The topic of mortgage arrears remains close to the top of the political agenda, with the Government set to announce measures today on the issue. Next week, we are very fortunate to have in Dublin one of the world’s leading experts on housing markets, arrears and foreclosure, Fernando Ferreira of Wharton Business School at the University of Pennsylvania.
The Policy Institute, based at Trinity College Dublin, has organised a mini-conference on mortgage arrears for the morning (9am to 11.30am), next Monday 18th May in Trinity College Dublin (JM Synge Theatre, Room 2039, Arts Building). The mini-conference centres on factors influencing mortgage arrears and repossession and focuses in particular on the US and Irish experiences. Speakers include Fernando Ferreira (Wharton & NBER) and Yvonne McCarthy (Central Bank of Ireland). There will also be a panel discussion and time for questions/comments from participants.
All welcome with no need to register.
Yvonne McCarthy (Central Bank) will be giving her Barrington Lecture on Thursday evening in the ESRI. Full details here.
The title, “Disentangling the mortgage arrears crisis: The role of the labour market, income volatility and negative equity”, gives an indication of its policy relevance.
There are a number of good things in the Fine Gael banking document. However, the proposal that has caught the headlines – giving increased mortgage interest relief to the so-called “negative equity” generation of first-time buyers that bought during 2004-2009 – is a pretty terrible policy. Immediate comparisons with previous lamented FG proposals to compensate taxi drivers and Eircom shareholders are perhaps a little harsh but the policy makes little sense.
There are many people in Ireland today struggling to repay their mortgages. Many of these people are also in negative equity and this means that they cannot just sell their home and trade down to less expensive home with a mortgage they can afford. This is a genuinely serious problem and at some point the next government is going to have to work out how to deal with it.
To be fair to the FG document, it does contain some proposals aimed at dealing with the relevant problem of those who cannot pay their mortgages and are in negative equity, such as a new personal insolvency regime. However, the proposal to give every first-time buyer that purchased during this period is a blunderbuss policy that cannot be justified.
This proposal may help some people in negative equity but it will also help people who had lower loan-to-value ratios and are not in negative equity. Even to the extent that it does cover many people in negative equity, the idea that negative equity is, in itself, a problem is misguided. For those who took out a mortgage during this period, can still afford the repayments and don’t plan to move homes, the loss in value of their home has had an equivalent effect to losing money on an investment in shares: They are less wealthy but there is no good reason for the state to be compensating them any more than it should compensate those who lost money on investments in shares (Eircom or otherwise …)
In these straightened times, we simply cannot afford policies that arbitrarily hand out money to people who don’t need or deserve it. This idea should be canned and replaced by a more focused policy to deal with those who cannot cope with their mortgage repayments.
Economists Constantin Gurdgiev, Brian Lucey, Stephen Kinsella, Ronan Lyons, Karl Deeter, Shane Whelan, David Madden, Brendan McElroy, Valerio Poti and John D Masson suggest a way to provide relief to stressed mortgage holders.
An interim report of the Expert Group on Mortgage Arrears and Personal Debt has been released by the Department of Finance. The report is here. Press statements are here and here.
The latest edition of the Economic and Social Review has been published. The edition contains two policy papers by staff from the ESRI, one by Tim Callan, Claire Keane and John Walsh on property taxes and the other by David Duffy on negative equity. The Irish Independent have “seen Duffy’s report” presumably because they have access to the Internet. Now you can read it too.
Brian Lucey writes an op-ed on this topic in today’s Irish Times: you can read it here.
An important contribution to the economic debate by David Duffy of the ESRI. The paper estimates approximately 196,000 households in negative equity consequent on anticipated house price declines next year. Its main policy conclusion is the advocacy of policies that allow delaying of mortgage payments rather than write-downs.
Ronan Lyons reports some striking calculations on the potential extent of negative equity in Ireland. He estimates that as many as 340,000 homes may be in negative equity, which corresponds to about one home in five. These calculations raise a number of other important questions. What fraction of these loans may end up being defaulted on? And what are the likely losses for the banks? These losses have not been incorporated into any of the calculations relating to the loans going into NAMA, so these losses will be over and above any losses associated with NAMA transfers.