Snippets of the Keane Report on Mortgage Debt: More Questions than Answers

Morgan Kelly’s comments (and research paper) last month on mortgage debt restructuring forced the government to come up with an expert group to recommend solutions to the problem of highly indebted households. The expert group’s report will be presented to Cabinet this week and has helpfully been leaked before that. Today’s Sindo carries a small piece by John Drennan on the content of the ‘Keane’ report that raises more questions than it answers.

In addition to really, seriously, and, like, really, advising people who can do so to pay off their mortgages, the report contains some specific recommendations. From the piece, then:

“Homeowners who can no longer pay the mortgage could negotiate with their lenders to hand back the property but remain on as tenants.

Banks who repossess homes will then lease them to local authorities to deal with housing shortages.

The timeframe to get discharged from bankruptcy to be cut from up to 20 years to just three years.

People facing bankruptcy will be offered a “non-judicial” route — meaning they won’t have to go through the courts in all cases.

The Money Advice and Budgeting Service will be beefed up with hundreds of “front-line” financial advisers who will deal exclusively with distressed mortgage holders.”

The most important part of the report is contained in a rather throwaway sentence–that banks “should engage in debt settlement“. The mechanics of this process (or processes) of debt settlement are very important and should be discussed on this blog and others when the full report is eventually published.

It looks like the group is taking a multi-pronged approach to the problem, which is welcome. It also looks like there is some attempt to deal with the issue of those who will never pay their mortgages via movements to local authority lists. That is not a simple process either, as NamaWineLake has recently shown.

It is important to note the timescales here. Right now, according to the government’s legislative programme, any bill to reform our bankruptcy laws is not even a twinkle in Minister Shatter’s eye, despite his assurances that the personal insolvency legislation would be substantially complete by Christmas or early 2012. That means the lynchpin of the strategy–that people can fail, and fail relatively cheaply through expedited personal insolvency proceedings–will likely not be in place before the summer.

Other questions present themselves, such as: when ‘negotiating’ with a bank on whether to hand the house back and/or rent it back again, will there be a code of conduct for these negotiations? Who will decide?

Third, the super-MABS body may only have an advisory role, rather than an adjudicatory role in the debt resolution process, meaning that the banks retain most of the power in the debt resolution process. Or not. We just don’t know.

The sooner this potentially very important report gets 100% leaked after Cabinet approval, the better.