his money back and saying “awen’t you way better off now… I order you to stop laughing…”

    As bklyn_rntr says, unless you can find someone outside the economy to impose the losses on, the losses are to the economy. In which case apportioning them in a random manner to those unable to move their liquid assets out of the country seems a little harsh. Now, before you jump up and down, I was all for letting the banks fall in September 2008, but it is a little late now to be still banging that drum.

  64. @grumpy @tull

    To clarify – I don’t mean magically wipe the debt away, I mean a reasonable bankruptcy process. So 2-3 years instead of 12 ( I believe 5 is on the table) and a cheap method of filing (in the UK you can do it online; here it’s 30k high court proceeding).
    So, do a short sale on the house, and pay off what you can over the discharge period, but after that, let the bankrupt start over.
    What I’ve seen so far are proposals to pay the mortgage over 50 years (perhaps even leaving the kids a mortgage instead of a deposit!) – carrying debt from one mortgage to another etc ie, keeping that debt all your life. It means you never have disposable income or the wherewithall to reinvest.
    With regard to hypothetical Family A strategically defaulting, I think these fears don’t take into account ( and Morgan Kelly’s original catastrophic predictions of mass mortgage default didn’t either) the cultural imperative to hold onto one’s home. I genuinely can’t see strategic defaults happening in our culture. (Though I couldn’t see FF being reduced to it’s current size, so I’m not big into certainty anymore…)

  65. @Sarah Carey
    “I genuinely can’t see strategic defaults happening in our culture.”
    With respect, that’s because you have a nice house in a nice area, further, I expect you are not indebted over you head.

  66. So it is the prudent that have to pay for the imprudent.

    A lot of these “imprudent” people, just wanted a place to call their own. They were forced by reckless speculators, cowboy developers, and feckless banks to pay almost half a million euros for badly constructed suburban cubicles, nearly two hours drive from their place of work.

    At the peak, if they wanted a house, they faced the prospect for taking out a ridiculous mortgage now, or waiting six months and paying 10% more. They were assured by virtually every economist, bank, commentator, and newspaper in the country that the boom would continue indefinitely. The trust which house buyers placed in the professional property establishment was sadly misplaced, to the enormous loss of those who took out the 203,953 mortgages in 2006 alone.

    Now, if it decides so, the government can decide that these people–who just wanted a house, a dog, and 2.6 children–are recklessly imprudent people who deserve to be punished. Who deserve to lose their home and be placed in bankruptcy for 5-12 years. Maybe we can have a few debtors prisons and public floggings while were at it, while bankrupt bankers who broke the nation wine and dine in handsome mansions in Boston. Vae victis and all that.

    Anyone who thinks that is going to fly in Ireland had better open up a history book and read about the Irish Land Wars. Right now, the hundreds of thousands of broke borrowers are scattered and isolated across the country. But if they ever managed to unite into organised protest/political groups–and the Government can use little more than propaganda to stop them doing so–they would become a formidable political force, with a lot more influence than blog commentators I can assure you.

  67. @OMF
    “A lot of these “imprudent” people, just wanted a place to call their own. ”
    Er, yeah, and 50% of them wanted:
    a) two or more places of their own
    b) a holiday/car/botox
    c) a holiday home in Bulgaria – shure that’s everyone’s right…

    Look at the IBA stats. More than a third of mortgages given out at the peak were BTLs or top-ups. Only 21% of the 203,953 mortgages in 2006 alone were from FTBs.

    And what do we do about the suckers who bought in 2007? 2008? 2009?! Who are buying now and are going to be in NE in two year’s time? When do you cutoff?

  68. @ karl suggest you consider extrapolating the four banks losses to the full owner occupied book of 116bn (March). Results are: central bank base case €5.5bn, stress case €8.8bn and Blackrock base €8.9bn stress €15.89bn and these do not account for the lower rate applied to BOI’s book ie CB BOI base was 3.1% whereas CB AIB base was 5.6%. Anyone got an explanation as to why BOI’s loss rates were significantly lower than the other three banks?
    Looking at arrears stats: 49,000 loans of €9.5bn over three months in arrears . Of the 62,900 restructured loans 40% (26,000) c€4.9bn are included within the 49,000 figure – having been restructured they are in arrears. I have estimated based on property value declines of 60% that on average these loans are 96k in negative equity. The peak boom time mortgage loan cohort (90%+ LTV) are looking at losses of at least c€150k per mortgage. Now factoring in the loan loss scenario – somewhere between 50,000 (central bank) and 105,000 (blackrock) repossessions, cram downs, short sales or debt/equity deals are needed.
    MK’s estimate certainly appears to be on the low side.

  69. @Grumpy / Tull

    re One possible solution to your puzzle:
    Family B decides to live like humans and put normal expenses including educatiing their children before any repayment on any loan.
    The State appointed sherriff then evicts them on foot of a court order applied for by the bank.
    On exiting the house, or immediately post exit, a friend of family B decides that this eviction offends his historically acquired sense of justice and torches the house.
    The derlict house which is next door to Family A, become a haven for vagrants and drugusers. Within one week Family A decide to pack their bags and leave. They are not gone 12 hours before their house is also torched.

    PS If you think this is fantasy land, it is not. It already happens in several parts of Ireland.

    @Niall:
    I have a lot of sympathy for you. Like many you were fed lies by people who knew the whole ponzi scheme was insane.
    In your situation, I would give the keys back and emigrate and make a life for yourself. The bank gave you a collateralised loan. Give them back the collateral. After all, they were the professionals that deemed the collateral sufficient to back the loan. If you are brought to court and are offered free legal aid, ask for Mr Dermot Gleeson as your counsel, if he does free legal aid.

    @Karl Whelan

    From the general resonse to this thread, this society will have to hurt some more before it is ready ‘To go down on its knees and do what must be done’.
    The mentality of the Marshalsea is still very much alive in Ireland.

  70. @ OMF

    ‘Anyone who thinks that is going to fly in Ireland had better open up a history book and read about the Irish Land Wars. Right now, the hundreds of thousands of broke borrowers are scattered and isolated across the country. But if they ever managed to unite into organised protest/political groups–and the Government can use little more than propaganda to stop them doing so–they would become a formidable political force, with a lot more influence than blog commentators I can assure you.’

    Good point and I believe there’s also something to Sarahs post above, i.e. The social problem is those that are in trouble and want to stay in their homes. I’m sure there’s currently a lot of young single guys/gals/couples, posting the keys of shoe box apartments back and making a break for it/planning on hiding out in an Australia mining town for a decade. Bankruptcy law or no bankruptcy law.

    Better bankruptcy law may be of more benefit to the latter group than the prior. i.e. Those that have put down some long roots and want to stay put for the kids/emotional reasons/etc. The group most likely to have an interest in and have the human resources/skills to form groups and motivate politicans to grab the nettle.

    My view is there should be a solution put in place for this group sooner rather than later. As it’s going to happen one way or another. Hence my suggestion allowing them the right to bid on the property post bankruptcy (if they can get a mortgage).

    If this group gets organized/unionized, block voting etc, knowing this country they’ll likely end up benefiting more than those that didn’t buy i.e. the longer we leave it the more it’ll cost.

    The other cost to kicking the can further down the road, is the likely future falls in property prices. There’s room for a small state hedge here, bailout households now, sell NAMA property later.

    @Sahra Carey

    Do you mind me asking you opinion on Declan Ganleys week long ‘I told you so’ on TV3 (while standing in for Vincent Browne). Despite my initial near contempt for the man, I’m warming to him. Can we expect you to be following any particular agenda? 🙂

  71. @Hoganmahew
    God help us & save us from the defenders of the pale.
    To infinity and beyond……………………………

  72. @ Joseph

    Good advice to our friend Nial! One question why should he emigrate if has a job?

    @ Sarah Carey

    “I genuinely can’t see strategic defaults happening in our culture.” You cannot? Well, I’d love to know what “culture” you are talking about?

    Sarah, we have just witnessed the pillaging of the Irish state by its own politicians banks and the developer classes to whom they were enthrall with many ordinary people being sucked into the madness. As you are aware we had colour property supplements bigger than the newspapers that promoted them . However, most people are still far from understanding just what is in store for them, when they do. I think Irish people are going to do a lot more than throw keys on tables. This is only getting started in many ways. Lisbon III will have to be attempted Angela Merkel has only 23% support so it will be interesting to see how Germany is going to be persuaded to support Berlusconi. When I lived in Germany in 1980 they were still eating cans of sardines left over from the second world war, I have to laugh when I think about it.

    Two years ago, when I said the EU banks were in denial and concealing massive losses, few people wanted to listen. When I mentioned “debt forgiveness” to the government expert committee established to look into ways of dealing with the impending tide of mortgage problems, nobody wanted to even contemplate it. Our governor of the CB who believed the crisis was manageable. Now the can has run out of road and has had to go main stream. We have the unravelling of the Euro, an existential financial mess which requires political agreement that would essentially destroy the smaller countries like Ireland. This heralds the likely disintegration of the whole EU project and you think that the Irish are too honest to enter strategic defaults on mortgages? We are dumb, I grant you that but maybe not that dumb. This is really stretching denial to its limits. Maybe ‘Hope’ was the word you were looking for but hope is not a plan. Our crony capitalist state has been built on cute hoorism and that is why we are an inconvenient protectorate of the Troika at the moment.

  73. @OMF and Sarah,
    Your comments are, unfortunately, only a confirmation to me at least, or how controversial and, ultimately, impractical, any formal debt forgiveness is. First, OMF, you cite a perfectly valid story of the first time buyer, or at least the honest one, who got caught up in the hype and essentially ruined his/her future because of it. Sarah says allow bankruptcy and leave these people in their house and then she says, that for cultural reasons, people won’t strategically default.

    The problem is, for every story of the innocent striver, there is another of a greedy feckless speculator and hog’s figures suggest that there are more feckless ones than there are innocents. And Sarah, you may be right that, under current legislation and societal mores, a strategic default is unlikely, but what happens when you change the rules? If I see my neighbor get a freebie, why wouldn’t I do the same?

    Finally, all of this could be moot…residential borrowers have one enormous advantage over the government and the banks, and that is they are more numerous. Already, we know that banks are not foreclosing on defaulting mortgage holders because it is politically toxic and it is impractical to realize the true value of the house. If a street of houses decides to default, and if evicted, NP, just rent next door, the banks can do very little about it. It really is all about numbers…the problem is…..once you open that door…….

  74. @Sarah
    Agree with you. Very sensible suggestions that need a good evaluation.
    Reform of bankrupcy law is the only real solution Of course it would require real guts to bring it through.
    In fact – the question must be asked – why has nothing been done on this up to now?
    Methinks our current minister for justice enjoys showboating on the easy targets of the HSE and the church rather than doing any real work. It’s a scandal that nothing has been done on this up to now!

  75. The top officials of the State and the banks were complicit in wrecking the economy. So whatever about need for reform of bankruptcy laws, it may be more important to have the credit ratings system operated by the Irish Credit Bureau reset to avoid even the 5-year blacklist when a debt is repaid in full.

    As regards mortgage debt forgiveness, moral hazard concerns from people in protected positions should not be the issue but some equity in an unfair society is important.

    If the State already provides a guarantee of employment and a promise of a pension pot, why should such a person get a writeoff that maybe effectively paid by individuals with diminishing pots or none and the risk of or reality of unemployment?

    Where mortgages were issued because of a parent’s net worth, should the State pick up the tab now?

    There are many who have suffered collateral damage; why single out mainly young people who could rent and get a clean credit record?

    Sustainable employment is more important than debt forgiveness.

    Who pays?: absent smoke and mirrors, a tax levy or via sovereign debt forgiveness?

    When the cost is part of the public debt, it can seem invisible compared with a levy on earnings above a certain threshold of 5% or more!

  76. @hoganmahew

    And what do we do about the suckers who bought in 2007? 2008? 2009?! Who are buying now and are going to be in NE in two year’s time? When do you cutoff?

    September 29th 2008?? 🙂

  77. @bolshevik
    😀

    I wonder if Mr. Coleman no longer believes that the best is yet to come? What do we do about those that cheerled the bubble, dismissing all criticism and are now looking for debt writeoffs for their poor judgement? Are they victims too? Even though they still tell us that property is a one-way bet? Well, I suppose if they get their writeoff, it will be a one-way bet…

    Pucker up fellows, you’re going to be paying for their lifestyles…

  78. Brian mercer
    “While the number of Euro billions required for this scheme is important I would like to know why I as a taxpayer should fund a debt-forgiveness scheme at all ?”
    Because you live in and as a member of society? (even if you are too lazy to recognise after all this talk that nobody is going Roundasking for a debt forgiveness scheme for all….

  79. @hogan mahew @robert browne

    re the culture.

    Homeownership is a creed. Just compare Ireland to the UK and you can see that our society is, despite our sink estates in notorious areas, still cohesive and holding together despite the pressures of recent years. Obviously the longer this recession goes on, the more pressure we’ll have to endure, but right now I don’t see the middle class values of the bulk of Ireland breaking down.

    For 3 years I’ve been reading angry columns by journos wondering why people aren’t on the streets being angry because they were “raped and pillaged”. I’ve always argued it’s because they were participants in the problem and not idle bystanders. They borrowed too much. Their signature is on the documents. You can’t riot against the government for your bad decision. (And remember The Pope’s Children aired in 2006 with DMcW LAUGHING at people for spending too much money on one house and then buying the stupid holiday home on top of it). No one can say they weren’t warned.
    Anyway they did the sensible CONSERVATIVE thing, which is what Irish people are – CONSERVATIVE – and saved their anger for the ballot box.
    That is the culture I am talking about. We are an overwhelmingly conservative people and that is how we will act. So no. No running out on debts. IMHO.

    btw I live/grew up in a rural area and having lived in various parts of Dublin it always struck me how easy it is for people in urban areas to pick a bubble to live in – and then never mix outside it. In rural Ireland different classes live side by side. So I’d argue that I see, mix with and am friendly with a much broader slice of Irish society than anyone who lives in a “nice area”. Anyway, I think plenty of people in “nice areas” spent too much and are in big trouble. But they are “nice” and won’t be doing midnight runners.

    @John Foody

    I’ve made a point on not watching VB all summer in case the other presenters freak me out! I saw 10 seconds of Ganley last week introducing the show and thought WOW! Presence! Not sure how his questioning went after that but he certainly seemed formidable.

    In relation to Ganley I have always admired his debating style (he HAMMERED Jim Higgins during a Lisbon debate) and trust me, after everything that’s happened over the past few years I’ve had my “EEEEK! Was I on the wrong side in Lisbon” moment? If I was, I completely approve there was someone on the other side arguing against. Consensus is dangerous so he did us a favour.

    However, when I think about our relationship to the euro/ECB I still think we are better off in rather than out. I think if we were out we would not have raised interest rates because, just as we were to sterling, we would have been informally linked to the euro anyway and we’d have been Iceland. We’d have made the mess all by ourselves but without the ECB to get us through.

    I’ve been watching the “Oh but Iceland is fine now!” meme and not buying it. The core is not doing us any favours, but I still don’t want to be eating fish. I hate fish.

    We’ll get through this with Europe and thank god for the glorious word – VETO.

    As for my VB plan! Well I’ve never believed in presenters beating up guests or pushing their own agenda too much. I’m going with good humoured, informative, constructive, debate. Even though I think most people tune in for the car crash moments! Fingers crossed. Am nervous and hoping my jackets aren’t cause for comment.

  80. @Sarah Carey
    My point was that ‘your’ house is worth fighting for. A small apartment in an “up and coming” area that is now “declining” is not. It is not a psychological or cultural thing, it is that the actual physical stock, the neighboorhood matter. If you don’t like where you are living, you are not going to feel the same attachment to it.

  81. So fair enough, 6Bn should be set aside in next December’s budget for easing the hardship of those who have suffered from the financial crisis. This will of course require massive taxation and expenditure adjustments elsewhere if we are to honour the EU/IMF deal.

    The Minister for Assisting Victims of the Financial Crisis will have many valid claims on her 6Bn budget. Those in negative equity who have kept their jobs and whose mortgage repayments have actually fallen wouldn’t even be in the queue.

  82. @hoganmahew

    Oh – fair point. But now you are narrowing the potential defaulters to people are who a) don’t like their home and b) willing to endure a bankruptcy process and all that entails. And remember – they will have to show they are bankrupt. They can’t wake up in the morning and declare they can’t pay their debts if they can. (e.g. have a job).

    @All

    Speaking of VB I am looking for a woman atheist who wants the state to take primary schools from the church. Anyone know a good performer? “Well I just feel I should have my choice” won’t cut it…

  83. There are many examples of nieghbouring houses sold throughout the country for vastly different prices in the space of a few years. Suppose for example that 2 houses were sold for 200k and 270k during the boom. Now if I paid the 270k, I am already fairly unhappy that you got one for 200k. Suppose debt forgiveness is brought in and I am able to avail of it, perhaps the person in the 200k house looks at me and says “well I guess thats fair, he overpayed”.

    Now think of the contrasting situation, suppose I am still able to meet my 270k, possibly by working multiple jobs and/or my spouse working. However the person in the 200k house works part-time and so struggles to pay. Debt-forgivenss leads to them paying <150k perhaps. Now I paid 120k more to live next door to them – I work my multiple jobs while that person works part-time and ends up in almost the same position as me (or a better one). Am I likely to say “well I guess thats fair because…”?

    Suppose also that they are able to work multiple jobs in future – is their debt re-instated or do they just get to enjoy a much enhanced standard of living? These are the direct results of debt forgiveness.

  84. @Ragusa

    Nope, mate, not only are you living in a utopia dreamt up by the banks but you’re doling out their rubbish solution for homeowners while at the same time giving a digout to commercial of property owners through NAMA.

    There is no historic precedent as you suggest. Unfortunately the same lame duck arguments appear all the time suggesting we can dig our way out of this similar to the digout we had in the 80’s.

    The difference between now and then is the massive amount of personal debt that needs to be dealt with unlike the burden posed by debt in the 80’s.

    This debt is out there as personal debt, mortgage debt, bank debt, sovereign debt.

    If you read my post more carefully you would see that it is a formula to put into place a Government sponsored Mortgage Debt Relief Programme that would satisfy the requirements of your:

    “The writeoffs for negative equity cases are included in the bank recapitalisation capital requirements of the Banks done by BlackRock in March but the resolution mechanism needs to be put in place by Government and the Banks.”

    The resolution mechanism I outline should have debt writeoffs. It should allow for retained possession of family homes on rent/lease basis as outlined above. It should allow debt buybacks by the individual. But most importantly, it would avoid repossessions and people losing their family homes as currently is the case.

    There ought to be a populist movement to demand the above rather than the case by case bully tactics of the banks seeking to pressurise individuals and families, divide and conquer using partial favoritism, the sleazy world of smoke and mirrors deals behind close doors we need to get out of.

  85. The Mortgage Forgiveness/Bankruptcy Reform/Debt Relief package needs to recognise two things:

    – A proper solution for the here-and-now and for the way forward.
    – A settling of scores for past sins.

    On the proper solution – from2 years ago:

    http://www.thepropertypin.com/viewtopic.php?p=324624#p324624

    Banks should be incentivised to deal with their historical mistakes. It was their job to make prudent loans. If they advanced monies without appropriate checks then they mis-sold. For this they should pay. So any mortgage since 2001 becomes eligible for review and can be submitted to a complaints procedure.

    For those who borrowed above and beyond their means the job of servicing this debt leaves them facing a default. Defaulting on a loan in negative equity is no solution. Defaulting on a loan that is performing at the moment but could become impaired is a dread – why continue to carry it when the outcome looks inevitable and by which time the loan could be in negative equity?

    Two things have to happen in tandem to offer some hope to the lender and the borrower.

    Firstly, the bankruptcy law is changed to allow defaulters to be cleared of all debt after 5 years. Secondly those who have existing mortgage contracts with the bank are offered an optional upgrade. They can stick with their existing loan which isn’t covered by the new bankruptcy law or they can switch to an upgraded loan which forfeits the right to a mis-selling application but benefits from being covered by the new bankruptcy law – but only after 5 years of servicing the upgraded loan. Any new loan application is automatically covered by the new law.

    New loans being covered puts prudence back in the system and allows lending, and house prices, to adjust to a new market level with the risk priced in. Loans which are upgraded give the bank the comfort of knowing they are getting customers committing to at least 5 years of continuous performance, enough time for both parties to start to put their houses in order. Old loans can and should be subject to a review for mis-selling. The lessons of the past should be learned and doing this whilst operating new loans under harsher conditions highlights why the new system requires a return to proper risk management.

    People who borrowed now have a choice – they can role the dice and seek redress or they switch in the knowledge that there is an opportunity to meet their obligation but that if things go wrong they can default at some point in the future without too onerous a consequence. Banks will get a handle on their cash flows but will also be forced to cleanse the system.

    On the settling of scores for past sins:

    Bill Black explains the institutionalisation of fraud:

    http://www.youtube.com/watch?v=Rz1b__MdtHY

    And how should this be dealt with in Ireland? Well… since you asked (expletives tweaked for the more sensitive eyes round these parts):

    http://www.thepropertypin.com/viewtopic.php?p=495264#p495264

    What needs to happen is people need to think about things in a 180-degree way.

    Currently the commentariat will bang on about moral hazard, saving the banks and debt forgiveness – with all the focus on the here-and-now.

    This is completely the wrong way of looking at this.

    F*ck the banks – they’re not part of the solution.

    All the damage was done in the bubble years. This is just the fallout.

    What we need to do is start jailing f*ckers for the damage they did in the bubble years. Accountability for the damage inflicted.

    Start doing that and all the poisonous, illegal stuff will start to be revealed – and those who were criminally defrauded can start to seek retribution.

    We’ve had a massive fraud perpetrated on the population through a housing bubble. Any efforts to seek some small relief from the fraud only ends up legitimising it.

    F*ck the banks.
    Let ’em die.
    Jail the corrupt.
    Learn from our mistakes.
    Grow up.

  86. Quite a few smart solutions have been offered in Ireland over the past few years to deal with the various aspects and fallouts from our economic meltdown.

    Frequently, smart solutions get labeled and targeted with the label ‘utopian’ while ‘mart’ solutions like NAMA claim even in the face of mounting loss, they are realistic, practical, efficient, beneficial and worthwhile.

    It shouldn’t be a surprise given those who got us into the mess still control the mess and are embarked on an even greater mess getting us out of the mess:)

  87. 6bn on debt forgiveness or 6bn worth of investments in infrastructure?

    People would rather forgive debts than improve roads, schools, hospitals, broadband access, access to drinking water etc?

  88. @philip 11

    A debt forgiveness scheme has to be funded from somewhere, perhaps we should cut social welfare, increase taxes, and close a few schools and hospitals to fund it! Would you like choose?

    IMHO I think that first we should see if we can get some of the money back from those who sold the houses/apartments in the first place. That might be a good place to start.

  89. Some reflection on our intractable debt position may be in order. The following is a very sparse explanation.

    The current economic and financial situation has been incubating for many decades. The last similar-ish episode was the Really Great Depression of 1873 – 1895, which was caused by the massive expansion of productive capacity (oil was rapidly replacing coal) – hence, a situation of over-supply and lagging demand.

    Our predicament is due to a massive oversupply of ‘money’, parallel with a massive expansion of the means to supply this ‘money’. All that was needed was numerous customers with elastic credit lines.

    Now the major difference between these two episodes is that excess goods can be stacked into warehouses, whilst production is tamped down. Slowly, the back inventory will clear. This will never happen with debt.

    Debt expands exponentially. This is our predicament. We must stop the expansion of the debt burden – since it requires a parallel, and equal expansion in residual incomes. These latter have stalled – so far, with little prospect (outside of money inflation) of an exponential resumption.

    Now, the real kicker here is our growing dependence on a slowly diminishing supply of inexpensive energy to achieve productive expansion, to achieve expansions in incomes (above the rate of expansion of debt), to be able to retire the principle and accrued interest.

    We have driven ourselves into a boggy cul-de-sac. We are unable to retire our indebtness, hence we must destroy the unpayable proportion of that debt. Now you have entered the realm of politics. Sadly, it is now apparent that the necessary separation of politics from low-finance has imploded. The two are welded together.

    Brian Snr.

  90. I note today (Sunday Times) that NAMA are considering 37 billion of debt forgiveness for developers. That really puts this debate in context.

  91. 6bn for debt forgiveness – don’t worry about social welfare, taxes, or closing hospitals & schools. Debt forgiveness for the little people just will not happen so no need to be worrying.

    37 bn for the property developers well thats ok because these are people who matter.

  92. The Sunday Times has been reporting for two weeks now that NAMA are to grant 37bn debt forgiveness to developers. All they have to do is find the discounted monies paid to the banks, not the full amount.

    Didn’t someone, somewhere once say they would be pursued for every cent? i.e. treated the same way mortgage holders in difficulty are treated?

    I’m starting to turn into a lefty… every time I read about NAMA I turn into a lefty.

  93. Homeowners Need HelpPublished: August 21, 2011
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    LinkedinDiggMySpacePermalink. Neither Congress, nor federal regulators, nor state or federal prosecutors have yet to conduct a thorough investigation into the mortgage bubble and financial bust. We welcomed the news that the Justice Department is investigating allegations that Standard & Poor’s purposely overrated toxic mortgage securities in the years before the bust. We hope the investigative circle will widen.

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    But a lot more needs to be done to address the continuing damage from the mortgage debacle.

    Tens of millions of Americans are being crushed by the overhang of mortgage debt. And Congress and the White House have yet to figure out that the economy will not recover until housing recovers — and that won’t happen without a robust effort to curb foreclosures by modifying troubled mortgage loans.

    Instead of pushing the banks to do what is needed, the Obama administration has basically urged them to do their best to help, mainly by reducing interest rates for troubled borrowers. The banks haven’t done nearly enough. In many instances, they can make more from fees and charges on defaulted loans than on modifications.

    The administration needs better ideas. It can start by working with Fannie Mae and Freddie Mac, the government-run mortgage companies, to aggressively reduce the principal balances on underwater loans and to make refinancing easier for underwater borrowers. If the president championed aggressive action, and Fannie and Freddie, which back most new mortgages, also made it clear to banks that they expect principal reductions, the banks would feel considerable pressure to go along.

    The housing numbers are chilling. Sales of existing homes fell in July by 3.5 percent, while prices were down 4.4 percent in July from a year earlier. In all, prices have declined 33 percent since the peak of the market five years ago, for a total loss of home equity of $6.6 trillion.

    There’s no letup in sight. Currently, 14.6 million homeowners owe more on their mortgages than their homes are worth, and nearly half of them are underwater by more than 30 percent. At present, 3.5 million homes are in some stage of foreclosure. Nearly six million borrowers have already lost their homes in the bust.

    Reducing principal is a better solution than lowering interest rates, because it reduces payments and restores equity. Bankers resist, because it could force them to recognize losses they would prefer to delay. The administration has resisted, in part because principal reductions are seen as rewarding reckless borrowers.

    But many of today’s troubled borrowers were not reckless. Rather, they are collateral damage in a bust that has wiped out equity and hammered jobs, turning what were reasonable debt levels into unbearable burdens.

    Housing advocates and bankruptcy experts are calling for the administration to try new approaches. One would have Fannie and Freddie urge banks to let underwater borrowers who file for bankruptcy apply their monthly mortgage payments to principal for five years — in effect, reducing the loan’s interest rate to zero.

    Another solution would be for Fannie and Freddie to ease the rule for refinancing underwater mortgages for borrowers who are current in their payments. The lower payments on refinanced loans would help to prevent defaults and free up money for borrowers to use for paying down principal or consumer spending.

    President Obama is reportedly planning to include housing relief measures in his new jobs plan. Unless the plan includes strong support for principal reductions and easier refinancings, it will not get at the root of the problem: too much mortgage debt and too little relief.

  94. @ Marcus ORaghailligh: Some much needed sanity on a very vexed issue. Our legislators have to take control of a predicament that they have no experience of dealing with.

    Presumably we will observe all the un-workable options being pursued with vigour. until … …

    Currently, Sentiment is ahead by several lengths, but Reality has the inside track and will make up ground round the turn and up the hill to the finish line. I hope!

    Brian Snr.

  95. There won’t be any general debt forgiveness scheme in Ireland as it is impossible to construct one that is seen to be fair, given that any such scheme would simply be a wealth transfer from one group of Irish residents to another. Fine Gael today:

    Mr Hayes, however, said there were “two huge problems” with the proposal.

    “With any debt forgiveness, it will raise questions of fairness for people paying 100 per cent of their mortgages who are not getting any help from the State. It’s a huge issue for that group, who are already straddled with huge mortgages and who have not sought debt forgiveness.

    “Secondly, the Government has put huge store behind the two pillar banks. To introduce debt forgiveness totalling €6 billion at a time when the Government is bringing those banks out of the A&E wards would be very difficult to justify,” he said.

    A Department of Finance spokesman said Mr Noonan would look at any “realistic” proposal to alleviate the burden on those who find themselves in difficulties with mortgages.

    But he said a widespread debt-relief plan could not be defined as “realistic”, because of cost and moral hazard. “It is very important that there is fairness for those requiring assistance with mortgages but also for taxpayers who are paying their mortgages in full,” said the spokesman.

  96. @ Joseph Ryan and Sarah Carey.

    I think we need to build up a clearer profile of the people that are most likely to be the people that will want to avail of debt forgiveness if there is to be a programme. (excluding Morgan Kelly’s good advise to join a political party)

    Most first time buyer residential mortgages sold in 2003-2007 were sold to people with the following mindset/demographic in my opinion.

    People, singletons and couples, between 22-35 who were being told that if they did not get on the property ladder soon they would never be able to get on. So many people were happy to buy badly built apartments or semi D’s on the edge of ever expanding commuter belts safe in the knowledge they could sell on later at a profit and use the profit as a down payment on a nice place closer to work in a few years.

    That was the conventional wisdom, laughable as it may seem right now.
    It is also why there is not as big a demand for housing at the moment. Because of this young couples/ singletons were happy to buy “starter homes” In other words homes that they would not be suitable to live in for the rest of their lives.
    Many people entering the market at that time were doing so before they would have normally.So many of the people that would normally be looking to buy now already did it a few years ago.

    However their lives are changing.

    It is now the case that the singletons are pairing off and becoming a 2 neg equity apartments couple.

    Or the couple in the apartment are wanting to start a family but have no room for any more than one junior.
    These people are absolutely desperate to be able to move out of where they currently live but it is absolutely impossible.

    The other important thing to realise is that the fall from peak of their home values is a lot worse that the average.
    These people are now living in the apartments/houses no body wants.
    Their fall from peak is not 50% it is more like 60-75% already.

    In Short Sarah and john I think you will find that once some people start, there will be thousands of these people willing to loose their homes.
    Most are trying desperately trying to get out of apartments and into 3 bed semi-D’s closer to city centers as we speak.

    However as of yet, unless their parents have a huge nest egg to gift them to help them out they have not a hope in hell of being able to move.

  97. @Eamon

    I recognise a relation of mine in that exact description! Bought an apartment in an outer outer suburb of Dublin, it’s badly built and she will never ever pay back the mortgage. Walking away looks like the only sensible thing to do.
    But I think we keep mixing up what we each mean by “debt forgiveness”.

    In my original article I mentioned the proposal that some favour – short sales. So you manage to sell your hated home for less than the mortgage and the bank agrees to take whatever you can get for it as full settlement. I think there is merit in that. It allows people to move on – literally. Especially for those who still have jobs. In other words, it would effectively transform some mortgages into the non recourse loans we see in the US AND if that kind of product had existed here and was introduced now it would mean lending institutions would think far more carefully about how much money they were lending for houses. The risk would transfer from the borrower to the lender.
    But doing so retrospectively would have to be organised on a case by case basis so that strategic defaulters can be weeded out (and for example checking that the new property to be bought is a genuine move and not buying the house next door for a cheaper price…)
    However, what I am talking about is much larger scale reform of the bankruptcy laws so that ALL debt – including the mountains of personal debt still out there – can be managed constructively. That to me is the only way to solve the total debt problem and avoid strategic defaulters.

  98. Sarah,
    All fine in theory. However, you are talking about a “scheme” fro distributing a notionnal pot of money-Euro 6bn in MK terms-on some criteria. There would be scope for budget over runs and as in any scheme, perverse outcomes.

  99. That’s why I think bankruptcy reform is the best bet.
    AFAIK Eamon Ryan was pushing this at cabinet and the proposals were to reduce the charge period from 12 to 5 years. I’d cut another couple of years off that.
    We don’t need to wonder about theory. Just look at how the US and UK do it.

    Also you guys are still assuming that there will be 6bn of debt that will never be paid. I’m still working on the assumption that the social moral code will apply and where possible, people will try and pay, especially on their family home.

    They are not all in apartments…..

  100. Hi Sarah
    My comments were just in relation to the point that you and Joseph Ryan were making with regard to people not wanting to leave their homes due to a cultural desire to stay in them.
    The main point I was making is that most people who purchased between 2003-2007 wont have this cultural desire to stay in their homes. I agree that we need a resolution scheme.

    On another related note I was thinking about Morgan Kelly’s motive for his suggestion.
    Is it not possible that, as he sees sovereign default as inevitable, he would prefer if people, and by extension the whole nation, were made to face up to their bankruptcy so that it is not dragged out for decades.
    This would explain why he would recommend a scheme and put a price tag on it that was less than half of the estimate reached by Seamus Coffee.

  101. hmmmm. I haven’t been following the technicalities of the figures so I won’t make a judgement on which is the better one.

    To be honest, I thought that his figure was solely in relation to the investor buy-to-let-interest-only which is why it was lower when the conversation evolved into owner-occupier negative equity. But perhaps I missed something. (sometimes I think commenters should obey the Krugman 3 inch rule).

    Anyway, as to his motives, I can’t figure him out (have to meet him and apply my female intuition) though what the SINDO accused him of was shooting first and doing the maths later. (which he kinda admitted to).

    Anyway, I’m afraid I’m a middle of the roader on this one. A resolution must be found in order that all these home owners aren’t prevented from contributing to the economy when things settle down. But I can see the sense in a case by case basis of solving the debt problem because the recovery, such as it is, depends on gently does it, not more shocks. I think the government is right to rule out wholescale debt forgiveness (ie mortgage write downs) but they really need to get their act together on bankruptcy. 3years into the crisis and no reform is ridiculous.

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