Monday, 29 August 2011

"Debt forgiveness" for some mortgage holders? Genuine need or putting on the poor mouth?

What is behind the current media-fuelled hysteria around the trumped-up topic of debt forgiveness?

Last Thursday The Irish Times published a letter from an MP MacDomhnaill of Tralee, which is pasted below:


Sir, – As I write this letter I am hoping that sleep can provide me with some escape from the anxiety and pain that the economic situation is wreaking on me and my family.

Until recently I have been able to meet my mortgage repayments and provide for my young children. At this juncture, seeing as the part-time work on which I depended has entirely ceased, I have found myself and my loved ones having to cope with a new torment – hunger.

Today I have had nothing to give my children only bread and cereal. My dole payment is completely servicing my mortgage and my savings have run dry on essentials. I dread what each day will bring.

The wolf that I have been keeping from the door has finally moved in. – Yours, etc.

Then on Friday, the same paper carried a piece by Rosita Boland, featuring extracts from a telephone interview with the letter writer, in which he described how his wife noticed one of the children was reduced to eating bits of (Lidl brand) Cornflakes packet in order to stave off the hunger.

Sorry, but I can't swallow this - no more than I would some bargain brand cereal packaging.

The idea of hunger and famine is a recurring one in Irish discourse, and the image of a child eating bits of cardboard to stay alive, in order for mum and dad to pay the mortgage, is one that will wring many a tear from the uncritical folkish eye. It is the hungry grass all over again, with the prospect of eviction (read repossession) thrown in.  It is like a Flann O'Brien parody.

There is no reason why anyone who lost their job should be paying all of their mortgage payments to go without food. As far as I am aware, there are mortgage interest supplements for people in such a position, and the banks have been readily restructuring mortgage repayments for some years now.

Conor Pope, in the same edition of the paper as Boland's piece, made the observation that many of the "new poor are resolutely middle-class" and might find the idea of looking for help or advice in the shape of the Money Advice and Budgeting Service "a degrading step and one which is beyond them".

But to read yesterday's alarmist articles in the Sunday Independent you would swear that starving families are being turfed out of their homes all over the country, with the residue of cardboard-tainted saliva encrusted on the mouths of their ragged children.

This is simply not happening. Even last Wednesday's Irish Times editorial pointed out that "there is abundant evidence that debtors and creditors are themselves working problems out on a case by case basis" and the number of home repossessions in Ireland "remains small in absolute terms or in comparison to Britain, where economic conditions are far more benign than here".

Ironically, much of the current debate was triggered by Morgan Kelly's recent comments on former high-rollers who took out unsustainable mortgages of one and more million euro. Professionals who "could barely afford to buy you a cup of coffee now".

Given the way things work in Ireland, and how those from the more privileged classes always come up smelling of roses - even after enduring a temporary dip in the manure - one wonders are these the movers and shakers fueling the media agenda?

Not so much starving kiddies as dentists, architects and, erm, perhaps journalists, who took out silly loans during the property boom madness and are now - horror of horrors -  in negative equity?    

Sure. They can have debt forgiveness if they are prepared to walk away from their aspirational properties and hand in the keys - otherwise it should be a matter of renegotiating terms with their lenders.  The same should apply to their buy-to-let portfolios. 

Meanwhile genuine cases - such as ordinary people down on their luck and making an effort to pay something back - should be afforded the necessary latitude to restructure.  Which is exactly what is happening at present.

Blanket "debt forgiveness" should not be a facility for those who can pay, but won't, to wriggle out of their commitments -  while keeping the assets they outbid the rest of us on as they pushed prices skywards during the boom.

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Anonymous said...

the way politics in germany are developing this may become a reality in the second richest country in the wurld and natural habitat of the rip off gombeen also the adapted home of the paedo clerics of course it wouldnt be the first time, mr noonans preffered solution is for the germans pay for tinker paddys manic ego trip of the ninetys,the germans look set to say NEIN to all this bail out bollicks of jumped up gobshites, tis a grand soft tangod -BH

Terry said...

Blanket debt forgiveness is not acceptable but there must be selective debt settlement or restructuring as there are simply so many people with "debts no honest man could pay".

john said...

It is easy to dismiss this as a bit of a joke but the situation will not go away and will increase as more jobs are being lost. I think that each case must be handled on case by case basis i.e a proper drawn up statement of financial status, then some accomadation could be reached. In the USA you can hand back the keys and the loan is written off but here it will continue till it it is repaid. Second point, if they introduce new bankrupcy laws like the UK model you will see a lot of people declaring bankruptcy and will that sort the problem of unpiad debt??.

Ella said...

Hi GM, I don't have a problem with debt forgiveness when it comes to a family home, once the family in question hand back the keys. Let them just walk away. If they can't afford the mortgage payments that's the only way to go. But debt forgiveness for investment properties, well... I suppose if they hand back the keys too, but there is a difference between an investment property and a family home.

Anonymous said...

This is a huge problem. If we forgive the debts and let people walk, what happens to all the new clapboard shacks posing as houses that were built in the past decade and a half?

Who will buy them? And where will their former occupants live? Something tells me the current owners are going to end up as tenants in them. We'll see an increase in ghettoisation and slumlord shenanigans, as if we didn't have more than enough already.

I think we need to consider how to keep the current owners in them. Because the taxpayer cost is going to be the same either way. Shall we give the householders rent assistance that they will pass along to the slumlords? Or mortgage assistance that will help them keep the (admittedly poor) "investments" they made?

Would you prefer to see your taxes building up the bottom-feeding slumlord class, or helping ordinary people who got screwed by the prosperity Gospel?


The Gombeen Man said...

It's a tough one, folks. Thanks for the comments.

The banks are negotiating with those in arrears... repossessions are way lower here than in the UK for instance, and they do not have the level of missing mortgage payments we have. So I can't see the source of the media hysteria on that basis.

Is it more a fear of negative equity than repossession? If so, such things are cyclical... albeit a long cycle in this case.

Also, the case of this MacDomhnaill character does not ring true at all. Clearly he is entitled to mortgage interest relief? In the meantime he can reschedule payments... there is no need to live on Cornflakes or their packaging.

Sure, I'd have no problem with people being given the option to hand back the keys and walk away - as in the States. They could then get their acts together and start afresh in a few years' time when market reality has finally caught up with Ireland.

But the Powers That Be are doing everything they can to keep property prices artificially high (Nama, boom-time levels of rent subsidies), and therefore won't countenance more properties coming onto the market, and property finding its true level as a result.

Where have all the "we're closer to Boston than Berlin" free-marketeers gone, I wonder?

Harry said...

What people like them need is proper debt counselling and help for applying to all social benefits they are entitled to by law, not debt forgiveness.

The worst problem for people like them is to admit to themselves they need help - not a genuine irish problem, but being a "proud Irishman" certainly doesn't help.

Peadar said...

Just got letter from bank to day my variable mortgage is now over 6.05% and with 3 years of pay freeze and more interest rate rises expected. This is my reality. By the way if you go to your bank to reschedule payments, please folks do not expect a fast response to your plight.

Dakota said...

Very strange that GM, all this eating Cornflake packets malarkey. I really have my doubts about that, what about all the charitable organisations? If it is true it would only serve to put the cap on the bottle of this friable Republic of ours (of course it's not a real, true Republic, really). The juxtaposition of realities here would be too much.

Despite that GM, looks like there could well be some type of debt forgivness on the cards. It gets stranger by the minute, how they'll work this "inspirational plan," out, is mind boggling. Who could, or to be more precise, would, classify as "unable to pay?" As this is Ireland, it will only end up adding another level of bizarreness to the atmosphere. Also how it could work in conjunction with a propery market on its knees is anyones guess. Alas clarity for such an important issue is non existent. Oh not to mention the timing aspect? It is nearly six years since the EU started to gradually increase rates, not to mention the Credit Crunch. It really is bizarre, even by Irish standards.

As for Nama opening the sluice gates and bottoming out the market GM, and these individuals eventually selling at a realistic market price? I would be surprised if such a scenario would happen now GM. The size of the debt problem is too great (no amount of foreign investment is going to balance budgets here for quite some time) this coupled with the insularity and perculiar nature of this one aspect of the economy, the Irish property market, could not mitigate such a circumstance arising. If NAMA did flood the market, (block of apartments for the price of a new car anyone?) well, who knows what the ramifications could be here? Consumer sentiment may not recover for a long, long time, if at all......Property prices back to the 30s?.........It could make the Japanese property crash look like a picnic in paradise. Either way the only ones who wins from this debacle is the banks. Ponzi scheme here by 2030?

The Gombeen Man said...

@ Harry. There is an element of that "proud" thing, I think.

@ Peader. That's a fair old hike P, and I'll admit I haven't had any direct experience with that banks.

@ Dakota. Yes - there are so many places that should never have been built in the first place D, to be honest I'd say many of them are worthless. I'm just wary of the moral hazard aspect - if you scrub the debts of those who overstetched through greed and sillyness (not those whose circumstances have genuinely changed for the worse), I would bet any money most of them would be making a beeline to the next Allsops auction to pick up where they left off.

Just on a general note to you all, this article was in the IT on Monday, in follow-up to that story of this O'Domhnaill guy that I find so fishy:

Distressed letter writer to seek help from local services

Mon, Aug 29, 2011

A LETTER writer to The Irish Times who said his children were going hungry because of the burden of paying off his mortgage says he now plans to seek help from local support services.

MP MacDomhnaill, of Tralee, Co Kerry, whose letter – published last Friday – drew widespread media attention, told this newspaper yesterday he would also seek to renegotiate the mortgage repayments with his bank.

He was speaking after a number of public figures, including Minster for Social Protection Joan Burton, urged him to contact the welfare organisations in his area to get help.

In his letter and a subsequent interview with The Irish Times , Mr MacDomhnaill said his family was living on bread and breakfast cereal and had just €35 a week to spend on groceries because the vast majority of the household income was going to service a mortgage of €80,000.

After losing his job earlier this year he was getting €188 a week from social welfare as well as a monthly children’s allowance of €280. All told his monthly household income was €1,032, and monthly mortgage repayments were €780.

“I don’t want to comment on the individual details but the man and his family are obviously in an awful lot of distress,” Ms Burton said on RTÉ Radio yesterday.

However, she urged him to make contact with his local social welfare officer or the local community welfare officer, “or even the St Vincent de Paul Society because I think he may have entitlements which he may not have already claimed”.

Specifically, she referred to the mortgage interest supplement, which will pay the interest portion of a homeowner’s mortgage repayments.

It will not contribute to the portion of the repayment that pays off the actual loan and nor does it cover house insurance, which is often tied to the loan.

To qualify, a person must have taken out the mortgage when they could afford the repayments. The house cannot be on the market and the amount of mortgage interest payable cannot be more than the amount the Health Service Executive considers reasonable to meet an individual’s residential needs.

Figures released by Ms Burton yesterday show the number of families receiving help under the mortgage interest supplement and rent relief schemes have increased by almost 340 per cent in the last three years.

She said 18,679 households had received payments under the mortgage interest supplement scheme at a cost of €77.2 million this year, up almost €12 million from 2010.

The Irish Times has had extensive communication with Mr MacDomhnaill, who said he did not wish to give too many media interviews in order to protect his family’s privacy. He said he wrote the letter because he hoped it “might facilitate a discussion”.

He added: “I hope that the issue and issues raised will generate useful public debate and positive action.”

anna said...

i agree with John and Ella