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THE LAST TWO weeks have seen an immense public hue and cry about mortgage debt forgiveness.
The spark seems to have been some relatively innocuous statements by Morgan Kelly at the Irish Society of New Economists conference, where he estimated that – excluding those with more than €500,000 in mortgage debt – the cost of a substantial debt forgiveness scheme would be of the order of €6bn. He didn’t say how it would or could be done or even make a strong case that it should be done, just that this was his estimate of the cost.
This tallies with numbers I presented two years ago, which suggested that if the Live Register hit 500,000 and if house prices fell by 50%, we could have 50,000-60,000 households suffering both negative equity and unemployment. My own estimate was that total negative equity would be about €23bn, part of which would be owed by households with no income.
Last week, economists’ musings were overtaken by a pseudonymous letter in the Irish Times, by someone from Kerry claiming his children were being deprived of food so that he could pay his mortgage. Unsurprisingly, his letter has provoked a strong response, not least by charities and government services, offering him advice and assistance. The impact of his letter and Morgan’s musings continues and could be seen on yesterday’s front pages. All three broadsheets led with mortgage debt arrears and forgiveness.
Arm yourself with the facts
Given the emotional charge to this debate, I thought I would take a step back and look at the facts. Here are ten facts about Ireland’s mortgage debt:
My own two cents
Dramatic public clamour is often a recipe for bad policymaking. To butcher a phrase, “beware of Trojan horses bearing starving children.” 40,000 mortgages in arrears of six months or more is a serious problem but it does not mean even that 40,000 households are in arrears (some investors had many mortgages), let alone that 40,000 families are starving their children to cling to their home. Hopefully the facts above show that there is enough variety in Ireland’s mortgage debt to rule out any “get less indebted quick” blanket debt forgiveness schemes. Any write-downs of debt that do occur should be on a case-by-case basis and with significant strings attached (like not owning all your own home by the end).
The vast bulk of people in Ireland are still paying off their mortgage and are still in employment. For those who are struggling and who believe that business-as-usual means they will not be able to pay off the mortgage as it stands, abandoning the property (and presumably emigrating) has proven an attractive option. However, there are less dramatic options.
Central Bank figures show that lenders have restructured 10% of all mortgages. They have also put money aside – taxpayer money, the €5bn that Morgan Kelly was talking about and more – to provide for mortgage write-downs where families are struggling. Not only that, a recent High Court decision makes it much more difficult for lenders to repossess properties. The fact that there are fewer Court proceedings for repossession now than two years ago indicates that banks are not interested in pushing people on to the street, anyway. In short, no-one should be sacrificing their children’s health for their own financial wealth.
Ronan Lyons is an Irish economist based at Oxford University, and runs the Economic Research unit at Daft.ie. You can read more articles on his blog, where this originally appeared.
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Would this be a useful senario?
The banks wipe the interest of mortgages completely, thus losing nothing at all. They only reclaim back what they lent out.
Any interest they put on any loan is just profit for them anyway.
Most banks are now state owned, so the government is now in the business of making profit over people that can’t pay their mortgages. Didn’t the banks already get an influx of cash from Europe because they were struggling?
The only problem with this is that this would require a lot more money to be put in by the taxpayer, i.e. it is effectively a mortgage write-down for everyone with a mortgage, just under another name.
A loan is an asset to a bank, i.e. it is worth something because it pays out on a regular basis. So this would be a bit like telling a landlord he shouldn’t take anything in rent as the property is still worth something when he ultimately sells it. If the landlord had known he wasn’t going to get any rent, just the resale value, he’d have offered significantly less for it originally. So too with the banks.
Very interesting to see how many mortgages are just bearly managing to stay below 90 days arrears. Surely if 40000 are in arrears of 90 days or more, there must be tens of thousands with one or two months arrears? The figures after christmas next Feb or March will be interesting…
Hi David,
Central Bank figures show an additional 15,000 mortgages with arrears of between three and six months.
Hope that helps,
R.
Any figures on arrear of 30 to 90 days Ronan? Thanks..
Hi David,
It’s my understanding that banks only regard mortgages as in arrears (at least for reporting purposes) when they reach 90 days, so there are no official stats on this.
That’s astonishing Ronan. I find it incredible that the banks wouldn’t be extremely anxious to find out what’s coming down the line?
Clear, concise and informative as usual Ronan…. :-) Nice to finally see this information broken down like this as there has been a lot of hearsay in the past few days since this suggested debt forgiveness idea came out…
‘significant strings attached (like not owning all your own home by the end)’.
Harsh surely and why ?
These are people who bought HOMES, a place to live in and bring families up in, who decided not to rent for the security of their family and because they were encouraged by banks and government to buy.
They invested their savings as a deposit, have invested more money in maintaining those homes and paying their mortgages.
Mortgages taken out from professionals who were able to judge risk and decide if they were suitable candidates to have a mortgage.
Valuations done by professionals before the mortgage was granted to ensure the security of the value of the house.
These people played by the rules to make a secure purchase in the mind of any reasonable person.
Through no fault of theirs, they have seen prices plummet, have lost jobs, incomes, futures because of the banks gambling and government incompetence – issues over which they have neither influence nor control.
Why should they take the full hit ?
Why should they not own all their homes – what blame is theirs?
Where do they go – where do they live once chucked out on the street by repossession or agreements that simply favour banks in claiming repayment of the FULL loan ?
The treatment of such people is a measure of a civilised society and perhaps fortunately for them, a wider society has more compassion than the grasping financial organisations who have already caused and who still contribute to the problem.
Hi Norah,
What I meant by this is that if you want the taxpayer to take over 25% of your debt, the taxpayer should also have a claim on 25% of your asset. There has to be some cost to any large scale scheme, otherwise “people who won’t pay” will benefit just as much as “people who can’t pay”, all at the cost of those who have no mortgage debt (two thirds of all households).
Put another way, if people really want a “NAMA for the people”, that will see the State their equity as well as their debt.
Ronan thank you – that makes sense – thought it was unusual of you to be so heard hearted! :)
You say “over 50,000 people have paid off their mortgage”, but surely this is mostly people, like my parents, who are just naturally at the end of their term and not an indication of an open hyped crisis, which seems to me, how you are selling it. I think the figures should concentrate on those mauled by the Celtic Tiger, as they are really what is at issue here.
Maybe this is out of scope, but none of these figures capture the thousands of people trapped in one bedroom apartments and satellite towns because of negative equity. “Property ladder” was national mantra just five years ago and it has left many with inadequate accommodation to move on with their lives. It will lead to bigger social problems and is car crash waiting to happen.
Hi Bryan,
You’re right, negative equity and mortgage arrears are two very different topics. There is a much broader set of people in negative equity. Many of these again will be very annoyed but not more seriously harmed by negative equity – they’ve bought their family home and kept their job, but just paid “too much” for their home relative to what it would cost now.
At the other end are those in negative equity *and* mortgage arrears, which is effectively what the above is about and what people are talking about now as the problem. (People in mortgage arrears and not in negative equity can simply sell on their property.)
In the middle are those who bought a property that they will not be able to stay in long-term (e.g. 1 or 2-bedroom but want to start a family). There are no easy solutions on this. Most common, I imagine, is that these will become the “accidental landlords”. They will own one property as a landlord (the 1/2-bed property) and live in another as tenant (a 3/4-bed property).
All are part of the same larger problem though, Ronan. You can’t talk of one and not touch on the others.
Your assumption that people who got stuck on the non existence property ladder can simply rent is the kind of simplistic optimism that got these people into the mess in the first place. My point is many, in fact most won’t be able to rent out their apartment. The country is flooded with empty apartments and houses. And let me put this scenario to you. Do you think it’s acceptable that someone who is trying to play the book and has rising mortgage interest rates should be forced to rent another house with the risk that when their apartment is off the market they have to pay for both? This is a serious problem we cannot ignore.
I’m sorry to interrupt Ronan.
But I am disgusted by the way that you discount the fact that people are actually having to deprive their families of food to pay corrupt banks on loans that were ”dished out” irresponsibly.
Also I do not think it is wise for you to use U.K. statistics to rationalize peoples situations in Ireland.
The U.K bankruptcy laws allow people to walk away from their debts with a clean slate in 1-2 years and free to start anew.
In Ireland the current bankruptcy laws are prehistoric and literally write people off financially for the rest of their lives.
On the subject of the U.K.
Some of the non Irish banks that operate(d) here provided mortgages both here and in the U.K.
Can you explain Ronan, how is it that these bank’s U.K. loans are in negative equity of 25% max (in bad areas,good areas much less ) where as here in Ireland some of their loans are up to 70%+ in negative equity?
Regardless of what our Financial Regulator was doing or not doing,why did these banks lend so irresponsibly in the Irish market when they were aware of the penal bankruptcy and debt laws here?
Do you think that these banks should be forced to clean up the mess they have made in Ireland with a bit of
integrity and duty of care ?
Who forced these banks to introduce 100% and interest only loans on a family home?
I would also wish that you would state on your articles that you are an economist for Daft.ie the largest property website in the country.
It’s disgusting how our government and media have given little time to the suicides and debt related despair
that corrupt banks aided by corrupt government have caused in Ireland.
It’s disgusting how our government has worked with corrupt private banks to saddle the Irish people with their 10′s of Billions of Euro gambling debts literally overnight, without the peoples consent.
And now the Government and these corrupt banks try to stir hatred and pitch neighbor against neighbor through their media with their Moral Hazard ”Excuses”
Does anyone really want to see their neighbor or family in despair??
Does anyone really want to see their neighbor mentally tortured by a corrupt bank??
Does anyone really want to see their neighbor evicted from their home and country??
We must all be positive but we must not be led to feel guilty for this mess and ”Take Our Beating” by a Compromised Media”.
A media that should be digging deep and exposing what these corrupt organisations have done and the damage that they have caused, so that this may not happen again.
The real losses don’t appear on a banks balance sheet Ronan.
However this is not the first time that our media and government have stood by and let large international organisations abuse our people.
Is it?
Hello Spruiker,
You’re not interrupting, you’re free to comment on this article. However, one of the points that I was making was that no-one should be starving their children to pay their mortgage, particularly as the risk of eviction is negligible and also there are supports for those who are struggling. I’m not sure how you got the opposite from what I was saying.
Re my background, there is normally a link to my website on these opinion pieces, where people can read about my background if they so wish. I’m certainly not hiding the fact that I work part-time as economist with Daft.ie… but I am also certainly not writing this article as that. I write it as a student of economics and as a citizen of Ireland, both of which are full-time roles.
In relation to suicides, this is outside my area of expertise but I understand there is a concern about the effect of reporting of suicide on the suicide rate itself. (You may have heard of research into suicide as a virus, with the best known example being Micronesia.) Thus journalists have a responsibility on such a topic, much as they might have on something like a bank run.
On a range of issues you have mentioned, such as bankruptcy, the lack of prudential lending, and the strength of financial regulation in Ireland, I think we may agree more than you’d like to admit. However, this article is about whether we should transfer wealth from those who have no mortgages to those who do.
My apologies Ronan (and readers) – forgot to add the link to Ronan’s site, where this article first appeared.
We always add this message at the bottom of Ronan’s columns (an omission today on my part, not Ronan’s @ Hello Spruiker):
Ronan Lyons is an Irish economist based at Oxford University, and runs the Economic Research unit at Daft.ie. You can read more articles on his blog, where this originally appeared.
That has now been amended and added with hyperlinks to the end of the article
mmmmmmm….very interesting figures….. I was always in the belief that "Blanket Debt Forgiveness" was a non-runner. However, on looking at the figures, it is probably best, for economic growth reasons on a whole, to.have some form of "debt sharing", ONLY with the 125,000 First Time Buyers who bought during the peak period. Considering, that house prices has fallen by roughly 50%, maybe a 25% cut off all first time buyer mortgages sold in this period would be fair, and possibly kick start domestic spending, and give these people a chance. I do have difficulty with writing off the debt of investors and those who traded up (as they made a killing in selling their original house). I also believe that the FTB’s probably make up 99% of those who are or are close to being those in arrears. To sum up: 25% off all FTB mortgages between 2005-2008!!!!
Try asking your bank to lawfully validate your mortgage or produce accounting and an original bilateral contract. It makes for a very interesting situation.
Agree that there should be blanket forgiveness – after all borrowers were marched at gunpoint into the banks and their first born threatened if they didn’t sign the mortgage documents! Sick to death of the "poor me" attitude and talk of mortgages being forced on people and reckless lending – time for people to look in the mirror and admit that perhaps, just perhaps, they need to take a bit of personal responsibility for their situation.
I’m a bit lost. I feel like the ‘i don’t know what a tracker mortgage is’ guy. What I do know is that you don’t have to be in arrears or struggling to eat to be worried about the future. For example, EBS raised interest five times in the last two years, people might wonder ‘what happens if that happens every two years?’ that’s my two cents worth, not worth the metal it’s minted with I guess.
I think its very relevant and just a relevant anything else has posted to this thread.
The role of the lending agencies in all of this is not covered in glory.
Ronan, I think you may be forgetting (which is unlike you) that if some form of debt sharing came into place with the owner still owning 100% of the property it would solve at least two things. 1) Money should start ti flow in the domestic economy, meaning that not only would job losses be restrained, many jobs would be created and 2) If the losses are "shared" now, i may steer if a situation whereby the taxpayer takes the full hit of the negative equity because we all know that if someone hands back their house, whilst they do owe the remainder of the original loan, the people will never be in a position to pay it back, so the banks and taxpayers will take the 100% hit!!!!! That’s my pennies worth as someone who fortunately isn’t in such a shocking position and has nothing to gain directly from it.
There is a question as to whether people who feel they were badly advised should take legal action to have their mortgage reduced [written off by their lender] to the amount they would normally have been lent under prudent lending practices – whatever this may work out ot be – 2.5 to 3.5 times the primary earner’s income.
Since the Prime Time exposé some years back, it is clear that selling agents and mortgage providers entered into a cosy arrangement regarding exchanging information for loan approvals where outrageous prices for houses were supported by access to easy credit with no checking or prudent advice being offered.
This link may refer http://www.goldcore.com/goldcore_blog/rte_primetime_financial_advice_exposed
This suggests that on many occasions the layperson involved was not well served by the lender or the selling agent, both of whom were not acting for the benefit of the consumer, but the vendor.
Given the level of consumer protection current in EU law, I’d appreciate your thoughts on the matter.
Hi Ronan,
Your last comment saying that the banks are reluctant to issue court proceeding is that not down to the moritorium (1 year I think) introduced by the previous government on issueing court proceedings to those in diffculty with their mortgages?
Hi Kerry,
To the best of my knowledge that moratorium has applied for the last 3 years or so, so it could certainly explain why Court orders are low but not really why they are also falling.
@Ronan…..there is no transfer if wealth from those with no mortgage when writing off negative equity!!!!!!….there can only be a benefit to the domestic economy and localised jobs…. With genuine respect, and I do not wish to offend you, but it does seem apparent, unintentionally as it may be, that your vested interest in the property sales industry has influencing your article!!!!
Hi Michael,
If we write off €2bn or €20bn of mortgage debt, that money doesn’t just disappear. It gets written off bank balance sheets. And when that happens they have to replace the money so that Ireland’s savings (which are worth more than Ireland’s mortgages, by the way) are safe.
No-one outside the country wants to give Irish banks money and take equity in them at the moment (the important injection into Bank of Ireland notwithstanding), so the taxpayer would be forced to recapitalize the banks, who have already been recapitalized but only to withstand regular mortgage writedowns due to arrears (not due to negative equity).
In what way do you think I am a vested interest? I’m not offended, just a mixture of baffled and amused. I get paid to crunch some numbers on sales and on rents, nothing else, so I hardly am a vested interest in property sales. Daft.ie got some serious flak in 2006 for saying the property market was cooling (based on the numbers I’d crunched) and continues to be accused of talking down the market, so it’s ironic that it’s also accused of being a vested interest!
If you look closely, those whose incomes *are* aligned to house prices are among those shouting most loudly for a blanket scheme, not the opposite as you believe. Their belief is that a blanket scheme would give everyone a fresh start and get the market motoring again.
I and others, however, have been arguing for some time, though, that Ireland to take a step back from viewing buying property as the only way to live and invest, and to look instead at (1) what international experience tells us about property prices in the long run, and (2) long-term renting as a viable option, particularly given Ireland’s current economic environment. (For example, my rent-or-buy calculator is up here: http://www.ronanlyons.com/2010/04/20/your-very-own-rent-or-buy-calculator/ while my thoughts on the level at which property prices will stop falling are here: http://www.ronanlyons.com/2011/07/05/are-we-nearly-there-yet-finding-the-new-floor-for-property-prices/)
@hello ….. whatever
What a load of bullshit.
Ronan’s article is the most balanced and sensible one I have read to date. I really dont care who he works for it still makes perfect sense.
Unfortunately if any type of blanket scheme came in to place without some "loss" for the homeowner it would be mostly chancers that would take advantage not genuine owners in difficultly.
The only situation that should be brought in immediately is no further recourse if a primary dwelling house is sold. In this case the homeowner is taking a hit already (unless the Bank was foolish enough to give a 100% mortgage) and the Bank should write off the negative equity as they have the capital to do so. Nobody will become homeless as we have thousands of properties to rent. Not a homeowner does not equal homeless. A rent back your home scheme possibly??
If we try to put something in place for investors we are all shagged and we will never know the true value of property.
“Ronan’s article is the most balanced and sensible one I have read to date. ”
- How many articles have you read on this subject?
“Unfortunately if any type of blanket scheme came in to place without some “loss” for the homeowner it would be mostly chancers that would take advantage not genuine owners in difficultly.”
- If a “blanket” scheme came into force EVERYONE would benefit, otherwise it wouldn’t be a “BLANKET” scheme… :rolleyes:
- Whether they would all deserve the break is doubtful, but by definition it couldn’t be “mostly chancers” who would benefit.
“I really dont care who he works for it still makes perfect sense.”
- Ronan may make perfect sense, but your point above doesn’t.
- I take it you’re of the the 85% still employed.
- Let’s see some joined up thinking.
There is no “true value” of property – it is all totally relative.
But suggesting that people should lose their homes is not something I would support.
Oh very sorry Madeyerbedlieinit
”Dishonest, Corrupt, Ruthless, Heavy Handed, Lazy, Reckless Bankers and Their Hired Muscle Are Lovely People”
The stress tests conducted on behalf of the Central Bank imply a worsening not ameliorating scenario to develop from 2013 through to 2017 – barring a miracle with full employment. It doesn’t matter if someone paid 450k for a house and its projected saleable value is guessed at 225k for 2012. The resale figure is not real until the house is sold and if many other similar properties pop onto the market at the same time, the sale value will be lower. By any reasonable standards, given the scale of unemployment and spending contraction, house prices can only fall further – more than 50% off peak, probably much more. Apartments for example are suffering worse than houses. There isn’t a country town without a bundle of vacant blocks. Someone with a 500k apartment is unlikely to recoup 50% of it’s original price. What surprised me most about lending for apartments was that the banks had been there before in the 80s. Interest in apartments dried up in the mid 80s and banks began to see a number of lemons arrive on their books. As a result, apartment buyers had to come up with 35% of the purchase price for eligibility. That all changed of course with the Tiger. Now it is changing again except that the level of personal debt exceeds by orders of magnitudes that of the 80s. If property falls stabilise at 50% off peak over the next few years that might just be as good as it can get. But I think it is optimistic.
Pay your way or be a sponger.
Move out of the Bank’s property- you owe them the money not the other way about!
This jackanory from Kerry has gone on long enough- lets see MP McDomhnaill & his journalists friends on air!
Using a yarn about starving kids & then calling others “dishonest scum”- tut tut tut…
Wipe the debt and start again.
It’s the only way.
Hi Ronan.
Thank you for your reply
I agree with your comment that ”no one should be starving their children to pay their mortgage” but evidently they are.
I also would agree for you and some of the other commentators to spend a week with one of these distressed families so that you could get a more balanced perspective of the situation(s) these people have found themselves in and how they have been cast out by their ”protectors”.
It would be great if you and other financial experts could offer these distressed people advice, as all that the government and banks seem to want to do is drum up hatred towards them in the media to divert blame away from their own corruption and incompetence.
From my own experience , here in Ireland, in the early 80′s, as a 12 year old I have experienced the ”Disgusting Corrupt Heavy Handed Ruthless Criminal Tactics” of these very same banks and their cronies.
All I can say Ronan If you experienced the despair that these ”Dishonest Scum” inflicted on my mother as I have,I can tell you, eating would be the last thing on your mind.
Re:Your affiliation with Daft.ie and the Daft media companies that provide thejournal.ie I have no gripe with that,I think that this is a great place for people to air their concerns,and wish that all people had access to this medium.
The fact of the matter is that here in Ireland, in the 21st century, because of reckless lending and miss information,Yes there are people in despair,starving their families,taking their own lives and our government our banks and our economists focus should be on
(1) Helping and comforting these distressed people
and.
Not casting them out.
(2) Investigating the irresponsible way that some of these ”Ridiculous Ticking Time Bomb Loans” were sold/miss sold.
and.
Not paying economists and other vested interests to try to rationalize us into believing these loans are normal and were sold to their ”Victims” responsibly.
(3) Making these banks apologize and make amends with these loyal customers
and
Not to allow these banks to ruthlessly squeeze these loyal customers and their families for the sake of Bogus products.
Although unfortunately this may be too late for some of their unfortunate loyal customers and their families.
have your say