Repossession ban does not solve problem
Published 02/09/2010 | 05:00
THE Government and the banks are fast realising that just because you put a cap on repossessions doesn't mean you put a cap on mortgage arrears.
To date, Irish banks have repossessed 1pc of all the mortgages in arrears in the country. But while this policy is socially and economically commendable, it is no substitute for actually facing up to the wider problem of mortgage arrears.
The official thinking on the problem seems rather flippant -- the problem is bad but once unemployment peaks it will gradually go away.
The wider problem of negative equity and the way it prevents people taking up job opportunities elsewhere in Ireland or overseas appears to receive little attention.
Ireland's unemployment problem is becoming structural, which means that arrears won't just disappear. The housing market remains in decline and this means that negative equity won't just fade away over a one- or two-year time horizon.
Radical and more far-reaching action is needed. Some kind of debt write-offs or debt forgiveness has to be devised, albeit in ways that limit moral hazard and keep banks' balance sheets somewhat protected from whatever policy emerges.
It is a very tough balancing act, but the present approach of Ireland feeling very smug about its low repossession rates compared to other countries does little to solve the underlying problem.