"Some alternatives to mortgage debt forgiveness"

[Brendan Burgess]

An interesting [broken link removed]in today's Irish Times by Dr Michelle Norris and Simon Brooke - two social scientists.

They interviewed 43 MABS client households.

Their analysis is fairly standard but well written - they classify them into three groups - short term problems, 5-7 year problems and unsustainable mortgages.

Their solutions are a bit odd.

For people who need help for the medium term, mortgage interest supplement, which is available for only two years, should be extended to subsidise half of the interest payable for a further five years. Lenders would forgo the remainder of the interest for this period. Although this would mean an extension to the scheme, public expenditure would in fact reduce, because if people in this situation were forced to leave their homes, the great majority would move into private rented accommodation where they would be eligible for rent supplement, at a greater cost than the partial mortgage interest supplement we propose.

Lenders forgoing interest is debt forgiveness. It does't really matter if they forgo capital or interest. Either way, it is debt forgiveness and should be called that.

The State could consider recouping some, or all, of the expenditure on this partial supplement by taking an equity stake in the dwelling or through a future reduction in tax credits applied when the household can afford this.

I support the general idea of the state asking for MIS back if the borrower can afford it. But they can't take an equity stake in the dwelling as there is no equity. They could take a second charge on the dwelling, but it would take a long time for it to have any value and probably would not justify the legal and admin costs involved.

Many interviewees with non-viable mortgages told us they wanted to leave their home because it was a constant reminder of their financial problems and associated stresses. In addition there are some distressed borrowers who own properties that are excessively large or expensive for their needs for which it would be unreasonable to expect a public subsidy. They could be helped by introducing the non-judicial debt settlement arrangements recently recommended by the Law Reform Commission.

Although their overall sample of 43 is small, and the sample of unsustainable mortgages even smaller, it would be interesting to know how many of them felt like this. I have made the point frequently, that a higher repossession/voluntary surrender rate would be in the interests of such borrowers and most of them recognise this. So the government should not be seeking to keep these people in their homes.

The lender would sell the dwelling at market value to a housing association (sometimes called the voluntary housing sector), financed by a loan from the State via the Housing Finance Agency or another commercial lender.

Is this a good use of state resources? Is it fair? There are 50,000(?) people on the waiting lists already. Why should those who bought a home with a mortgage which became unsustainable get priority over those already on the list and get to live in the house of their choice?

If the state has the money to buy 10,000 additional houses, which I doubt it has, then it might be better off buying those houses from NAMA. They would finish off some ghost estates and reduce the NAMA problem.

The lender and the borrower should agree that the mortgage is unsustainable and then the borrower should have their housing needs assessed. If they are at the top of the queue and if the local authority has other housing available, then they should be allocated that house.

- When the dwelling is sold, any increase in market value would go to the State.

Do Housing Associations sell their stock from time to time? Why would the tenant want their house sold? They are now living in the house which they choose. It is being maintained by the Housing Association and they are paying a "differential" rent.

This is a form of debt forgiveness but only for those who have suffered the loss of their assets and home.

No. They get to stay in their home. They just get to escape their mortgage.

 

[blueband]

surely the best way out of this for everyone is to reduce the mortgage payments to what the person can afford to pay monthly, and simply extent the term of the mortgage by 5, 10, 20, ect years!

 

[Brendan Burgess]

blueband

This thread is about this article. If you have other suggestions to make, please make them in other threads.