Martina Devlin: We must work together to beat mortgage maze
NEVER mind wanting to be rich and famous, most of us would probably settle for being debt free right now. The truth is that many people have borrowed too much, generally in property, with the roof over our heads costing the shirt off our backs.
Some can service the mortgage repayments, others are struggling but just about coping, and a growing number are slipping under. A form of debt forgiveness, perhaps by another name, seems inevitable -- not just from charity but from commonsense.
Who doesn't know someone in negative equity teetering on the brink of arrears? Very few of these people were profligate or greedy for status-symbol houses, they were simply unfortunate victims of a property bubble.
Out of 770,000 mortgages in the State, around 95,000 are in arrears or have been restructured or both. That's a significant proportion. Yesterday's results from Permanent TSB -- the State's largest mortgage lender, which is all but nationalised -- show a surge in arrears for the first six months of the year. Home loans not being paid back rose from almost 7pc to just under 9pc.
So we can see that the problem is mushrooming and something must be done. But the burning question is what?
Debt forgiveness is not new. It is mentioned in the Old Testament and the Koran and Shakespeare dealt with it in 'The Merchant of Venice' in the late 1590s. When a merchant defaults on a loan, Portia asks Shylock for debt forgiveness on the basis of mercy: "It is twice blest: It blesseth him that gives and him that takes." Mercy springs from grace and fellow feeling, she argues, and matters more than legalities.
Sympathy aside, we need to address the problem because if we do nothing, a wave of people will lose their homes and the State will then be obliged to house them.
Nor can the social-justice element be overlooked. Unless we step in, homeowners who did nothing wrong will be thrown overboard while the banks, whose lending was unhinged, win a place in the taxpayer-funded lifeboat.
While a solution must be found, it is unlikely to take a lady-bountiful format. Michael Noonan is a minister but he won't be a ministering angel. People's hopes are being raised rather cruelly in the course of this debate.
Some think they can have a portion of their mortgage wiped out and continue living in the property for which they overpaid. That's not going to happen. The house or apartment will have to be sold before the version of debt forgiveness currently under discussion can be applied; it does not envisage people staying on as owner-occupiers.
However, repossessing houses is a ridiculous option because sale prices for property are relatively low. So perhaps an enhanced form of debt restructuring is a more viable option.
Usually, that means changing the terms of repayment by extending the loan period, but I wonder if it could be amended in other ways. For example, how about interest payments being excused, so long as the principal is paid back? Could that be introduced as a form of debt forgiveness?
Some people dislike the idea of bailing out their neighbours, but we disliked bailing out banks and builders, too. It happened and we learned to live with it. Since a learning curve has been forced on us, I'd prefer to adapt to family, friends and neighbours (that's what we all are in a country the size of Ireland) being bailed out in some shape or form.
Separating genuine cases from chancers will be a challenge. Inevitably, some will benefit who ought not to do so. But we don't consider dismantling the welfare state because of scroungers, so why reject solutions to impossible-to-pay mortgages because of the few who'll try it on?
An expert group set up to study the problem of arrears is due to report to Government in three weeks and the hope is that some of its suggestions will be creative. One possibility being floated is the introduction of negative-equity mortgages.
For example, someone needs to buy a bigger house for their growing family or because they must relocate for work. But if they are in negative equity, they are stuck, even when they have a job and can meet the repayments. Currently, a homeowner can't sell, owe the bank €50,000 and buy another house. However, a negative-equity loan would bundle together the borrowings for the new property and the outstanding amount left on the former home.
RISKS are inherent in this -- the Regulator might oppose it on the grounds that it means shouldering more debt or it is too dangerous in a falling market -- but there is a strand of people for whom it might prove a workable solution. The hope is that the market will correct the negative equity over time, although how much time is anyone's guess.
Another possibility is using the social-housing mechanism: local authorities could take over distressed mortgages and allow former owners to stay and rent.
Again, this is not ideal because there are already a lot of vacant properties and the purchase money will have to be advanced to councils by central government. But it is worth considering in certain circumstances.
Anything is better than repossessing houses -- least of all when the property market is stagnant, buyers are on strike and none of the indicators point to an improvement soon. On the contrary, peak-to-trough property valuations are being revised. Goodbody Stockbrokers this week suggested a 60pc decline in prices from the peak.
Some solutions already in place may not be widely known. One allows overstretched homeowners to pay two-thirds of the interest on a mortgage for a five-year period to give them a breathing space. That's a significant relief, implemented recently, but the banks aren't exactly shouting it from the roof tops. Shame on them: they owe us, not the reverse.
We need to find some mechanism to help each other deal with our debts because compassion is not a weakness -- there but for the grace of God go any of us -- and because survival is likelier if we work together. And remember, one day we will have to look back on this period and consider our own behaviour.
Irish Independent
