Real solutions to the mortgage crisis

A mortgage default crisis lurks underneath the surface. Yet all we hear is talk. Cheap talk about a government bailout, without concrete action, only creates incentives for borrowers to defer payments in the hope of a better deal, hastening a crisis.

....

Mortgage tax relief contributes to this waste. We need to strip away antiquated value judgments about debt and approach mortgages from a purely economic perspective. When a similar house can be rented for several hundred euro less (in the same or a comparable neighbourhood) why stay and pay more? Why should the State subsidise an unaffordable lifestyle via mortgage relief?

No one ever complains about mortgage relief, even though this socialist-sounding, help-the-average-Joe plan is actually a wealth transfer to banks.

Would it not be preferable to allow underwater homebuyers to walk away? The answer is a qualified yes, but significant reform would be needed. First, the state must use its financial hold over the banks and change troubled mortgages to make them "non-recourse". Banks can then access only the house, in case of default, not other assets.

....

Finally, the stigma associated with bankruptcy must be buried.
Irish law's approach to bankruptcy is reminiscent of Nathaniel Hawthorne's 'The Scarlet Letter': "It is too deeply branded; Ye cannot take it off."
Twelve years is too long for exit from bankruptcy, and even then it is not clear that reintegration is possible without continuing impediments.
The system must be based on giving a fresh start rather than on stigmatising and hanging an albatross around the debtor's neck.
The Government's policy of robbing Peter to keep Paul in an expensive house will not stop the mortgage default crisis.
Hard choices are imperative in order to stop a descent into a society of debt slaves.

Click to expand...