Lenders must now be forced to sort out this crisis
Published 08/05/2015 | 02:30
Finance Minister Michael Noonan has confirmed that the veto banks have over mortgage debt write-down deals will be weakened.
The response to that from many people will be that they do not want to pay for the mortgage of someone else. Imposing solutions on banks will deplete their capital, funds that were provided by the taxpayer.
But do we really have any alternative?
Unpalatable though it is, we now have little choice but to accept that banks will have to be forced to sort out the crisis, much of which is of their own making.
For seven years, they have allowed problem mortgages to fester - those where more than two years' worth of arrears have built up.
The main domestic banks have been recapitalised at a massive cost to taxpayers precisely to deal with the likes of messed-up mortgages.
Yet they continue to extend and pretend and hope that a rising economy will mean the problem cures itself.
Writing off debt is a reality in the commercial lending world, but when it comes to homeowners, arguments start appearing about moral hazard and strategic defaulters.
Close to 38,000 residential mortgage accounts are now more than two years in arrears.
We have a rather large mortgage issue, and many families will end up being turfed out of their homes unless radical action is taken.
We do not have the social housing to accommodate all of these people. And even if we did, it is worth remembering that nearly half of all rent received by private landlords comes from the State through one scheme or another.
So the cost will be huge to rehouse thousands of those stuck in a mortgage impasse.
Banks do not like the new State Insolvency Service, especially the personal insolvency arrangement (PIA) which was designed for the writing down of mortgage debt to allow those with a fighting chance of meeting restructured payments to stay in their homes.
A PIA means living under set income limits for up to six years.
Bank of Ireland and Ulster Bank are both on record saying they do not do mortgage debt relief deals. And Permanent TSB emerged as the mainstream bank most likely to reject deals when the Insolvency Service looked at the issue last month.
This helps to explain why just 328 PIAs were approved since the Insolvency Service got up and running in the autumn of 2013. This is out of a total of 1,204 PIA applications.
And this, despite the fact that debt write-offs are an everyday occurrence in commercial lending.
Many of the 38,000 cases of long-term mortgage arrears will not be suitable for a PIA deal, even if a big chunk of their debt is forgiven.
These people will need the mortgage-to-rent scheme, which is due to be expanded.
This allows families to remain in their home, with the property bought by a charity or a council.
We face some tough choices.
As always, it will come down to opting for the least worst alternative.