Soden says debt for equity can fix mortgage crisis
Published 28/08/2011 | 05:00
FORMER Bank of Ireland chief executive and Central Bank board member Mike Soden has said debt for equity swaps where banks would take a share of distressed borrowers' homes in return for debt relief could provide the solution to Ireland's mortgage arrears crisis.
Speaking to the Sunday Independent in a personal capacity, Mr Soden said that such a solution would have to be negotiated by borrowers on an individual basis with their banks and could not form part of any "blanket decision" covering all those in arrears on their mortgages.
"It's not a free ride. Some form of equity sharing in a debt for equity swap with the lender could possibly work down the road. When it alleviates the monthly repayment that a mortgagee has, then it makes it lot easier for them," Mr Soden said.
Offering the example of a borrower in trouble with repayments on a €300,000 mortgage, he said: "If you get someone's mortgage reduced from €300,000 to €200,000 and interest rates are four per cent, that's €8,000 a year or €666 odd a month on interest only. And if they need time, no matter what they're doing, they should be able to get their hands on €666 from some part of our society.
"People out of work can get a housing allowance, and the housing allowance would normally cover that mortgage if it's interest only."
Mr Soden said that if a troubled borrower could not negotiate such an arrangement, they would have to give up their homes.
"If you cannot negotiate something, then I think you have to look at handing back the keys of the house and taking your chances," he said.