Debt Forgiveness.

P

Purple

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Right, I think this is the right place for this thread.
What do posters think about the idea of banks writing off mortgage debt?

Some would say that if it’s a publically owned bank then it’s a bad idea but a private bank can do what it likes.
I don’t think it’s a good idea either way as a state owned bank will be giving away tax payers money and a private bank will be giving away shareholders money.

I also think that there’s no moral case to be made for it and a strong moral case against it.

I bought my house in 2004. I have a massive mortgage and if my wife or I lost our job we’d lose the house. I am still 100% against any form of publically funded debt forgiveness and here’s a few reasons why;
1) I’m an adult and therefore I am responsible for my own actions.
2) I’m an adult and therefore I should not expect my neighbour to pick up the tab for my bad financial decisions (and if you didn’t know you were buying a house in a bubble and it would lose a large percentage of its value then you are a fool, pure and simple).
3) I only have one Mammy and as I am an adult I don’t expect her to wipe my posterior or tell the bold children (or banks, or tax-man) to go away. Therefore I don’t expect the state or my neighbour to be my Mammy either.

To those out there that think it’s a good idea I have this to say;
We are all adults and should act accordingly.
I’m disgusted that there are still people out there who want to behave like children.
 
The whole "your an adult" and moral arguments are getting old now.

The banks should be made pay and pay dearly and I don't care who gets burned in the process.
 
I can't honestly see people getting something for nothing.

If there is a reduction in peoples mortgages then it will be by extending the term, or the bank owning half the house etc. I can't see the bank simply saying "that €300k mortgage, sure we'll call that €200k".

There will be a catch.
 
I agree that the idea of writing off mortgage debt (or any other type of debt) is likely always wrong. Contracts freely entered into, should be honoured. We could frame the question another way. Do you think it's right that this freely contracted private debt should now be partly paid by the taxpayer?

As a thought experiment, consider if property were booming and the gov.t proposed that both bank assets and private profits were to be sequestered and re-distributed to those who didn't climb on the property ladder in 2008/9 or whenever. The howls of protest from libertarians would (rightly) be heard in Timbuktu.

The argument for debt forgivness seems to be that some people were victims of wreckless lending. This may well be true to an extent. But is it a valid reason to redistribute losses to the taxpayer? Not in my view. Perhaps a secondary argument is that should people lose their homes, they will be on the housing list. Fair enough, then address this issue without debt forgiveness and let bank & borrower re-arrange the lending terms such that they can remain at home.
 
IS debt for equity a no brainer ? LEAves more cash in peoples pockets and reduces bank bad debts over a long period of time
 
Someone is going to have to pay for the 'forgiven' debt and I don't want it to be me. I'm already paying off my own mortgage and don't want to have to pay off other people's courtesy of FF/FG/AIB

I've been stupidly paying chunks off of my mortgage instead of enjoying myself with the money. I eejiting well even paid my SSIA money off the mortgage. I should have known that that is not how it works in Ireland.

Some would say that if it’s a publically owned bank then it’s a bad idea but a private bank can do what it likes.
I don’t think it’s a good idea either way as a state owned bank will be giving away tax payers money and a private bank will be giving away shareholders money.
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People have the choice to sell their shares. It's a bit more difficult to emigrate.
 
Purple, I always find your posts interesting and honest. I am not being smart here but to some people a house is more than bricks and mortar, It is their HOME. In response to your reasoning (1) We are all responsible for our own actions . (2) Are you seriously suggesting that a young couple planning on having a family and a decent home to rear them in had more knowledge of what was ahead of them than the people elected to govern us, or The financial regulator, or the board of directors of the banks that ordered their staff to sell ,sell sell on their products , ie mortgages. They are not fools . The fools are the people who engaged in reckless lending, And the financial regulator ,the goverment and the ecb who all were paid to know that if 20% of a countries economy was based on a single entity , eg Constuction that the economy would overheat. We were at 30% and neither our elected representatives, Our financial regulator, the BOD of the banks or the ECB could not see what was coming down the tracks so how can you blame the ordinary tax paying couple for not seeing it. (3) If you are comparing mammy to the banks , Mammy guides you through life until adulthood , From there on out we all put our trust in the people and institutions mentioned above and this is where we were all let down, Purple you make very valid points but when my neighbour who happens to be a single mother is talking about selling up and losing her friends and neighbours and her 9 year old sons friends then it is no longer an economic debate but a social and emotional one, I hope you don,t take offence to my reply Purple as I have always respected your opinion, It is just my view, Regards ,Salaried.
 
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There has to some distinction made between those who cannot pay and those who just wont..
I presume that its meant for those who have lost their jobs and cannot afford to pay.
I cant see how this should affect anyone else,it should be the personal debt of the home owner,ie; the debt follows them.
If they have a mortgage of 300k and have lost their jobs,surely the tax payers are presently paying a mortgage supplement to them? Maybe this could be a saving as they would no longer be entitled to this?
I think it all depends on how it is done,if its the homeowners personal debt and they are not working and their repayments are reduced,then when they start to work again it reverts to normal,I dont see how it should affect anyone else.
I find it hard to stomach the fact that there are so many young people who are lossing their jobs and cannot afford to pay their mortgage,and we just say to them ,hard luck..
This should not be about letting them away with the debt but just an innovative way of helping them out of an impossible situation.
What is the alternative? Do we turf them out of their home? Would the taxpayer then end up paying for accommodation for them?
 
There may well be a cogent argument for debt forgiveness, that despite the moral hazard, makes this a rational policy. Could someone who thinks this is a good idea articulate a a coherent argument for this? It would be interesting to hear an effective opposing view.
 
The way it works is, the bank sells the house for less than mortgage and then writes off the balance. The reporting of this has been awful as usual.

If the government stopped wasting money on qwangos, jobs for boys, junior ministers etc there would be a lot more money to go around. All these headline stories are is to keep the real news off the pages. We own the 2 banks but how many of the executives who caused the problems will be made redundant?? None. There will be a cull lower down as usual.

We should show no forgiveness to FG at the next election. FF appointed 182 of their cronies to jobs leading up to election and they cant be removed so FG will do same.

noah
 
Purple I think your post is a little simplistic.

There are many people out there who have homes that they cannot now afford. They bought at the top of the market with 100% mortgages. They are now in negative equity by up to 60%. If/when the properties are repossessed these people will still carry personal debt into the hundreds of thousands. They will never get another mortgage. They will never again own their own home. If the banks exercised all of their rights in these circumstances these people (many of whom were young and inexperienced when they bought) will work for the next thirty years with every cent of their non-essential spending going to pay the debt. With rent costs etc many will not even be able to meet interest on the amount owed. Essentially these people would be facing a sort of indentured servitude.

Personally I think this is morally unjustifiable. I believe about 80,000 people are currently in some level of arrears on their mortgage. This is an enormous problem for our country.

You are suggesting that we just close our eyes and turn our backs on these people. I am sure that you work very hard and make many sacrifices in order to be able to deal with your responsibilities. What you many be forgetting is that these people do the same, but are still a million miles away from making their payments.

Doing nothing about this situation will end up costing the country more in the short and long term.

Finally I would just like to say that it seems to me that the little guy (ie the private consumer) is always the one who has to face up and carry the can. I negotiate B2B contracts all the time. In my experience, when things go wrong in business, only the foolish or very unfortunate end up in litigation enforcing their contract. Most companies come to the table and work something out, bearing in mind the changed circumstances. Ignoring changed realities doesn't make the problem go away, and doesn't make money for anyone.

Kate.
 
Kate10 said:
There are many people out there who have homes that they cannot now afford. They bought at the top of the market with 100% mortgages. They are now in negative equity by up to 60%. If/when the properties are repossessed these people will still carry personal debt into the hundreds of thousands. They will never get another mortgage. They will never again own their own home. If the banks exercised all of their rights in these circumstances these people (many of whom were young and inexperienced when they bought) will work for the next thirty years with every cent of their non-essential spending going to pay the debt. With rent costs etc many will not even be able to meet interest on the amount owed. Essentially these people would be facing a sort of indentured servitude.
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Hi Kate,

I think we have to be very careful here. I agree there are people in difficulty, but debt forgiveness could be easily exploited by those who may not be in trouble/that much trouble, but would simply like to just hand back their keys to the bank and write off the balance thankyou very much.


Kate10 said:
Finally I would just like to say that it seems to me that the little guy (ie the private consumer) is always the one who has to face up and carry the can.
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If debt forgiveness is introduced then it will have to be paid for and it will be the little guy who will ultimately have to pay.
 
Purple said:
.........and if you didn’t know you were buying a house in a bubble and it would lose a large percentage of its value then you are a fool, pure and simple
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I dont agree with this.
First of all, Im a professional, well educated, more than one professional qualification to my name. My field of education is technical - I dont know any more than the average person about economics. I am in negative equity. That doesnt make me a fool.

Most of my friends in my own age group are similarly professional, a wide range of degrees in different fields - none of them in economics. They are also in negative equity. That doesnt make them fools either.

I needed a home, rent was so expensive that it was cheaper for me to pay a mortgage. I didnt buy a huge house because I was being 'sensible'and buying within my means. I knew the value of property could go down as well as up but I had no idea it would crash to this extent, nor did I know that my job would impose a 10% paycut or that my government would impose a series of levies and taxes.

Im not a fool Purple. I just didnt know, in my late 20s, that all these things could or would happen, or that they could all happen at once.

I couldnt afford a big house when I bought, so being 'sensible' I bought an apartment. I never intended it to be my lifelong home. Who can afford their lifelong home in their 20s? Is it not the norm to start small, build some equity, have your salary increase with time and then sell your modest property and buy somewhere larger later on? Im asking this quite seriously? I started life in a very small house, and my parents bought a 4 bed semi when they were in their late 30s. Similar to most of my friends parents. I dont think I know anyone who bought their first home and then stayed in it forever.

I cannot move now. Im ok where I am, but if I wanted to have a family I would have to move or suffer harshly reduced living standards, compared even to my grandparents living arrangements.

I still dont see how any of this makes me a fool.
 
Time said:
The whole "your an adult" and moral arguments are getting old now.

The banks should be made pay and pay dearly and I don't care who gets burned in the process.
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The people who ran the banks should be made to pay and pay dearly’ i.e. 20+ years in prison and every cent they have.

To the argument that if the experts didn’t know what was going to happen then how could the average punter my response is that I don’t believe the experts when they say they didn’t see it coming. I thing that the boards of the banks, the regulators, the politicians and the economists who claim innocence are liars to a man (and woman). I think they are lying through their teeth. There’s no way they didn’t see it coming, not a chance. The banks are not sentient, they are corporate bodies. The people who ran them should be held personally liable. They are the people who should be punished. Therefore I think that every member of every board of every Irish bank should be facing criminal proceedings. I think that the last three ministers for finance and the last two Taoiseach should also face criminal proceedings. The last financial regulator should join them as well as the developers that traded so recklessly (and I’m sure there’s more that should be on the list). If that requires a constitutional amendment in order to bring in retrospective legislation then so be it.

To the argument that people will have debts following them for the rest of their lives my response is that it should be treated like a liquidation; take all of their assets (including the family home) and sell them. That’s what the bank gets, the rest they write off and the debtor walks away to start again.

The argument that people should take responsibility for their own actions extends to the guys who were in the wheelhouse, not just the punters is steerage who got on board even though they knew the guys in charge were steaming for the rocks.
 
Purple said:
To the argument that people will have debts following them for the rest of their lives my response is that it should be treated like a liquidation; take all of their assets (including the family home) and sell them. That’s what the bank gets, the rest they write off and the debtor walks away to start again.
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As per my post above this could be easily exploited. Take Truth's situation above...bought somewhere he didn't expect to live longterm and can't sell. He could "miss" a few payments and go down the liquidation route. Hand the keys back and he's sorted. Good for him, bad for the taxpayer.
 
It's a tough one. Like everything else, you will have people who just won't try to pay their mortgages taking advantage and bringing the whole thing into disrepute.

On the other hand there are many many people making huge efforts to pay every month, cutting back on everything they can and still finding it hard as interest rates go up and their salary goes down. I think it's unfair to just say 'you're big boys and girls, tough, you should have know what you were doing'. Hindsight is a great thing. Some people were just in the wrong place at the wrong time when it came to buying their first property and I don't think they should be kicked out on the street, made to feel like criminals or have their credit rating wiped out because of the immoral behaviour of fat cats who have not been punished in any way.

I bought my place based on my Civil Servant's salary and projected increments. Never, ever before have Civil Servants had a pay cut. How would I ever have anticipated taking a massive pay cut? No one could have guessed that. How does that make me a fool?
 
I am in favour of debt forgiveness for home owners in certain circumstances. But I don't know any mechanism that such debt forgiveness that be implemented in. It is a messy situation.
 
Purple your suggestion that people be allowed a form of liquidation is an option that I think the vast majority of people in real difficulty would jump at. In fact the debt "forgiveness" being discussed, if it comes to pass, will probably be less generous than that.

One option being discussed is an increase in the loan term, with a postponement of a portion of interest for a period of time. Another is that the bank takes a share of the house, thereby reducing the borrower's mortgage but also reducing their ownership of the house by the % by which their mortgage has been reduced. The bank then benefits from any upswing in value.

Neither of these options is as generous as your suggestion. After all, the vast majority of people in difficulty don't have any assets. Their savings are long since chewed up by their mortgage.

Firefly, I agree that the situation could be exploited, but this could be dealt with in a number of ways.

(i) the debt "forgiveness" could be offered to everyone in negative equity, regardless of their ability to pay their mortgage. Anyone in negative equity could choose the transfer a % ownership of their home to the bank equal to the % value of their negative equity. So someone with a €400k mortgage on a home now worth €250k could enter an arrangement whereby their mortgage is reduced to €250k, they own 62.5% of the property and the bank owns 37.5%.

(ii) debt "forgiveness" offered only to those is dire financial circumstances. All applicants subject to complete financial review - all outgoings must be reasonable and proven etc etc.
 
Kate10 said:
If/when the properties are repossessed these people will still carry personal debt into the hundreds of thousands.

They will never get another mortgage. They will never again own their own home.

If the banks exercised all of their rights in these circumstances these people (many of whom were young and inexperienced when they bought) will work for the next thirty years with every cent of their non-essential spending going to pay the debt.

Personally I think this is morally unjustifiable.
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I think you're getting to the heart of the matter here.

I have enormous sympathy for the view that it is a horrible thing that someone who simply wanted to buy a home is now sentenced to scrounging out a miserable existance.

Say someone was 25-30 and renting in 2002, was it right that they should have had to postpone their lives and wait until they were 35-40 before buying a home?

Say someone was 30-40 and married in 2002 and had a two bed place. Are we saying that the right thing for them to do was postpone having kids or buying a suitable home because it would be 10 years before house prices allowed them to?

I know nobody has an automatic right to a home, but there's something wrong with wider society when home prices can double and then half again in a 10 year period, we can't just blame the collective decisions of hundreds of thousands of people. We are part of a state so these things can be somehow addressed at a macro level.

At the end of the day though, people have to make an honest effort to pay their debts. We don't want to throw people in the poor house, but equally someone who bought a nice place that they should have realised was beyond their means should not complain if their lives are being curtailed by repaying the debt.

I do think equity share by the banks in the more severe situations is the way forward rather than debt forgiveness. People do not get kicked out of their houses but should be incentivised to make good on their original debt if the economy (or their own personal circumstances) improve
 
Truthseeker, my house is worth considerably less than I paid for it but I knew that would happen. I didn’t know it would be this bad either but I expected a 30% drop.
When I took into account that we were trading up and that I was getting a tracker mortgage and that interest rates would go up ahead of the ECB rate and that it is a home before it is an investment I bought anyway but I never expected Ireland to be different to every other property bubble in history.
 
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