The Central Bank have released a new paper by Yvonne McCarthy and Kieran McQuinn (link here) that uses data from the 2007 Survey of Income and Living Conditions (SILC) to describe how various types of households were coping with their mortgage burdens on the eve of the economic crisis. The paper also applies various techniques to estimate how these burdens may have changed since 2007.
I think this type of work is vital for gaining a better understanding of the extent of the upcoming mortgage default problem. It would also be crucial that data of this type be utilised if the government do wish to design a mortgage modification program, as discussed earlier here and here.
As posted earlier, Brian Lucey has a timely article in today’s Irish Times on the government’s plan to perhaps have a plan to help people who can’t pay their mortgage.
Brian makes a number of important points on this issue (moral hazard, fairness of helping those who took out excessive mortgage, limited capacity of these banks to take further losses leaving it back on the hard-pressed Irish taxpayer, bankruptcy reform). I was going to post a comment on it but the thread’s already really long and I wrote too many words, so I’ll put this on the front page instead.
I’d like to add to Brian’s points by discussing a stylized example in which a mortgage modification plan could work in the sense of easing the difficulties of current owners without costing the bank or taxpayer anything. Then I’ll note how the conditions of the stylized example won’t necessarily hold in many cases.
Continue reading “Mortgage Modifications”
Brian Lucey writes an op-ed on this topic in today’s Irish Times: you can read it here.