The repossession cases that appear, in a constant trickle, before the courts these days make interesting reading.
Recently there was a case of a couple who took out a mortgage in 2003, but had not paid any repayments on it since 2006. Bear in mind it is now 2011.
Then there was another one a couple of weeks’ back. The borrower was up for mortgage arrears on 29 investment properties, and had to promise the court that he would put some of them for sale on the market.
The above examples beg the question: what do you have to do in Ireland to have a property repossessed?
It seems that the principle of moral hazard that applies in other countries does not figure here, as the attitude is that someone else – that is, the taxpayer – will pick up the tab for your recklessness. We have been forced to do it for the institutions thanks to Lenihan’s bank guarantee, now must we do it for individuals as well?
It is not too far an imaginative leap to forecast how people who could pay - but are unhappy with negative equity - could elect not to, on the basis that they won’t suffer any consequences as a result. The rest of us will bail them out, and they can continue to live in the dwellings they outbid us on during the market madness.
The thing is, someone has to pay. To me, it seems most logical that whoever ran up the debts in the first place – investors in particular – should be obliged to do so. They won’t be able to repay them in full of course, as they paid way over the odds, but fire-sales of their bad investments would at least repay some of the debt and establish the true worth of property in Ireland today.
The banks and Nama will not do that though, as they have an interest in keeping property prices artificially high. Indeed Nama, the Government creation that bought the developers and banks’ debts at a high price, is even talking about providing mortgage finance to the very same banks. It has €1 billion on its balance sheet, according to its chairman Frank Daly, speaking to a “group of property professionals" last Tuesday, according to The Irish Times. (April 13th, “Nama may provide mortgage finance, Barry O’Halloran).
So let me see. Nama, the “bad bank” that took on the bad loans of the bust banks, is now looking to "change the legislation that established it" so it can provide loan funds to the same banks it bought the bad loans from. All in order to “generate sales in the market”, as Daly puts it, with the rider that “sales would have to be at prices people would pay”. Where else would you get it?
And therein lies the problem. Ireland is the basket case economy of the EU, a country kept from insolvency only thanks to the bail-outs, yet house prices are still higher than in many other European countries (have a look at The Irish Times "Take Five" feature every Thursday). That does not add up.
And neither does Nama’s attempt to further prevent the slow dawn of reality in the Irish property market.
Brussels had better keep an eye on this one.
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