This was a piece on RTE News at 1 that was shot in connection with an article in the Irish Times on debt forgiveness.
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While not wishing to belittle the qualification and experience of the signatories of this article, I would respectfully suggest that 90% of them are basing their thoughts on anecdotal, theoretical and possibly second hand evidence for the basis of their article.
In addition I would ask why 50% of the population has not a single representative?
From my experience and I can only base my response to the article on that, I would suggest that while debt forgiveness is a laudable idea it is really a square wheel.
Negative equity and mortgage payments get all the headlines but the real problem faced by most people is that their net monthly income is less than the amount of money they have to pay out every month.
Ok I may be a bit facetious in suggesting something so simple but that is literally where it lies. Most people are not equipped from an educational or emotional point of view to deal with the reality that they have less every month than they owe.
More often than not in a partnership, one or both partners are dealing on their own with their own personal feelings and issues regarding loss of income, employment and/or feelings of failure. There is an inability to deal with the psychological impact of the losses facing us personally.
Adding to that, the mortgage while taking up a huge percentage of the income is only one piece of the problem. There is debt to credit cards, car finance, credit cards, utilities, credit cards, personal loans, credit cards, store cards and they lenders chasing these debts are like a certain news broadcaster, they call on the hour every hour. The stress of these calls alone drive people to take actions that otherwise they would not.
From reading some of the responses on other forums it is patently obvious that the Irish Lobster is alive and well, in that you will be dragged down when you get above yourself and pushed down further when you finally fall back into the water.
As it stands most people have one asset and that is the home that they live in. In a lot of circumstances it is probably worth less than the amount owed on the mortgage and it is definitely worth less than the amount owed in totality by the household. So why not leverage all of the debt against the asset and reschedule all of the outstanding debt into one payment at a fixed mortgage rate of say 5% over an agreed period until such time as the debt is cleared.
If a credit card is charging 21% and an overdraft is charging 12% and a credit union is charging 13% then surely they can write down a percentage on a debt that they may currently never get repaid and have it securitised onto an asset. Or if they are not willing to write it down, accept a reduced rate on the basis that the debt is now secured. The rationale behind charging high interest rates on unsecured borrowing is that it is just that, unsecured.
If a household has one payment due every month, it may be easier to find the money to pay for that than the current loaves and fishes method used currently. If you have a pain in your back, your head, your leg and your nose you don’t go to four different doctors for pain relief yet that is just what is happening now for people in debt, when they have a pain in the head they go to the head doctor and take the medicine until it doesn’t hurt as much, it doesn’t mean it is better. Then the back pain starts so it is to a new doctor and a different medicine. If one doctor was dealing with all of the aches and pains then there is a better chance of patient survival no matter what the ailment.
Ok, so the existing security holder takes an initial hit but the household now has one creditor and if stringent checks and balances are put in place to ensure future borrowing does not occur or garnishee orders are place then it may avoid mass repossessions which are sure to occur if some solution is not found and may go some way to prevent the type of serial borrowing that occurred in the past.
The hardest part to a solution like that is getting the mortgage holder to dilute their security but it avoids the moral hazard argument, there are no large scale forced writedowns and everybody gets at least one last chance. So the individual is not tbtf but a solution must be found before the domino effect of mass repossessions kicks in.