# A perspective on mortgage arrears and negative equity



## LDFerguson (27 Aug 2011)

From Brendan in today's Indo...
http://www.independent.ie/opinion/a...n-the-problem-of-mortgage-arears-2859346.html


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## monagt (27 Aug 2011)

People are breaking the problem down to people in arrears and people not in arrears,  Black & White!
 I would suggest there are also many shades of Grey. For example, many people, singles and couples are being helped out by parents, a group that is itself heading into trouble with poor pension schemes, bad investments for rainy day pensions, delay in getting OAP due to Gov. putting them off for a year, increased cost of living..........

So we have ppl in arrears!

PPL not in arrears who are:
1. Coping due to sufficient income
2. Coping due to stringent cuts in living expenses and quality of life poor
3. Coping due to paying mortgage at the expense of critical items such as Health Insurance, clothing for kids,.............
4. Coping due to help from parents
5. Coping due to help from parents who themselves have made stringent cuts in their own lives to help - reduced their retired life to help
6. Coping due to parents who have cut essentials such a Health Insurance to help
7. Coping due to parents who themselves are running out of the ability to do so

I probably could come up with more examples to illustrate that its no B&W or a simple accounting balance sheet.

The fact is that the whole community is suffering and is getting worse, the effects on children going to school (old clothes), young couples strains in relationships, young singles with depression (no way out), older people trying to help, older people unable to help...........


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## onq (27 Aug 2011)

I agree with your comments monagt, but Brendan's piece in the Indo was precisely the bucket of cold water that Morgan Kelly and all the other sensationalist economists needed dumped over their heads and is a great comfort to me and I suspect many, many others!


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## Brendan Burgess (27 Aug 2011)

Hi monagt

You suggest that nearly everyone is in trouble. If that is so, then it makes the argument against debt forgiveness even stronger. Why should someone in one of your "not in arrears, but under severe pressure" have to pay to clear the negative equity or arrears of someone else? 

Brendan


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## thewatcher (27 Aug 2011)

I currently have 2 a&e bills here waiting to be paid both €100 each, a car in the drive to be taxed, a child to be sent to school next week and I'm not waiting on any back to school to school allowance because you can be dam sure we wouldn't qualify for it, I don't have a mortgage because we rent and if I don't pay the rent the landlord would rightly move to evict us, I'd love to have a years moratorium and a possible bailout out ahead of me or failing that a reason not to pay them outstanding a&e bills and anything else I can get away with.


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## monagt (27 Aug 2011)

You suggest that nearly everyone is in trouble. If that is so, then it makes the argument against debt forgiveness even stronger.

No you misunderstand!

My contention is that you do not know who is in trouble and who is not.

I suggest that a lot of people between 2005-2009 may be in trouble in varying degrees (the normal distribution applies) and you or me do not know who.

Because I put up my hand and go into arrears may be my strategy while someone else more genuine may be struggling on by various means (poverty in the home, parents help, etc)

You are looking at a cold clinical balance sheet and not considering the good of the community.

I am nor for or against "debt forgiveness" - not a fundamentalist either way - I only know that something has to happen to repair our community.


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## monagt (27 Aug 2011)

thewatcher said:


> I currently have 2 a&e bills here waiting to be paid both €100 each, a car in the drive to be taxed, a child to be sent to school next week and I'm not waiting on any back to school to school allowance because you can be dam sure we wouldn't qualify for it, I don't have a mortgage because we rent and if I don't pay the rent the landlord would rightly move to evict us, I'd love to have a years moratorium and a possible bailout out ahead of me or failing that a reason not to pay them outstanding a&e bills and anything else I can get away with.



Once upon a time, we helped our young couples get on the property ladder and establish a home, a pity we stopped.

Stable families in stable communities should be the goal of our social policies.


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## monagt (28 Aug 2011)

> FAMILIES in modern Ireland are going without food to meet the demand of mortgage debt.





The decision of homeowners to choose hunger over a fear of eviction helps expose as irrelevant the issue of "moral hazard", the defence of policymakers who resist calls for debt forgiveness.

No further comment!


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## Brendan Burgess (28 Aug 2011)

That story simply illustrates the stupidity of the mortgage holder - nothing more and nothing less. He had a very small mortgage and was making the full repayments. He had not even spoken to his lender who would have quickly reduced his payments or given him a moratorium. Joan Burton mentioned today that he was probably entitled to MIS as well. 

Brendan


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## jpd (28 Aug 2011)

Is the story real?
Is it a plant?

Sorry to be sceptic, but ...

I have no doubt that there are many people in difficulty but it is difficult to imagine an intelligent adult behaving in this way


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## monagt (28 Aug 2011)

> absence of evidence is not evidence of absence



Can anyone give me or tell me where to find a list of who is on the Ministers workgroup on Debt (of which BB is a member)?


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## Brendan Burgess (28 Aug 2011)

There was an Expert Group on Mortgage Arrears and Personal Debt last year which produced an interim report and a final report. The members are listed in the Final Report. 

There is now an interdepartmental group. The chair is Declan Keane a partner in KPMG who has been on secondment to the Dept of Finance for some time. I am not a member as I am not a civil servant.


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## millieforbes (28 Aug 2011)

jpd said:


> Is the story real?
> Is it a plant?
> 
> Sorry to be sceptic, but ...
> ...


 

+1 

I was wondering the same myself... not that it would be a bad thing if the aim is to promote the Vincent de Paul or other organisations' willingness to help in this situation. It seems unreal that someone could say their pride was keeping them from looking for help from the V de P or elsewhere to keep their family fed


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## onq (28 Aug 2011)

jpd said:


> Is the story real?
> Is it a plant?
> 
> Sorry to be sceptic, but ...
> ...



I believe it to be a plant.
There are certain signs and behaviour of people who are in distress

Going down the road of malnutrition of his children was just a step too far for me in the credibility states.
Not paying their  mortgage for fear of causing their children dietary harm would have been more believable.

But in fact people who are really that desperate don't write anonymously.
They want everyone to feel their pain in a call for help by any other name.

A call to their local Money Advice and Budgeting Service would have yielded strategies with which to approach their bank.
A call to their bank would have resulted in some sort of instant moratorium to all matters to be fully assessed.


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## onq (28 Aug 2011)

millieforbes said:


> +1
> 
> I was wondering the same myself... not that it would be a bad thing if the aim is to promote the Vincent de Paul or other organisations' willingness to help in this situation. It seems unreal that someone could say their pride was keeping them from looking for help from the V de P or elsewhere to keep their family fed



Pride can be a killer for some people, especially people who have achieved a certain standing in their communities.

This story just didn't ring true in my ears.

That's not to undermine monagt's earlier comment that there are many shades of gray in this situation.


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## Sunny (29 Aug 2011)

The letter was ridiculous and I can't believe a newspaper editor published it. Anyone who puts paying their mortgage above feeding their kids are just daft. The writer would rather his kids went hungry than pick up the phone and talk to the bank. Says more about the letter writer than it does about the bank.


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## Duke of Marmalade (29 Aug 2011)

The guy was paying €780 per month for a €80K mortgage.  A 20 year mortgage at 5% would cost about €550 per month.


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## aristotle (29 Aug 2011)

Duke of Marmalade said:


> The guy was paying €780 per month for a €80K mortgage. A 20 year mortgage at 5% would cost about €550 per month.


 
Maybe it was 80k remaining on the mortage?


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## orka (29 Aug 2011)

The IT had some details the day after the original letter was published.  The mortgage was originally 130K, taken out in 2003.  He worked in the public sector for 10 years until 2 years ago.  The IT also published an accompanying piece by Conor Pope which basically said that your priorities would need to be askew if you prioritised full mortgage repayment over feeding your family.  I can understand that he wouldn't want to lose his house with so much paid off and perhaps unlikely to be in negative equity - but interest only on 80K would be less than 350 per month so I don't know why he wouldn't explore options like that - or, as mentioned, the mortgage interest supplement route.  

It did seem like a bizarre letter - the IT says they don't publish anonymous letters but the Indo story seems to be based on the IT story which is surprising as it shouldn't haven't been difficult to track him down and talk directly.


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## shnaek (29 Aug 2011)

monagt said:


> The decision of homeowners to choose hunger over a fear of eviction helps expose as irrelevant the issue of "moral hazard", the defence of policymakers who resist calls for debt forgiveness.
> No further comment!



"Moral hazard" is not just a couple of words, no more than "honour" or "decency" are just words. 
"Moral hazard" concerns :
whether our society values resposibility or recklessness
whether those who pay their way should be forced to pay for others who don't
whether those who don't work should be rewarded more than those that do
whether those who choose to live within their means are valued more than those who don't

The question of moral hazard goes to the root of who we reward in society - thus creating the society of the future. Irish society, top to bottom, has been actively rewarding the wrong people, and punishing the wrong people. 

Do we want a society which values work and responsibility? Or one that values recklessness and lack of self restraint? The public have no idea of how using taxpayers money to write of mortgage debt is going to work out. They haven't played the game of chess past moving the first pawn. But for any sane smart person standing here looking at Ireland - they are going to find it hard to see the rewards of work and responsibility. They will either leave and go where those idea's are rewarded, or else stay and join the herd. Ireland has been wreckless enough for the last ten years. We either start taking responsibility for ourselves like the much lauded Scandanavian countries, or we go the way of Greece.

If we want to go down the root of cancelling debt then we may as well go the whole hog and give houses to those who held off buying a house for whatever reason. At least that way we'd be rewarding everyone. Moral hazard problem solved


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## monagt (29 Aug 2011)

MORAL HAZARD SMORAL HAZARD: Why the Moral Hazard Argument is Dumb!

Isn’t it funny how the Bankers, Civil Servants, Accountants, Auditors, Politicians who caused the current financial crisis are the ones arguing against the necessary steps to stop the bleeding? 

Moral hazard, while real sometimes and in some places, is vastly overrated as an effect. 
Granted, it’s seductive in the same way that risk homeostasis is — the notion that, for example, people drive faster and take more risks because they have seatbelts — but like risk homeostasis, moral hazard is vastly over-diagnosed. 

People don’t project five years into the future and say, “Leverage up, boys and girls. We’ll either make a lot of money now, or be bailed out later.” 

Real people in real situations don’t think that way. Matter of fact, if anything, they’re short-sighted in that regard to a fault.

http://www.cato.org/pubs/journal/cj29n1/cj29n1-12.pdf See below for an extract.



> The Nature of Moral Hazard
> A moral hazard is where one party is responsible for the interests of another, but has an incentive to put his or her own interests first: the standard example is a worker with an incentive to shirk on the job. Financial examples include the following:
> • I might sell you a financial product (e.g., a mortgage) knowing that it is not in your interests to buy it.
> • I might pay myself excessive bonuses out of funds that I am managing on your behalf; or
> ...



My question who failed who!


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## Mrs Vimes (29 Aug 2011)

orka said:


> The IT had some details the day after the original letter was published.  The mortgage was originally 130K, taken out in 2003.  He worked in the public sector for 10 years until 2 years ago.  The IT also published an accompanying piece by Conor Pope which basically said that your priorities would need to be askew if you prioritised full mortgage repayment over feeding your family.  I can understand that he wouldn't want to lose his house with so much paid off and perhaps unlikely to be in negative equity - but interest only on 80K would be less than 350 per month so I don't know why he wouldn't explore options like that - or, as mentioned, the mortgage interest supplement route.
> 
> It did seem like a bizarre letter - the IT says they don't publish anonymous letters but the Indo story seems to be based on the IT story which is surprising as it shouldn't haven't been difficult to track him down and talk directly.



The IT also said in its piece the day after that he was getting 188 per week and that he had a wife and 2 children.

He was surely entitled to increase in welfare payment for his dependants.

He apparently chose to make full mortgage repayments as a matter of pride or something but I can't see how a person could let their children go so hungry they're eating cardboard rather than fill in the dependants section of the social welfare application.

The story really doesn't sound true, or at least not the whole truth.


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## orka (30 Aug 2011)

Further detail from the IT on what the letter writer should be entitled to - which he has either omitted to mention or, for some reason, didn't apply for: As well as the €188 per week plus €280 per month childrens' allowance which he said was the sole income, he would also be entitled to €125 per week spouse/partner benefit plus €30 per week for each dependent child - so an extra €185 on top of his €188 per week.  The IT also calculated his mortgage interest supplement at c. €400 per month if applicable.  Plus back to school allowances, medical card etc.


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## Sunny (30 Aug 2011)

orka said:


> Further detail from the IT on what the letter writer should be entitled to - which he has either omitted to mention or, for some reason, didn't apply for: As well as the €188 per week plus €280 per month childrens' allowance which he said was the sole income, he would also be entitled to €125 per week spouse/partner benefit plus €30 per week for each dependent child - so an extra €185 on top of his €188 per week. The IT also calculated his mortgage interest supplement at c. €400 per month if applicable. Plus back to school allowances, medical card etc.


 
And yet the IT editorial still had a go at blaming the Government! This new editor needs to get his act together.


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