Nothing 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?
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.
It 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