Have your say: On dealing with mortgage arrears

This post is hopefully a free for all on the topic of mortgage arrears. I would like to pose several questions, feel free to answer as you see fit.

1. For people in mortgage arrears, should they be helped? And if so then how?

2. Does the individual bear responsibility for their borrowing, and if so then is it correct to support that borrowing? Should a person ever be liable to repay help they receive in such an instance?

3. At what point should a person not be given help? And equally, when should financial help begin?

4. How would this be financed?

We look forward to your answers!

Comments

  1. anonymouse

    1. Of course we should help people, we need a programme where banks have to foot the bill because we are all footing the bill for them, if a person can’t repay the bank should write off some of their debt.
    2. People are responsible only if the government is being responsible, you can’t expect people to outsmart the state and everybody else, so we should help borrowers because they didn’t know any better, and they shouldn’t repay money any more than a person on the dole does.
    3. When it is needed, once they can prove they are in trouble.
    4. Make the banks pay for it.

    I hope you don’t give some typical right-wing solution, if it weren’t for banks we wouldn’t be in this mess, banks should have to pay.

  2. Hi Anonymouse,

    To be fair, banks are being ‘bailed out’ but it is different than a scheme which pays individual borrowers, in the bank example assets – albeit of questionable quality – are being passed to NAMA, in examples such as Mortgage Interest Supplement there is nothing going to the taxpayer in return for their money spent, would a debt/equity swap be agreeable?

    The idea that ‘banks have to pay’ is really saying ‘taxpayers have to pay’ because if the bank can’t it falls back on the taxpayer, the banks don’t have the money to support the kind of negative cash-flow this would create, and removing responsibility from people is worrisome at best, they didn’t queue up in droves to complain when prices rose, nobody is repaying capital gains on the basis that they were ‘wrong’, how can you justify a person not having responsibility for their actions? If the government didn’t act responsibly can you extend the ‘get out of jail free’ card to other actions? Theft? Murder? Just curious because your line of thinking is at odds with mine.
    karl

  3. Mark Bailey

    I don’t believe the goverment should help people pay their mortgages, they should have been mature and responsible when they took out their loans in the first place. These same people that want help won’t bother cancelling their shy subscription, sell their plasma screen or their 4×4 jeep, they still want to go on weekends away to Paris, Rome and their two week holiday in the canaries won’t be put on hold.
    They should negotiate with the banks and come to an arrangement, the tax payer should not pay the bill.

  4. @mark that’s fine, but what do you propose? Do you really think that the majority of people in financial trouble are taking holidays to Rome and the Canaries? Your comment is heavy on assumption but light on solutions – any idea for the people who want to pay but can’t?

  5. I feel that people need to meet with their bank face to face and come up with some hard and binding solutions. Some lenders are very approachable; others are not. The option of Interest Only has to be offered in all circumstances as a compromise on the side of the lender. This should enable the customer to manage their repayments better.

    I think the Interest Only option needs to be investigated to the fullest along with other outgoings to make up the shortfall. For example; TV Subscriptions, gym memberships, trips to restruants/pub need to be curtailed and a near forensic examination of peoples monthly outgoings need to be scrutinised.

    The banks need to do all they can to save the account from going into arrears and the customer needs to work closely with the banks.

    Customers need to exhaust all avenues by speaking with MABS, and any other advisory body that may be able to help them.

  6. 1. If someone has a problem, like arrears or negative equity, we should look at the problem and see if there is a solution. In the case of negative equity, the problem is not just for the individual but for the economy as a whole.

    2. From a contractual point of view, yes the individual is responsible. They bear a lot of blame. However, there is enough blame to share around, with bankers, politicians, developers, and the media, all “guilt” of creating the mess.

    3. If someone risks a significant impact to their life, then all stakeholders should consider helping. For example, the size of the negative equity in Ireland threatens the stability of the financial system. This needs to be addressed.

    4. A combination of restructuring the loans to be more long-term and less punitive, as well as changing them from 100% secured and recourse, plus government help may be considered.

    Please visit the social network: reset2010.ning.com and leave us a comment as well.

  7. @AJ Bowe – what can be done about negative equity? Obviously it is an impairment to the mobility of labour but outside of that is it an issue of itself if the person is able to pay their loan?

    on the recourse: do you mean going with the american system where the recourse of the loan is the asset only? Would that mean only lower LTV’s would be offered?

  8. Damien

    Personally I think the Loan to Value should be reduced to 0 for any private property bought in Ireland from 2006 onwards and let the banks take the hit for it.

  9. Damien: so essentially anybody who bought at the peak basically wins the mortgage lotto and have a free house? I bet the folks who bought in 04/05 would feel left out?! lol…. seriously…

  10. Karl,

    No this isn’t just a problem for the individuals, due to lack of labour mobility. It’s a socio-economic problem.

    Have a look at the presentation on reset2010.ning.com which you can also view at http://docs.google.com/present/view?id=ddtnks62_1hn4tqmd5 . You’ll see from the data by the Bank of England that there are multiple issues for the broader economy including reduced consumption, incentives to invest, and negative effects for the real-estate industry.

    On top of this, should the many billion of loans associated with negative equity default or delay payment, the resultant provisions to the sector would cause a new banking crisis.

    It is in the interest of the politicians and bankers, to help these unfortunate, disadvantaged households.

    Yes, the folks who were prudent shall benefit less than those who overpaid and got into negative equity. But a functioning economy and banking system is important to us all.

    PS: non-recourse is one suggestion that I have heard that may help. Though it is by no means a silver bullet.

    PPS: on mobility, a household can sell even if they are in negative equity. With proceeds they repay part of the mortgage. The remaining debt then becomes an unsecured loan.

  11. John McCabe

    1. It depends on people’s circumstances whether they should be helped or not. Their current income/ outgoings have to be looked at and assessed. The banks and the mortgage holder need to work together as it is both the bank and the mortgage holder’s interest to have the loan kept up to date. The tax payer should not be footing the bill.

    2. Absolutely. Of course it’s the individual’s responsibility for borrowing the money. OK the banks were giving out mortgages alot easier a couple of years ago when property values were on the rise but it is a childish attitude to say ‘ah they were throwing money at me so it’s their fault not mine’. I hate hearing people playing dumb on that one. No you muppets, you wanted it and you went looking for it. You took advantage of the system to feed your greed and when you are struggling you throw your toys out of the pram and pass the buck. If a person gets financial help to get out of trouble then yes they should pay it back when they get back on their feet. This thing of ‘write offs if I can’t pay’is an unbelievable attitude that is symptomatic of the Irish entitlement generation that has developed in the last 15 years.

    3. A person should not be given help if they are making no effort to repay their mortgage and are still maintaining a certain lifestyle. There does need to be help offered by the bank for unforseen circumstances and if the mortgage holder is making efforts to try and meet repayments.

    4. I’m no economist but my belief is that there is just not enough money in the country to solve this mess at the moment. The mortgage holder in arrears doesn’t have it and the mortgage lender doesn’t have it. Neither does the tax payer. The only solution I can offer is that the mortgage holder sells the property and clears the loan. If there is negative equity then the mortgage holder still clears what they can from the mortgage and still owes the bank a debt. Trying to pay a negative equity debt where the property is gone of say 60k is bad news but not as as bad as having the property and not being able to pay a 350k mortgage. If you can’t afford the mortgage you need to get out asap and look at renting or moving in with family and trying to pay off your debts. It sounds tough but it’s only tough measures that will get us out of this mess. Anyone looking for the taxpayer to bail them out of the mess they got themselves in to is a lazy waster!

    I have a huge mortgage and I am self employed. I’m surviving at present but I don’t know if I’ll have an income this time next year to pay my mortgage but if I don’t I’ll do the necessary and move my wife and kids into rented accomodation or in with family before I’ll ask the state for a bailout because I’m not someone who believes because I wanted the big house in the nice location when things were good that now because things are bad it’s someone else’s problem to sort it out. Take some responsibilty Ireland!

  12. @AJ Bowe: reduced consumption can come about for a number of reasons and is not specific to negative equity only, savings rates have risen in families without mortgages as well.

    Experian in the US did have some research that showed an increase of ‘strategic defaulters’ but it would be illogical to superimpose their findings on Ireland and the UK because our cultures are vastly different from each other, nobody is saying help isn’t required, the question is how much and what kind.

    Short sales and other such solutions may indeed help, sadly in Ireland banks are not very open to that, and there is no precedent set from a regulatory point of view to give such ideas traction.

    on the prudent reaping the rewards… I almost feel the opposite is true, during the boom their savings were offered very low rates, their taxes were eaten by housing driven inflation and now their taxes are paying for the cleanup! anyway, I think we are ideologically on a similar page, the question is about methodology. how much and to whom?

  13. John,

    Join us at Reset 2010. Our goal is to use the muscle of the +1m households in negative equity to help people like you.

    Any one person, facing difficulty, is in weaker position, than +1m homeowners working together to lobby for help.

  14. @john: not sitting on the fence anyway, that’s for sure!

  15. Karl,

    Agree. We are on the same page. The prudent aren’t reaping the rewards.

    Note: without data, its impossible to calculate the potential cost to the economy of negative equity. Thus impossible at this stage for me to suggest possible solutions.

    Back of the envelope math suggests it could be €27.5bn of the outstanding €140bn of mortgages. That is a similar figure to the Tier 1 Capital of the Irish banking industry.

  16. Q: Karl, are you speaking on newstalk tonight? If so, shall listen in.

  17. AJB

    Karl,

    What would have happened if instead of gifting the banks billions in hard cash (AIB, BOI and of course ANGLO) and now billions more in NAMA, what if the state had drawn up a list of every stressed and at risk home loans in the state and paid off say half the outstanding loan value directly to the banks.

    The state could put in place orders of no sale within say 6 years on each property and a no new mortgage on the individuals concerned for the same period so as to not have thousands of more houses put on the market.

    Would this work as a method of recapitalisation and at the same time worked to address the treat to the economy from mortgage arrears. The banks could re-fix the term of the loans to the new loan value and thus effectively have the repayments

    Regards

    Alan

  18. AJB

    effectively “half” the repayments

    Sorry !

  19. Hi AJB: I don’t suppose there is a specific issue except that it is applying the reasoning behind NAMA to residential borrowers, NAMA is there to reduce uncertainty in the balance sheet due to (specifically) property development lending, whereas residential lending isn’t (yet) an issue of similar proportions. There are totally different incentive structures for a person keeping a roof over their head to that of a developer keeping a project on track. Personally I think that your idea would have been a mistake if it took place, but it may have some credible basis in the second wave which is likely to hit, this time on the residential front.

  20. AJB

    Many thanks for your reply,

    I firmly believe that the second wave is just about to hit our shores and we are going to have to deal with it one way or another.

    What would happen if 100,000 mortgage holders defaulted in the same payment month, say January 2010 – due to 1) Christmas 2) the expected high amount of lay offs at the end of December / January in the retail sector.

    Would this force a residential NAMA – I think it will, What do you think ?

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