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One of the most popular (by comments) blogs we ever had on the site was about
debt forgiveness and whether it was a good or bad idea.In yesterday's Independentthere was an article about the upcoming debt bill which must be put before the Dáil before April as part of the bailout package. The main concern is about whether or not it should include mortgage debt.
On one hand you have the Justice Department who want mortgages included in a non-judicial procedure that deals with all debts comprehensively, on the other is the Department of Finance who want mortgages kept out of it.
The question is who will win? Will Justice see justice prevail or will Finance see the financial concerns of banks hold sway?
When you take every problem account into consideration there are in the region of 150,000 mortgages in that space according to the IMF, 62,000 or more are in more than 3 months of arrears, another 70,000 or more have been restructured.
The idea which seems to be a popular solution at the moment is to allow people who have unsustainable mortgages (and there are likely 20-25,000 of these) to stay in their home, the property becomes owned by the local authority and they pay a rent to the banks in turn collecting a rent from the tenant (formerly the owner).
One obvious inequality in that is the transition from debtor to social tenant. There are 100,000 people on the housing list waiting for homes to become available.
The solution above means a person won't have to wait, instead they'll just jump the entire queue and their own home will become social housing. The advantage won't be conferred because of any particular qualification in terms of need above other people on the waiting list, instead it will be because they borrowed and didn't have the ability to repay.
Is that fair?
Hardly, but when you weigh it against turfing people out it begins to look less inequitable. What should we be doing? Every solution has multiple downsides.
In a paper written on this topic we outlined a programme that is not far distant from what Justice are proposing (it was sent to them but we are certain that it had zero influence on the outcome). Anything that stops short of a comprehensive solution will not work, if short term debts and unsecured debts are done in one realm of influence and secured debts in another (like mortgages) there will be some trade off in outcomes, or preference for courts which will give final answers on the mortgage debt.
This might make bankruptcy more attractive, or indeed necessary in order to reach closure...
Who knows where this will end? Will there be moral hazard? If there is some is it a valid price to pay in order to help a large cohort of people who will otherwise have no solution?
We are looking forward to your thoughts as always.
Karl Deeter (@karldeeter)
Operations Manager
Dublin 2
