Free money!? Why debt forgiveness is a good idea

Free money!? Why debt forgiveness is a good idea

Free money!? Why debt forgiveness is a good ideaNothing seems to inspire as much ire as a talk about debt forgiveness. I say that as a person who once described it as ‘Madness!’ (think ‘madness’ as in from the film 300 when the guy says ‘this is Sparta!). My road to Damascus moment came when I saw the huge mortgaging of our nation on behalf of banks, they were able to make mistakes and given some hope at a future; it is only reasonable that we treat actual people in a similar vein.

Debt forgiveness is not ‘free money’, I admit, the headline was there to lure you in. What it is however, is a way for people who fail to have some chance of a future in the general economy. There were some very smart Economists who put together an article on this in the Irish Times (your not so smart analyst managed to jump in on them).

Under the current regime bankruptcy lasts for 12 years, the Miscellaneous Provisions Bill of 2011 will change that to 5 years, but bankruptcy doesn’t affect the vast majority of people in financial trouble and for that reason it can become something that reverts to 12 years because they DIDN’T become bankrupt!

This happens often with mortgages, people can’t afford to pay and eventually some get repossessed, there are currently 100,000 mortgages (of 790,000 existing) in trouble, that is 1 in 8, or 12.5%. The actual amount of them in arrears is just under 6%.

Moves such as the Code of Conduct on Mortgage Arrears 2011 will make it hard for a bank to repossess a home as long as a person is ‘engaging’ with them – this means answering letters/attending meetings where required. But all the while interest can be piling up, in fact, when this is all over there will be many people who will actually wish they had been repossessed early on.

If that happens in 2011 it is not a closed operation, if your house sells for less than the mortgage secured upon it then you will have a judgement against you for the deficit. With up to 300,000 mortgages in negative equity(NCB Stockbrokers 2011).

This is no small issue, the economist behind the now defunct Ptsb/ESRI index (whose 2009 paper made initial forecasts for negative equity of 200,000 by 2010) said in the Examiner “ the vast majority of those in negative equity are first-time buyers because they were the ones who purchased at the top of the market”.

The Central Bank paper (09/RT/11) put the probabiliyt of being in both Negative Equity and Arrears at 6.1% which is higher than the current arrears figures. Not every mortgage in arrears is in negative equity so it stands to reason that this is not a statistic that has been fully realised of yet.

And amidst this people say that writing off the debt of people who cannot pay in the foreseeable future is wrong?

I have said it before and will say it again – where is the ‘righteous outrage’ of the same people when there are 18,000+ people on mortgage interest supplement? A benefit that pays the bank interest at taxpayers expense for people who borrowed?

Where is the ‘moral high ground’ of people renting who never got involved in property yet who likely lives not very far from a person on ‘rent supplement’ who has a similar property paid for by taxes; while they struggle to pay market rent this other person or family get the same thing for nothing and yet we don’t get whisked into a frenzy over it?

Why?
What is it about taking a person on the dole and saying ‘too bad buddy, you have lost your home, and in that process the €20,000 that you still owe is written off’. Leaving the debt there becomes a barrier to re-entering the workforce, why take up a job if a bank has an instant claim on your future earnings that would mitigate the financial gain from taking up work?

The occurence of unemployment and mortgage arrears is (according to people I speak to in the bank collection teams) almost one in the same; so it is vital to ensure that people don’t try to stay unemployed in order to avoid a fate that is worse by getting back to work.

We have all heard about the ‘traps’ in welfare, well guess what – saying ‘no’ to debt forgiveness is one of them. The alternative is to take people who are already in deep trouble and to make their lot even worse, apart from being ill thought out it will also have negative economic consequences.

Enda Kenny negative equity promise brokenIt was the realisation of this that brought Fine Gael to say that they would end Tax Relief at Source in 2011 in order to help ‘the negative equity generation’, but this election promise was played down then shelved entirely.

Debt forgiveness is NOT for people in negative equity, it isn’t for people in arrears or those who can’t pay their credit cards; it is for the group of people who have lost everything and all you are saying is ‘we won’t make it even worse for you’.

It allows them to have some shot at obtaining a meaningful financial future, the absence of which is at the very root of the ‘Arab Spring’, the ‘Israeli Summer’ and perhaps even the ‘Tea Party’ movement.

Debt forgiveness will be a cost, one that will be borne by the banks and passed on to all users of the financial system; but this is going to happen anyway, even without making these write offs banks such as Ptsb have nearly doubled their variable rate while the ECB did nothing.

If there were not 400,000 price promised tracker mortgages perhaps everybody with debt could chip in a little instead of lumping it all on the 200,000 standard variable mortgages, but that is the difference between what is and what may have been. The reality on the ground is that people who stand no chance do not need to be destroyed entirely ‘to make a point’ or to ‘be made an example of’, this isn’t the 1800’s.

So when you hear somebody talk about debt forgiveness please at least have the appropriate context in mind – it isn’t an easy ride, rather it is bearing a financial cross minus the final act of crucifixion.

Irish Mortgage Brokers LogoKarl Deeter
Operations Manager
Irish Mortgage Brokers
Dublin 2

There are 59 comments for this article
  1. Baz at 5:08 pm

    Would be criminal to grant debt forgiveness on mortgages!

    “IT WOULD GET THE ECONOMY GOING AGAIN! People would have that little bit extra cash to start spending and keep shops, businesses open, create+ keep jobs etc.”

    The only people who would have extra cash are the people who gambled on the property market and lost! The rest of use will get shafted paying YOUR house off!

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  5. marie at 6:56 pm

    im not an economist so i cannot give any figures to support this sugestion but what about mortgage suspension? the bank allow the people to stay in their house and suspend payments until they are able to start paying again- but at a rate according to the actual value of the house, and the bank pays the difference as they are mainly to blame for this mess! yes peple need to take some responsibilities but we ALL MAKE MISTAKES! let he who is without sin among you cast the first stone- irish people need to stop being so self centred and start caring about ALL our fellow citizens. my heart goes out to people who are struggling and by the way, we own the banks so its about time we brought them to heel and made them take their share of the pain- not one single one of them has yet been brought to account for what they have done to this country! and as for the” why should i pay for others stupidity” brigade, shame on you! have you never made a mistake or messed up- i hope i live in a country where we care for one another but im not so sure!

  6. Gerardine Ryan at 4:38 pm

    Its time Dublin City Council address the question of the affordable housing that they enabled young people to get involved in. My daughter got an apartment which is not worth what she paid for it even at the affordable price. Can you see your way to waive the conditions attached to all the people locked into these mortgages.
    Gerardine Ryan

  7. pm at 11:26 pm

    in my opinion the solution is blunt but simple this mess is the fault of 3 parties.1/the banks for reckless lending 2/the government for lack of regulation and 3/ the borrower for lack of brains.Therefore split the negative equity part of the loan 3ways.Banks 33.3percent paid for from future profits,governments 33.3percent paid for from the extra revenue this debt forgiveness would create and the borrowers 33.3 percent added on to the real value of the property.LESSON LEARNED.
    And just a mention for all the [oh why should we pay for their mistakes]people.I didnt hear these people complain when the tax from all these overpriced houses was paying for the running of the country while at the same time keeping their income tax rates down.Just a thought.

  8. Michael O Brien at 10:30 am

    The concept of Debt Forgiveness and Fiscal control are a neccessity.The idea of the Celtic Tiger remaining on stage with nothing to offer but Negative Equity and Bank Bail outs is unacceptable.The benefits which would arise in the event sense prevailed and Debt Forgivness became a Fact.
    The rise in Disposable income would offer the economy a boost,increased VAT takings,Increase in spending and a general positive feeling that we can survive.The pressure which is being exerted by banks on individual housholders and mortgage holders is considerable.Should this pressure be lifted or relieved somewhat,the country would continue on its journey to recovery.
    The pressure from banks has impacted on business large and small,the lack of liquidity and disposable income has prevented business moving into recovery.Should the plumber be in a position to pay his supplier ,or have access to a line of credit ,the job could be completed.The flexibility of having a little bank flexibility (Short Term loan/Overdraft )would offer that lifeline which business need.
    With all the money which the banks have received,why cannot they offer this service.It appears we the taxpayer have sorted out the banks indebtedness,at our cost.It appears that if we ,the taxpayers wish for Debt Forgigeness ,why should a few bankers(who happen to be in our debt)determine where this debt forgiveness should go.
    Make the decision,Set Morgan Kelly’s plan in place .Open up the banks to offer the flexibility to trade our way out of Recession,release the purse-strings adjust the negative Equity,which was largely influenced by Banks offering 100-120% mortgages.

  9. George Murphy at 8:46 pm

    Debt foregiveness is good for those that went bananas buying what they could not afford, for those that were lending them (banks, etc..), for those that they fool them (auctioneers, etc..), for those that they make themselves rich (developpers, ..). Debt foregiveness is about coming back again to the same errors that got as here in the same place. Sorry No!!

  10. Joan Lester at 4:57 pm

    There is faulty logic at work here. If an unemployed person got a job, the bank lien would not be for the person’s full income, just for a portion of it. How many people would really turn down a good job just to avoid having to pay a bank lien? That’s like turning down a job to avoid paying child support.

  11. linda at 11:25 pm

    I think people should be allowed to request debt forgivness for their family home and personal debt where it is over and above their ability to repay those debts take the situation where a small sole trader servicing the big corporate companies doesnt get paid from them they have gone into licquidation etc however the revenue still want their money even though sole trader never got paid and the husband had serious accident not covered by insurance and now home is 200000 negitive equitity and not entitled to disability because when the celtic tiger was here he took initiive and made the mistake of being self employed HSE officer wont help social wont help try live on 230 euro a week and feed 5 and part pay mortgage because your scared to be put on the road your esb turned off and you live and pray that the courts wont reposses your home and you cant afford tax or insurance and hope to be able to get past the garda at checkpoints on your way to school or work we should be trying to help each other here everyone with big mortgages are not rich we are the proof that we dont control our destiny but hard and fast lessons have been learned along the way yet the banks did this to us and they now judge us we should all petition the governemt and banks to at least give afew years break from the threat of repossesion to try live and work our way out of this mess thats what i think thank you if you have read this entire rant

  12. whistlingjacksmith at 8:20 pm

    The term “debt forgiveness” implies some level of guilt on behalf of the borrower. The mortgage agreements were arranged between TWO parties: borrower and lender.
    We should establish which party (or parties) if any, were reckless at the time of agreement.
    If the lender took risks, particularly sub prime lenders, then the debt should be reduced in proportion to the degree of carelessness exercised by the lender.
    Where money was loaned out of proportion to the borrowers net income or where other debts were consolidated the outstanding debt should be reduced substantially.
    The government should introduce Capital Gains Tax on the sale of the principal residence(after allowing for inflation)to prevent future home owners seeing the family home as security for large long term debt.

  13. Aidan at 8:16 pm

    Debt forgiveness must be provided for people who, through no fault of their own, are unable to meet the cost of a mortgage on their sole private residence provided;

    1. it was where they actually lived, in other words not a property built or bought to rent to others and

    2.there is no realistic prospect of the person(s) being able to regularise the mortgage account.

    In addition, I believe procedures must be introduced to ensure Debt Forgivness is applied, in the first instance, to those who borrowed solely for the purpose of providing a standard family home appropriate to their family circumstances.

    Aidan

  14. karl deeter at 8:10 pm

    @ stephen

    It is valid to call non-sequiter on the face of things, but in bailing out the banks we prevented the natural (capitalist) solution to occur which would have resulted in repossessions and distressed banks being sold off while investors were wiped out and whereby the new buyers/owners would have probably written off debts or at least given partial writedowns as they bought discounted mortgage books.

    For that reason encouraging what perhaps should have happened for borrowers is therefore something that rationally does follow, otherwise you merely follow one set of bad decisions (bank guarantee etc.) with another (not allowing people to fail in a humane manner). We can debate the merit of debt forgiveness but to say it does not follow is not entirely true unless you believe that the incentives would all have been the same ex-post as they were ex-ante.

  15. Eileen at 6:39 pm

    It’s a joke.what about the people who never saw the celtic tiger & are now worse off due to all the squandering of the fatcats. Nobody wants to see people on the street but be fair to all morgage holders. Stop the banks & building socities raising the interest rate. Stop the government robbing the PAYE workers.

  16. denis murnaghan at 5:32 pm

    To fix this awful problem of negative equity & no ,or inadeqate income,a fix is required.What to do?For all owner occupied dwellings purchased after 1st jany 2006,and before the end of june 2008. write off 55% of the outstanding debt,& put the balance on a 20 yr loan at a fixed rate,and which loan would attach to the property,so that an acceptable purchaser would take over the loan on sale of the dwelling.This would have an immediate affect of bringing stability to a nervous market,allow the banks to get on with the business of banking,& remove from peoples minds the horrible fear that currently hangs over so many families.So some will say the benefit goes only to a chosen few,thats true,in the same way as an a&e helps only a few,whilst the rest of us pay.Others will shout that the write off, is an economic nonsense,no more so than allowing the present mess to continue on its ever worsening downwards slide,with more unemployment,larger debt,business failures,and inevitable failure for all.We must act and do so soon,there cannot be a perfect solution, real life is not like that, lets get going before choice is denied us.

  17. FD at 5:14 pm

    Hi, re debt forgiveness. I hadn’t a clue about it until recently until I knew a few people who got themselves into trouble. These ‘investors’ simply bought one or two houses to help them get a decent pension. The houses not only are in negative arrears but the interest hikes have taken the toll on the investors and they are both in arrears. This means that the arrears keeps accruing and in a few years time this will virtually be impossible for them to repay the loans back. Both investors have a few kids and are afraid of their family home being taken away also. If the debt forgiveness idea came into force this would help them out as they would only have to pay the current market value for the properties and the rents would cover the loans. Banks like PTSB and other such banks are not willing to give options to everyone. It’s very unfair in my opinion. Investors are only joe soaps who took a chance on life. If I had done the same I’d be in the same boat. But I’m still afraid of losing my house. Nobody can safely say that they are truly secure. Bring it on, bring in debt forgiveness. Help everyone get themselves back on track, this will not only help banks pay back loans but the economy will have a serious number of repossessions, houses will go through the floor and nobody will be able to sell as they cannot afford to sell for less than what they owe. 🙂

  18. Flash100 at 5:09 pm

    Hi I think it is a good Idea. I completely agree with Mr.Karl Deeter.

  19. DG at 4:46 pm

    Something just dawned on me from Deirdre Hegartys comment earlier in which she advises:

    ‘I have heard of one person, who choose to leave work, move on, house has gone sale agreed for 150k below outstanding mortage, and the banks considering debt forgiveness, I believe Daddy knows people in the bank?? so how do we know whats really going to happen??’

    It may be only hear say on Deirdres behalf, but whats the point on even debating this issue when the banks are essential to the solution and still corrupt. Lets get honest people running banks first then find a fair solution!

  20. Stan at 4:26 pm

    I would certainly be in favour of writing off the outstanding debt should a person be forced to sell their home for less than the remaining mortgage balance.

    This seems to be the fairest solution in the current climate. There would be no winners – the person will have lost their home and the banks will have lost the difference. Yes, the banks were reckless in their lending but people lost their heads to the same extent when they applied for mortgages that they knew they would struggle to repay, even in the good times.

    Maybe we should also add a caveat that the banks are ultimately responsible for repaying the difference out of future profits (so that the taxpayer does not have to foot the bill).

    One thing I would vehemently object to is writing down peoples mortgages just because the value of their asset has reduced. Having taken out a mortgage myself, I know that there were no assurances on the application form that my house would not drop in value. I also knew that I would lose my house if repayments could not be made.

    One thing we need to ensure is that this situation never happens again. There must be strict lending criteria that protects both the borrower and the lender. Maybe then house prices will come down to more realistic levels.

  21. Stephen at 4:20 pm

    The devil, as always, is in the detail. Cliche, but true.
    As many respondents have alluded already, when it comes to actually deciding who should be forgiven (a portion of) their debt, how they should be forgiven and what the consequences of this forgiveness should be the real difficulties surface, making for a complex and costly system. Indeed, the system would be rife with inequities (even ignoring the glaring inequity of those who got themselves in trouble getting a hand out while those who didn’t don’t). Claiming that forgiveness should be provided for the people because it was provided for the banks is a non sequitur, as anyone with half a brain could see. (Aside, bailing out the banks was clearly a mistake in the first place – they should have been left to sort out their own mess within the context of the capitalist system they espouse. We would not have been left without a banking system for as long as the market required one.)
    However, if we think (believe) that to simply leave the troubled mortgage holders to suck it up and fall by the economic wayside would not only be morally dubious but financially destructive to the economy as a whole then it becomes inescapable that we need some way to save them.
    So, we need a solution that avoids the inequities and complexities but targets those in trouble and frees up the banks to return to productive activity.
    Here’s my suggestion for such a solution: When anyone sells a property, if the sale results in negative equity then the shortfall is converted to a personal loan which must be repaid over the remainder of the original mortgage period, but at a zero percent interest rate.
    This provides a way for the distressed mortgage holder to reduce his/her debt (by tens of thousands) and eliminate the worry of further falling into negative equity.
    This system also avoids the moral hazard of rewarding people for foolish borrowing by making them responsible for the original amount borrowed.
    The banks would benefit in two ways – receiving a much needed injection of capital now from the sales of properties (that are currently dawdling because the owners can’t afford to sell them at a loss) and reducing the potential write offs from the many people who would otherwise have no choice but to leave the country. At least the banks would recover the original loan amount at the cost (punishment) of forgoing the profit they expected in the form of interest.
    Maybe this is an unworkable suggestion, but maybe not. At least it’s clearer and simpler than any of the vague proposals to somehow provide debt forgiveness to struggling home owners.

  22. Karl deeter at 4:16 pm

    @Van. Read the link i posted in my first response. Banks are already re-assessing cases & know who can & can’t pay, this would be the ideal foundation as they have the necessary data in their hands.

    There will be people who abuse the system, the trick is to minimise it in the same way we seek to minimise welfare fraud.

  23. Frank at 4:04 pm

    It’s a tough one

    If you are one the smug ones who paid more attention to the signs instead of the IT property supplement who brought us classics like “There’s never been a better time to buy” & “Have we finally finally finally reached the bottom of the market, Dec 2008/2009/2010/2011? – (by vested interest inc.)you might be thinking why should I help.

    Then again if you saw someone get hit by a car would you stand over them and say “well it’s your own fault you didn’t look before you stepped out on the road” and walk away. But that is what we are doing. But like that earlier post, I would like to see us helping people who are trying to get through first. The last thing you want to do is incentivise someone to give up. That’s the problem right now – it’s not money we lack in this country -its courage, the morale to know we will get through, and this will one day be a distant memory.

    Forget the Government, developers etc, The banks (our banks) caused this and they need to sort it out. They can go out and get a 50 year bond to cover the losses they incur. They’ll be sold off in a few years anyway (at a loss to the tax payer no doubt) and they’ll take the loan with them.

    A nice simple solution for the future would be to get the banks to do a valuation on behalf of themselves (the investor) then watch how fast we hit the bottom of the market. They won’t pay over the odds if they risk being in negative equity.

    I would add in the future we need to find a way to give families looking to buy a home the advantage over “buy to let”, or “buy to sell” investors. Like a 20% stamp duty for example. And 40% if you bought an apartment in Bulgaria between 2006-2009.

    So yes, lets help those in need, but let’s make sure this can NEVER happen again.

  24. Namarama at 4:00 pm

    Karl,
    You make some very valid and articulate points.
    The bargaining position that Mortgage holders at a macro level have is the amount of loss making trackers that are out there. I seem to believe that you did some calculations before that to give up a 30 year tracker you would need a write-off of circa 50% of the current value of the loan.

    I propose a couple of things.

    Everyone should have the option of having their mortgage marked to the current price now.
    At that point, they can decide to surrender the house if it is unaffordable and/or unsuitable for their needs.
    The trade off of having a Marked to Market Mortgage is you have to

    a. Give up your tracker mortgage and
    b. If you gain from the sale of that property any gains between the Mark to Market price and the Price Now would be taxed at between 70 and 80%.

    As part of this process, Banks should offer customers Long Term fixed rate mortgages at a level that would be profitable for any European bank which will enable them to sell off their mortgage books wholesale.

    Over the lifetime of the mortgage, someone who has taken the MTM mortgage now and repaid the full amount at the long-term rate will have paid roughly the same as keeping the tracker for its lifetime, but it allows those who wish to exit a second chance.

    I propose a couple of things. Everyone should have the option of having their mortage marked to the current price now. At that point, they can decide to surrender the house if it is unaffordable and/or unsuitable for their needs.

    The trade off of having a Marked to Market Mortgage is you have to a. Give up your tracker mortgage and b. If you gain from the sale of that property any gains between the Mark to Market price and the Price Now would be taxed at between 70 and 80%.

    Legislation should then be passed to make all future mortages non-recourse.

  25. Bigby at 4:00 pm

    The thing is when anybody says “debt forgiveness” what I usually hear is “I would like my mortage written-off/down without losing my house”. And I’m pretty sure that is what most people on both sides of the debate hear. And I appreciate that isn’t what Karl is saying here. But I think it is fair to say that for the vast majority on both sides debt forgiveness equates to debtors being allowed to keep their house without paying what the agree to pay for it. Or anywhere close. And that isn’t right. It just isn’t fair. As Frank Borman says “Capitalism without bankruptcy is like christianity without hell”

    I think we should continue to modernise our bankruptcy laws and then people can go bankrupt without it being a life sentence. It will be painful and it should be painful (bankruptcy shouldn’t be undertaken lightly). And insofar as possible this should allow the people who genuinely need a reset to get it without encouraging people who may be able to service their mortgage to look for the same. Its a blunt instrument. It isn’t perfect. It is open to abuse. But I don’t think it lends it self to abuse in quite the same manner as some kind of government-sponsored programme debt forgiveness. Given the idiots we have in charge I think any such programme would be a walking shambles.

  26. Elaine Metcalfe at 3:55 pm

    Karl, I think you are generally correct in your concept regarding forgiving the negative equity part of the loan owed to a bank; it makes sense and is also more encouragaing for those who have lost everything. I also think ZZ’s idea of re-mortgaging at todays prices and allowing the banks absorb the overpriced part is a great idea; after all, we own the banks, so we should insist that this be implemented, if that is what we chose to do. If it is working in the USA we should take note and perhaps follow suit; it would allow people live in their homes, have money to spend on food and clothes, thus putting back the much craved-after money into the economy. But we are all probabley just kicking a can of ideas down the road, and nothing will ever be atually done by our so-called politicians to help the people who elected them. Once they and their families are debt-free and making money, they will not lift a finger for others. Another fine Irish inheritance!

  27. RJ at 3:51 pm

    Is it about time some people look at reality and not going around shouting for free lunches. The should be no debt forgiveness as it is very unfair on the people of this state who have paid their taxes and all other expenses and still do so – get up of your ass and stop moaning.

  28. ES at 3:21 pm

    So those of you who are for debt forgiveness, seem to think it should just be on your main residence – what if you had to rent your house out to move for work because the government gave tax incentives on areas where there aren’t any jobs in.

    What then? – do you think we should be penalised too ??. Theres’ no win win situation apart from a blanket one as everyones situation is different. We don’t all rent our house out for investment, some of us were forced to.

  29. Carmel at 3:12 pm

    Debt forgiveness is not a good idea for mortgage
    holders. It would come back on those of us who
    are working to pay for it – ie…. bank bail outs
    etc. Those who are in arrears with their mortgage
    should negotiate with their financial instution
    to come to an arrangement to pay back what they
    can each month for as many years as is necessary.

    If debt forgiveness was introduced it would be
    very unfair on those of us who have actually paid
    our bills. To say one is not working is not an
    excuse for debt forgiveness.

  30. Shambo at 3:10 pm

    the leaving results came out on wed. why not give them all 50 points for free since they were too stupid to study for their exams…debt forgiveness…

  31. Ken at 3:01 pm

    Finely someone has seen the light,
    People before money.
    The banks caused this recession in a bid to acquire more wealth and control and if any one is in dought check out the award winning documentary, (INSIDE JOB) can be seen on you tube

  32. DG at 2:38 pm

    That makes more sense Karl, greatly reduces the incentive for chancers getting away with a reduced mortgage and reduces punishment for those poor innocent few who signed up to an overpriced home to live in.

  33. alison at 2:34 pm

    I think what he’s saying is no point chasing people who dont have the money to repay- who’s circumstances have changed since taking out the mortgage. Pay cuts, employment etc
    The taxpayer is paying for these ppl in arrears already with mortgage interest supplement and a lot on benefits with medical cards etc.
    If we get these guys into a better position where they can afford mortgage re-payments and it mite be more attractive to take on a min wage job to pay for this.
    Maybe “shelve” the NE part of the mortgage and only pay market value for the moment or banks part own your house and you rent the rest off them.
    IT WOULD GET THE ECONOMY GOING AGAIN! People would have that little bit extra cash to start spending and keep shops, businesses open, create+ keep jobs etc.

  34. OT at 2:33 pm

    I don’t think blanket debt forgiveness is appropriate – as we the taxpayer own AIB and part of BOI, the cost would come back to us.

    One poster commented that the banks forced the money on people – where is the personal responsibility. We are not talking about children here.

    I think there perhaps could be a middle ground – forgiveness by the banks for part of the debt (recognising their role in irresponsible lending) and retention of the debt by the mortgage holder, (recognising their role in actually taking on a loan). By debt, I mean that portion not covered by the current value of the property.

  35. Deirdre Hegarty at 2:33 pm

    I have heard of one person, who choose to leave work, move on, house has gone sale agreed for 150k below outstanding mortage, and the banks considering debt forgiveness, I believe Daddy knows people in the bank?? so how do we know whats really going to happen??

  36. Karl Deeter at 2:25 pm

    just to make it clear: In my view it is perhaps not the best idea to have debt forgiveness and allow a person to stay in that property – it would create perverse incentives, rather the idea is to forgive the left over mortgage debt of those who lose everything so that they have the ability to return to work and not have something hanging over them that would encourage them to remain out of work for fear of a claim on their future earnings.

  37. ZZ at 2:11 pm

    I agree with Jamie above…in the USA this practice of the original value now being a different value is called a “short.” This is the difference between the two values. The banks absorb the difference between the original value and the current value, and folks pay a mortgage on the current value.

    By doing this it allows people to be able to live, and also ensures you don’t have a flux of people leaving Ireland as they did in the years of the famine. If people leave; quite often the best and most marketable talent are those people who leave. At a later date you are forced to hire outside Ireland because you no longer have an experienced work force.

    So I guess what I am saying is, this is bigger than just people losing their homes!

  38. DW at 2:08 pm

    So if total number of mortgages in Ireland is 790,000, the govt, should have cleared 50,000 off each mortgage holder’s mortgage that would have cost €37.5 billion – now how much was the bailout???

    And if this only applied to mortgages for a main home, not investment properties – that would have cost significantly less than €37.5b.

    It still astonishes me that the only answer to this problem has been to bailout the banks – and shaft the ordinary person, we need to get ordinary people to spend to get everything started again, and I know that I for one have so little left at the end of every month that I am literally checking my bank account daily to ensure there is enough left there to get me to my next pay packet with food on the table for my 2 little boys…

  39. tom brown at 1:31 pm

    negative equity value is the term I prefer to use for capital purchases.
    As an example your new car purchase has a negative equity value of at least 10% as soon as you leave the showroom.
    The people in negative equity on their houses/cars/etc should just accept it as a fact and move on…..

  40. Victor Hart at 1:28 pm

    Debt foregiveness is not on. Too many undeserving would take advantage of it. Perhaps Estate Agents, Mortage Brokers and property Editors in the media who played a major role in creating the problem should take some responsibility. I note reports of a majorsale of its UK business by a leading Irsh estate agent, with strong currentgovernment connections who is one of the most culpable.

    Victor Hart

  41. Johnny at 1:17 pm

    I Would say take 43% off all mortgage loans not rentals, and have a set price for new builds, no increasing the price in difference phases.This will stop people queing up to buy and builders adding on huge money.I bought me house in 2005 for 345.000, that same day my next door neighbor paid 395.000.This is why a lot of people got caught in this mess.Also the banks should not have lent on over valued homes and mis-sold Mortgage to most of us.

  42. Steve at 1:04 pm

    The only forward is debt forgiveness , we all owe to much money and we can’t go forward without some help .There are so many people unemployed , that when we do get work some time in the next few years , we will not be able to pay our debt . Wage rates are falling and tax is rising . We the tax payer has had to foot the bill for the sorry state of bank lending (we can go on and on about those wasters , but whats the point nothing will happen .)We the people who cant pay for our houses , through no fault of our own , need , no DEMAND a break the same as the banks get .

  43. Dan at 12:58 pm

    Your logic is flawed. It is fundamentally wrong to treat individuals differently because of their circumstances – the issue being, where do you draw the line? For example, what about the family that is scraping by, just covering mortgage payments with barely enough to pay bills, to clothe and feed themselves, whilst their next door neighbour, whose circumstances are exactly the same but because they are not so resourceful, get into mortgage arrears, ultimately get repossessed, end up with a remaining debt of 100,000 euros after the house is sold; if that’s forgiven, they start again, 3 years later they are living a much more comfortable debt free life, whilst their old neighbours continue struggling, still with negative equity of 100,000 euros over their heads and no way out of the position they find themselves in. Whilst the banks are clearly to blame for shovelling cash out of their doors as fast as they could without proper credit risk management in place, the individual must take responsibility for taking on the debt in the first place. Just because it happens to be a mortgage (and therefore potentially a much larger debt) should not change the way it is treated. If you are concerned with the disincentivisation of debtors to return to work, then this should be tackled through clear legislation that gives individuals and families an adequate and reasonable income before any repayment of the outstanding debt is taken from earned income. Additionally, your comparison with others on allowances and benefits is shallow. The answer is to fix that issue; don’t simply create another (unaffordable) one. Remember the people who will ultimately pay are not the Banks…it is the Irish taxpayer who will foot the bill. Given it will already take two generations at least to pay off the current debt levels (don’t forget, Ireland is effectively bankrupt today) do you really believe that it is a good idea to add more debt burden to future generations?

  44. GF at 12:46 pm

    For me the only way to fix the negative equity problem is realign the actual value of the property.

    For example:

    You bough a property for 300K Euro with LTV = 90% (mortgage = 270K Euro).

    You are now at LTV = 50% of the original value (150K Euro) but the value is now 100K Euro;
    if banks reindex the value of the property, keeping the LTV at the same level, you can end up in a remaining mortgage of 50K Euro.

    I think it is better than debit forgiveness, considering that 2006/2007 level of the market will require xx number of years to be back.

    Cheers !

    G

  45. Paddy tax payer at 12:36 pm

    If I buy a house on borrowed money and I have promised to repay this money regardless of the future value of the house or my employment circumstances I will incur a lower monthly cost than someone who prudently chooses to purchase cover for all kinds of misfortune, including loss of income and drop in resale value, but this costs a lot more.
    People lied to banks to get loans they could not afford, did not buy insurance and now expect the rest or us long suffering taxpayers to pay their bills. If you were stupid enough to pay €3,000 per M2 for a house in bally-go-backwards or €8,000 per M2 for a flat in Dublin you have only your self to blame when the plan does not work out, so don’t ask me to pay your bills.

  46. Pablo at 12:34 pm

    Yeah Karl,

    I made some stupid bets in my time, will you go get that money back for me please? Otherwise I’ll be unable to pay for those who made stupid bets on houses. I’m trying hard to save up enough to buy my own house but you seem to want me to scratch that idea and pay for an idiot who hasn’t a financial brain cell in their heads. Whats to stop them repeating their stupidity when they see that others pay for their mistakes.
    Why are we afriad that extra houses will come on the market? That will help to keep prices down for those of us who did not jump off the financial cliff.
    Just think of it as one of life’s lessons that they will be able to pass onto their kids!
    Pablo

  47. B Storey at 12:33 pm

    There are many deserving cases where debt forgiveness should be considered apart from property indebtedness. Forgiveness should be supported by law based on the ability to pay v suffering v means of compensation v foolhardiness v creditor credibility etc.
    All adds up to not being a viable option with winners and losers and without providing any solutions.

  48. Jamie at 12:30 pm

    I think that the only fair way around this is to take all properties bought for a particular period (say 2001 to 2008) and subtract the true market value of the property as index linked in 2011 from the mortgage paid in the “boom”. Write off the difference (if there is one), and formulate a new mortgage plan based on the new amount. This should only apply to family homes/private dwellings and not to rental/investment properties and should only be available to homes whose net disposable income is less than a certain amount…..Who pays for the write off? The banks via the taxpayer.

  49. Sean McCabe at 12:29 pm

    Good idea Karl but the banks will never allow debt foregiveness because our governments will keep bailing them out without conditions leaving the banks with the power.

    Sean

    Raheny

  50. Bernie at 12:28 pm

    Debt forgiveness is a must in todays world. Why should we owe money to the same banks that we as taxpayers have bailed out.

    There should also be some kind of refund from the banks to the people who are in negative equity. They are the ones who carried out the valuations on the houses that we now live in and they are the ones who practically forced us to take their money….

  51. Stephen at 12:22 pm

    Makes absolute sense. If someone has had their home repossessed and a huge debt remains then they have two options really,
    1/ stay in Ireland and struggle on to pay back the over hanging debt or
    2/ leave the country and start afresh in pastures new.
    I am pretty sure the majority will choose to leave the country to get on with their lives and leave the debt behind.
    If this is the case then the tax payer is going to have to cover the losses any way.
    Would it not be better to keep these people in the country so that they can become productive members of society again?
    I think the “I wont pay” for other peoples mistakes argument is pathetic. We are already paying for the banks mistakes and one way or another society as a whole will pay for the overhanging debt, with or without debt forgiveness.

  52. Aoife at 12:19 pm

    What about the people who are struggling to pay their mortgage and basically their wages pay bills with no surplus expenditure left? If their property have decreased in value, just say €50k- €100k, do they keep that depreciation value as they have managed to pay their bills effectively?
    If that’s the case, I would rathar be on the dole and have €200 a week to spend on myself as it’s more than I have working to pay a mortgage.
    I think if their is ‘Debt Forgiveness’ it has to be equal to all across the country.

  53. PM at 12:19 pm

    So if I have a big mortgage that I cant afford the solution would be to get sacked from my job, hang around on the dole awhile and wait for someone to forgive my debt.
    Yeah that is going to work…….

  54. Val at 12:19 pm

    Re comment above: I cant see it will flood market with properties – the idea is to allow these affected people remain in their homes without fear of repossession and untenable debt – lesser burden on the State. People are walking away and leaving houses to be repossessed AND requiring to be rehomed in the current situation!

  55. AG at 12:19 pm

    I’m not sure about debt forgiveness. What is to stop people deciding to put their mortgages into arrears so as they will get help? I do believe there are a lot of genuine people out there who need help and I do think that if the banks could be helped then so can these people.

    I think that instead of pumping billions into banks the government should have paid of everybody’s mortgage in the Country. This would have provided the banks with money and it would have given the ordinary person money to spend in the shops, stopped people going out of business – keeping the unemployment rate down and helped pick the economy back up of its knees!

  56. Karl Deeter at 12:19 pm

    Hi DG,

    Thanks for checking out our first blog with MyHome.ie, and for responding. I’d like to respond to your thoughts on the matter.

    1. You wouldn’t be paying for this persons mortgage, not even through a general taxation transfer, the banks already have at least €4bn+ of provisions for loan losses. The ‘forgiveness’ portion is only for that bit that would otherwise travel wit the person for up to 12yrs.

    If we don’t do it and create an incentive to remain unemployed then tax money gets eaten anyway, this is really about making it possible for people to recover. My personal concern is that the system could be abused, but we have thoughts on that already too check out this link: http://www.mortgagebrokers.ie/blog/index.php/2011/07/28/debt-forgiveness-an-outline-of-how-it-would-work-if-i-was-in-charge/

    2. If the market floods (which I doubt it would because repossessions take time to work through) it might cause prices to drop, but that isn’t a bad thing of itself, lower cost housing is a good thing. We don’t complain when oil prices come down! If prices drop they are likely to reach a genuine floor faster and that puts the nation in line for better recovery as mortgage servicing becomes a smaller part of consumption (lower inflation) and people start to buy again with confidence.

    Obviously, banks need to be able to offer credit and that might be where it all falls down!

  57. ES at 12:19 pm

    Not everyone bought houses to rent out. We are paying for a house we can’t even live in and so not to be deemed racist, we can’t even complain. We bought a house in 2006 and soon the “private” estate turned into social welfare housing with equal divide of travellers and refugees, making it impossible to live in due to the noise, litter and the councils inability to do anything due to it being a “private estate”. Upshot is, we had to rent out to the council and move abroad for work to fund a house that we will never be able to sell. Tell me the justice in that???

  58. Val at 12:15 pm

    There’s lots of ways of seeing debt forgiveness – I see it as realignment of property value. There’s no incentive whatsoever in having this debt hanging over all of us – because it affects all of us. Who will loose? the lending institutions. These banks etc have already made vast profits, albeit that the same profits were badly managed, and they have already been helped out to the detriment of the whole Irish nation. We should afford the same help to those of us bitten by it.

  59. DG at 12:05 pm

    Nice Idea, and I’m all for helping the people and like everybody I am sickened to see the banks being bailed out but there are so many negatives to it , heres just 2:
    1) I don’t want to pay for those with large mortgages who went above themselves in the good times through taxes, particluarly those who bought numerous properties to rent
    2) If people are offerd the debt forgiveness after repossesion it would flood an already saturated market with more properties people do not want.