Budget 2016 – A resolution to mortgage crisis

David Hall of the Irish Mortgage Holders Organisation says that Budget 2016 can help the 10,000 families currently facing repossession in Ireland. Today he outlines a simple but efficient means by with Finance Minister Michael Noonan could resolve this issue and prevent another surge in Ireland’s homelessness figures.

For the past six years banks have not trusted those in arrears and have used the unproven propaganda that large numbers of borrowers are not engaging with banks and that many can pay but won’t. It’s clear that with 37,778 in mortgage arrears over two years and a further 19.317 in areas over one year that there is a complex housing and debt crisis at our door step.

Government introduced Insolvency Legislation which along with the Central Banks mortgage arrears targets were going to stop mass repossessions. This has failed spectacularly.

Over recent weeks the topic of a one year bankruptcy has re-emerged having been cast aside when many of us suggested at the time of the insolvency act being launched. A one year bankruptcy will help some in dealing with banks but will not resolve the housing crisis facing those in arrears. Fear of homelessness has overtaken fear of debt. Respectfully arm chair observers don’t understand the actual challenge.

So after all the propaganda and accusations and counter accusations have been made what can be done to provide a fair solution to the 25,000 who could lose their homes through repossession. These are people who are living in suitable family homes that the local authority would have to provide or fund the rental of in the event of homes being repossessed.

Within the long term arrears are real families, many scared and currently faced with a less than attractive solutions put forward by banks which is to either surrender their home or face repossession. Due to blatant spin, fully accepted by the Government, by banks of many being strategic defaulters and many being able to pay and choosing not to. It is now clear we are facing a major housing crisis and debtors are now more scared of being homeless than of their debt.

Within this group of those in long term arrears there are some who can pay in full, some who can pay something but not enough for a bank to do a restructure and others who can pay little or nothing. I nor any advocate will defend those who have chosen not to pay when we have so many who can’t pay and need our assistance and who have been abandoned by the system.

I believe that there is a fair solution to prevent unnecessary repossessions that’s fair to the mortgage holder, the Bank and the State. A fair solution is to look at a mortgage supplement to those who can’t pay. This could work via the court system where someone is in the legal process or pre legal process by directing Mary and Joe get an Affordability Certificate through the insolvency service (this could also me the IMHO or Mabs). This would demonstrate what they can contribute to their mortgage.

By way of an example Mary & Joe, married with 2 kids, €200k mortgage, property valued at €120k and €1,100 due per month in payments. The mortgage has been extended to the maximum possible term. They live in Kildare and their council will pay them up to €750pm in rent supplement.

We are proposing a Government sponsored scheme which would allow the family to remain in their home. It works as follows:

Mary & Joe are determined to have affordability of €300 per month as per the Affordability Certificate.

The mortgage is then split into two tranches:
Tranche A: €140,000 – attracting capital and interest repayments of €770 per month.

Tranche B: €60,000 – parked at 0% interest for the lifetime of the loan.

The €750 is funded by Mary & Joe’s €300 plus €470 from Kildare County Council. This is less than what the council would have to pay if they were liable for rent supplement. The repayments are subject to interest rate variations and reviewed every 2 years for a new Certificate of Affordability. When renewed the payment by the borrower increases or decreases in line with review, as does the council payment – up to the max rent supplement the county pays.

In addition we are proposing that the council would receive a 2nd charge on the property for the value of Tranche B. This is an incentive for the council to make the payments. The Bank will receive over the lifetime of the loan a greater return than if they repossessed the property now.

We are further proposing that the bank would receive the €425 directly from the council, thereby giving them certainly of cash flows.

It’s unlikely the O’Donnell’s would be suitable for this scheme as is aimed at people who are in suitable homes.

Given the scale of the crisis some will lose their homes, this is sadly unavoidable.

This scheme has many advantages, this is a major issue that is not easy to resolve. A fair society should want to help those who need help. This scheme has a built in affordability /engagement process. This way saves the State money on rent allowance, administration involved in processing the numbers in line to lose their homes. The cost in mental health terms is immense, the sleepless nights, family breakup. People are afraid, and with good reason as in the absence of a coherent workable solution such as this they face losing their home and possibly having to move from their community and having to locate children into different schools. The numbers involved in entering the private rental market could significantly increase rents forcing some to leave the area they are living and possible working and risking employment due to distance from work.

Another scheme muted is mortgage to lease. This could work for a cohort of people whose mortgages even with a mortgage supplement as outlined above still shows the mortgage as unsustainable. It is, however, fraught with challenges none more so than the funding model. Any fund contributing will want a clear means of funding from the state to ensure their participation and ensure consistency of payments. They will, not unreasonably,want their cut. Such a model could be seen as preyingon those in distress depending on how it is structured, who manages it, who funds it and under what regulatory regime it operates. Change of ownership to any fund also has issues within banking and this has been borne out in the abject failure of the Mortgage to Rent scheme.

Given the failure to address this over the last six years we are now at crunch time. This is the time to show leadership and implement a workable plan that is fair to the mortgage holder, the lenders and the state. This is such a plan. We own two of the major players. Let’s set an example. Let’s try keep people in suitable homes. In parallel changes to the insolvency act and mortgage to rent are also needed.

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  • But the system, Johnny Fallon, is not geared to helping families own their own homes, it is designed to trap them into large regular increasing payments on a liability which is a depreciating product, cynically spun as an appreciating asset and which they will eventually lose to the system, by hook or by crook.

    Dick Turpin wore a mask ….. nowadays the clones and drones of highway robbery wear flash suits and sport club ties.

  • Reader

    Surely being unable to afford your mortgage is only an issue if you are in negative equity? If you aren’t in negative equity, sell the house and look for rental accommodation, or for a smaller house.
    Are the schemes above for people in negative equity? Much simpler, in that case, to change the law to allow them to hand the keys to the bank, and walk away free of debt, as in the USA.

  • We are living in perilous times, fraught with pending economic and social chaos.

    I am not sure, nor is anyone else, when the proverbial chickens will come home to roost but I believe anyone who has been reading The Daily Bell over the past several years knows full well where we stand with respect to misguided – some say fraudulent – monetary policy and many other elitist promotions. Always the intention of these publications is to spread confusion to make it easier to redistribute wealth by removing it from the general public and concentrating it in the hands of a few. …. Andrew Wile

    Methinks it is certainly sure sooner rather than later, and is not the above sentiment shared from Andrew Wile, a mirror and clone of the alien view which is shared here above on Slugger. or would you disagree with the analyses, and take cold comfort from remaining schtum and refraining from commenting on the situation?

    Wake up, and smell the coffee/JavaScript.

  • Greenflag 2

    American Presidential candidate Bernie Sanders has stated that what the world needs is a new Bretton Woods agreement between the worlds financial powers . At the time of Bretton Woods 1944 the New York Stock Exchange dwarfed the world’s then international currency markets . .

    Today the NYSE trades about 13 billion dollars a year whereas the worlds international currency market is about 15 trillion dollars a day thanks to hedge funders , currency speculators etc etc . No single government is capable or powerful enough to deal with the abuses .

    Ergo a new Bretton Woods . Neither Wall St nor the City of London want that of course . What else would you expect . The banks who were too big to fail in 2008 are now 40% bigger and theres not a politician anywhere who’s opening his mouth . Meanwhile stocks are overvalued and banks everywhere are still getting bailed out while savers and taxpayers everywhere pay for the upkeep of financial thieves .and their political and corporate allies .

  • Greenflag 2

    They changed the law in 1998 when Glass Steagal was repealed by Bill Clinton . This gave the banks the freedom to loot and plunder their way to overleveraging their assets and putting their institutions at greater risk of going under . Milton Friedman has admitted publicly that he never thought the banksters would be so greedy as to undermine the entire system . His successor Ben Bernanke has stated in his new book that more banksters should have been jailed .

    Ordinary Americans are helpless in the face of financial sector rule . Their votes are utterly useless as both main parties have their electoral campaigns funded by the huge financial institutions . The main reason for the fracturing of Clinton’s support among Democrats and the fractious mayhem within the GOP is that neither the Bush nor Obama administrations have been able to stop or prevent the rapacious financiers from continuing their looting of the USA and the rest of the world .