Let homebuyers set repayments, says top lawyer
HOMEBUYERS should be able to decide their own level of monthly mortgage repayments, according to radical proposals put forward by the Master of the High Court in today's Irish Independent.
The plan would help boost the economy by up to €4bn a year as well as tackling the household debt crisis, said Edmund Honohan in an article in our Business Week supplement.
The senior barrister is not a judge but as Master of the High Court he manages the caseload, including in relation to house repossessions.
He hit the headlines two years ago when he warned that some banks were driving people in debt to suicide by pursuing them to the "bitter end" for money they did not have. He is the brother of Central Bank Governor Patrick Honohan.
Under his proposal, mortgage debt would still be owed in full, but struggling homeowners with unsustainable monthly payments would be allowed to meet part of their repayments with "promissory notes".
Borrowers would agree to pay the full mortgage at the end of its term – which might require selling their house – but could set their own repayment terms in the meantime if the present level of repayments is unsustainable.
The scheme would help not just those in debt but the wider economy by fuelling demand, he said. "Its special attraction is its sheer simplicity. Government would legislate to allow all residential mortgagors, whether up to date or in arrears, to unilaterally restructure their monthly repayments by requiring the lenders to accept the borrower's promissory note instead," Mr Honohan said.
As the complicated process of personal insolvency and mortgage restructuring gets under way, Mr Honohan said his scheme could release €3bn-€4bn a year for general consumption instead of it going to the banks, at no cost to the Government.
"Over, say, the next three years, instead of making the monthly payment in cash, the borrower will have the option of handing over his IOU each month and would then be free to use the cash as he thinks fit," said Mr Honohan.
He described it as "borrower friendly" and argued that it would "fit in well alongside the measures now in train to return impaired mortgages to sustainability. Since the lender gets paid in full at the end of the term, legislation to provide for this would not expose the State to claims for damages for breach of the lender's constitutional rights."
Mr Honohan is no stranger to controversy. He weighed into the row over judges' pay earlier this year saying the spat reflected a "sense of entitlement" among judges.