Should mortgage debt be written off?

Should mortgage debt be written off?

Should mortgage debt be written off? New figures released last week showed that there are now more than 80,000 mortgages in trouble, 44,509 mortgages were in arrears at the end of 2010, €6.2 billion is owed on mortgages that are more than 180 days in arrears and losses on mortgages could reach up to €9.5 billion.

Some believe that debt forgiveness is the only solution to our ever growing mortgage arrears problem and believe that it is unfair that we are able to “pour billion into the banks” and not provide similar financial help to hard-pressed struggling homeowners.

However speaking on the issue last year, Financial regulator Matthew Elderfield expressed concern saying that any such support or alternatively payment options could carry the risk of “moral hazard”. Not only could debt forgiveness incentivise homeowners to breach their financial obligations but “In seeking to assist households in difficulty, we need to recognise that the cost of any support will be borne by those neighbours who avoided excessive borrowing themselves or are gritting their teeth and meeting their obligations” he said.

Have your say

  • Should mortgage debt be written off? Should there be debt forgiveness?
There are 8 comments for this article
  1. M at 8:26 am

    Aidan, how nice to read a rational, informed, literate mail!

  2. Aidan at 1:17 pm

    I Disagree with Simon’s comment “if you rented then you are paying for the reckless investors mortgages and are guilty by association” and the fact that he thinks only investment properties should carry risk. Someone deciding to rent rather than buy is deciding that they are happier to pay rent (that may be higher than the mortgage payments on the same property) as they think that either the property price is overvalued and that future mortgage payments may increase or future rent will decrease. So if anything renters are not guilty by association but rather they provide a reasonable and counter argument to why you should buy property. The problem is we suffer from confirmation bias which means we look for evidence to confirm our beliefs rather than question them.

    Also Aidan says that “a lot of people borrowed within their means at the time of purchase. the usc, income levy, decrease in prsi and increase in pension commitments in the public sector have reduced takehome pay by at least eight thousand euro in the majority of cases”. People who bought believing they could afford it should have considered the effects of tax increases, wage decreases and interest rate rises. They had enough experience in seeing wage increases over the years to reason that the opposite could easily happen too. To solely rely on your bank manager and mortgage broker to explain these to you is just being lazy as there is so much research you can do online. Of course it would be great to help people out if there is an equitable way of doing so but at the same time I think we need to first stop blaming everyone else and a government that we had voted in time and time again even though it was clear for many years that they were severely corrupt only looking out for their own interests.

    I think every secondary school should teach the psychology of decision making and economics as mandatory as it is essential knowledge for everyone in the modern open global economy and is a lot more useful than learning Irish.

  3. Tony at 1:12 pm

    Burden sharing should be done in the following manner.
    Reduce mortgages across the border by €10-20K instead of paying off bond holders. This will free up credit to meet mortgage repayments or to spend money in the economy. Why give the banks a savings on money advanced by bond holders and then allow them to chase the tax payers who have mortgages for the full amount. There has to be some give an take for all.
    Ultimately it would be socially and morally better to give the people a break rather than banks or bondholders

  4. marcello musilli at 7:42 pm

    it’s very strange that the financial regulator calls for moral hazard if we help people struggling to pay their own home, and doesn’t said a word regarding a bailout of 76 billions to reckless banks which have invested money without any clue and have caused the property price bubble which has lead to the situation of difficulties for the people. I don’t think we should have an unconditioned debt forgiveness but reduce payments to homeowner occupier, and may be make some change on the bankrupt low, to avoid to wipe out a full generation of business people which will have a strong enough punishment from the lost of all their assets without the need to destroy their entire life.

  5. aidan at 6:16 pm

    a common comment is that paople bought and borrowed to excess. a lot of people borrowed within their means at the time of purchase. the usc, income levy, decrease in prsi and increase in pension commitments in the public sector have reduced takehome pay by at least eight thousand euro in the majority of cases. This is an astronomical decrease in takehome pay and in turn is driving public sector workers into poverty. dont believe the media hype..approx 52% of public sector pay is gone to the gov before it reaches the worker.

  6. Paul Neary at 2:00 pm

    Interest Rates Rising
    House Prices at 50% of 2006 value
    House prices stil dropping
    Unemployment still rising
    Economic Growth flat.
    Bank competition is a thing of the past.
    The govenment are buring bondholders because they cannot pay their debt.
    Repossessing houses are not a solution for the banks, who will buy them back.
    What bank will refinance the purchase of repossessed house.
    Some form of debt forgiveness will have to be put in place.
    Although, how will it be funded.

  7. Simon at 1:46 pm

    Something needs to be done, but Matthew Elderfield is right about the “moral hazard”. I really have not got a clue what could be done.

    I find the comments by some people, that they didn’t borrow recklessly so why should they pay for others who did, (thru taxes) a completely useless argument. Everyone is in this mess, and most had a part in it. First off, Joe Soap home owners with normal homes (not investment properties – “investment” includes “risk”, or those who traded up to massive, super expensive properties – greedy) did not borrow recklessly – they paid the going price. If food or petrol are over priced you still need to pay for them in the same way. These people just wanted homes for their kids to grow up in.

    Also, people who didn’t buy must have rented (or got lucky with inheritance), if you rented then you are paying for the reckless investors mortgages and are guilty by association. So the “I didn’t borrow recklessly” argument does not hold water at all. Grow up.

    What can be done? My best guess is a debt for equity swap, so that if a property was bought for 300k and is now worth 150k then the government (or bank) could take a 50% stake in the property & existing mortgage. Let’s say they owe 270k, the government takes over 135k of that and owns 50% of the property. When the owner sells on, the government is given half the proceeds. So if the owner hangs on to the property for years and sells for 200K the government get 100k.

  8. Siobhan at 1:35 pm

    I dont think we should bring in debt forgiveness. I owe quite a sum of money to the bank and am in sever negative equity and have also been out of work very sick for months on end and lost my job in the last 2 years. But hey thats life and we have this notion in Ireland that we are entitled to everything and this is wrong and even the notion of this is wrong. We all have responsibilities for our actions I borrowed too much and I have to stand up and pay that back which I will do and when its all paid back I will feel alot better for doing that than someone writing it off and getting away and will have also learned a hard lesson in the process.

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