Richard Curran: Nobody knows how to deal with mortgage crisis
The Government's solution to the personal debt crisis is descending into farce. More than six years after house prices started to fall and five years since the economy went into recession, the mortgage arrears problem remains far from being resolved.
Banks are operating different definitions of what constitutes a strategic defaulter and in general are adopting a stance that a very large number of their customers are simply "trying it on".
Different banks are offering different mortgage solutions. Split mortgages are not being applied in a uniform way, with Bank of Ireland charging interest on the portion of the mortgage that is set aside. Others are not. AIB said it was introducing a debt-for-equity product which may help some people.
This is where the bank parks a portion of the mortgage debt and claims it back from the value in the house when you die.
What if you live in a small apartment and your family is growing? You need a house, or a place where your toddlers can live safely without having accidents in apartment buildings never designed for children.
A debt-for-equity product is useless in that situation.
Opposition parties, sections of the media and other interest groups are adopting the opposite stance – namely they approach it as if nobody is trying it on and the whole country is in some state of personal and financial purgatory.
The truth lies somewhere in the middle. There are lots of statistics around, such as foreign holidays etc, which show there are many people in Ireland still enjoying a very good standard of living.
The question is how many of them are in arrears on their mortgages at the same time? Equally, there are thousands of people living very modest lifestyles in order to avoid arrears on over-priced negative equity apartments they purchased during the boom.
The Government's position is at the heart of the mess and failure to deal with these issues. It wants to be popular with the hundreds of thousands of people in mortgage difficulties.
But it also wants to be popular with people who are not in trouble.
It wants Irish banks to become profitable again so it has a chance of getting back some of the €64bn in bank bailout money.
The Government wants to say that mortgage writedowns have to be part of the solution.
But it feels it has to develop a solution structured in a way that allows banks keep a hold over customers for up to 20 years.
What do Enda Kenny, Eamon Gilmore and Michael Noonan really believe is going on with mortgage arrears?
Government ministers can't go around suggesting that anybody is deliberately defaulting on their mortgage while using the money to enjoy themselves. That would be political suicide.
Yet it has to believe bankers, who presumably have at least some evidence, that this is going on.
Believing one thing and saying another, is a recipe for disaster. That is the fudge at the heart of this mess. The Central Bank sharply criticised banks for not moving to resolve the mortgage crisis sooner.
Yet, inevitably, repossessions will be part of the solution.
Would the Government have intervened with the likes of AIB at board level, if it had started turfing people out of their homes? Of course it would.
The banks behaved appallingly in the boom and continue to pursue their self-interest to the end. That is what they do.
What should have happened? The Government and the Central Bank should have sat down with the banks and hammered out a consistent set of procedures and protocols for dealing with debt. This should include identical definitions and a uniform approach to analysing their loan books.
This would inform the debate about which mortgage customers are "taking the mick" and which ones are not.
Imagine, even today, this far down the road, we have buy-to-let borrowers with multiple rental properties, massively in arrears.
Some of them are diverting rental payments away from the mortgages and into all kinds of personal spending. Others are not.
The banks should have grabbed the properties ages ago, realised the losses and then decided whether to pursue the borrower after that. Instead they have left the borrowers in limbo, and left thinking, "I am €500,000 to €1m under water here, will it make a difference if I spend €10,000 on a few family holidays, given that the bank will eventually take a hit on these loans at some stage anyway?"
Some NAMA clients who gave massive personal guarantees on their debts have not had those acted upon. Yet ordinary couples are paying a huge cost to stand over their personal guarantees on the modest home they were suckered into buying.
The problem here is that the Government, which drafts policy and makes the banks do things, doesn't know who it believes or what it wants to achieve. Or perhaps its ministers feel they can't say what they really believe.
The banks are being banks and always will be until shoe-horned by a combination of regulation and government policy.
This crisis looks set to drag on. Some people will get screwed. Others will get better deals than they deserve.