Blanket mortgage debt plan would cost €14bn
Published 12/10/2011 | 11:03
A BLANKET mortgage debt forgiveness scheme to solve the negative equity crisis would cost €14bn, Government advisers have warned.
Finance experts, who have devised a range of strategies to help struggling homeowners, warned that it would not be an effective use of resources, nor would it fix the problem.
Instead the report of the Inter-Departmental Group on Mortgage Arrears has called for a nationwide group of 100 independent financial advisers to help debt-laden householders negotiate with banks.
Finance Minister Michael Noonan called for innovative ideas to solve the crisis.
"This report sets out important measures to address the problem of mortgage difficulty," he said.
"It is incumbent on the State authorities and the banks to fully consider these and for the financial institutions to bring forward other innovative solutions which help address this difficult and complex problem."
Up to 10,000 people will lose ownership of their homes and pay rent instead to keep the same roof over their head under Government proposals under schemes that will cost the State €35m a year.
Minister Noonan signalled his backing for the so-called Keane report into the mortgage crisis which has ruled out blanket debt forgiveness as too costly.
The report, to be debated in the Dail next week, recommends a case-by-case approach to help the tens of thousands of homeowners struggling to make repayments in the wake of the property and economic crash.
There are about 46,000 households 90 days or more in arrears, according to the Central Bank.
But it is estimated the true figure of mortgage holders not up-to-date with repayments is about one in 10.
Here are some of the options put forward in the report by Declan Keane, Department of Finance, to help struggling homeowners:
:: Two mortgage to rent schemes should be introduced to keep people in their homes by converting them to social housing.
:: An Approved Housing Body to buy homes and collect rent or alternatively voluntary surrender of the house to the bank before it is leased to a local authority for 20 years. The debtor becomes the tenant.
:: A trade-down scheme allowing owners of expensive houses to move to smaller properties and carry some debt with them.
:: A split mortgage plan to allow householders to park some debt and pay off the rest of the loan.
:: New debt laws reducing a bankruptcy term from 12 years to three.
:: A mortgage advice service, which the advisers warned the Money Advice and Budgetary Service (Mabs) is not staffed or resourced to provide.
:: The support body, operating in three or four regional clusters and legally part of Mabs, would have 100 independent advisers guiding debtors through negotiations with banks.
The Keane report warned that no one is entitled to debt relief and the issue has to be dealt with on a case-by-case basis.
But it said the most distressed mortgage holders must be protected through social housing and the state should be prepared to be called in to subsidise rents if necessary.
The report went on to say that early introduction of reformed bankruptcy laws and new non-judicial debt settlements is vital to halt the crisis.
Mr Noonan said work is already under way to implement key elements of the report.
He said Housing Minister Willie Penrose will next week launch two mortgage-to-rent schemes, with plans to run them initially on a pilot basis.
Under each scheme, householders in extreme mortgage distress and eligible for social housing will be able to remain in their homes as social housing tenants, with either the lending institution or a housing association taking ownership of the property.
Justice Minister Alan Shatter is also planning to publish the Heads of a Personal Insolvency Bill.
Mr Noonan said he has instructed the banking division of the Department of Finance to open talks with the banks to ensure speedy implementation of the measures set out in the report.
Taoiseach Enda Kenny said many factors were being considered in efforts to cure the debt crisis.
"In many cases, people went to banks and lending institutions and over-borrowed and were over-lent, and unfortunately, because of the economic decline and the impact of the recession, people with mortgages are having difficulties," he said.
"Some can't pay, some have arrears and struggle to pay, and there are others who don't want to pay."
David Hall, businessman and co-founder of the New Beginnings group, which is lobbying for a balance of responsibility in mortgage debt solutions, branded the report "absolutely pathetic".
"Nobody was approached. No organisation on the frontline of dealing with this was approached - Mabs, the Free Legal Advice centre, New Beginnings, none," he said.
"There was no formal request from the report authors to ask us to contribute, to advise."
The New Beginnings group, which has devised a system to cut the cost of mortgage repayments while ensuring banks recover the full loan over its lifetime, has called for round-table talks with all concerned parties.
The group put its case at a meeting with senior officials in Allied Irish Banks this morning.