# IMHO: "The state should supplement the mortgage for those who can't pay"



## Brendan Burgess (30 Mar 2015)

David Hall has an article in yesterday's Sunday Business Post (Subscription required)

This is how it could work.

_Mary and Joe are married with two kids. They have a €200,000 mortgage, property valued at €120,000 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 would have to pay them up to €750 per month in rent supplement if they lost their home and had to rent accommodation.

Under our proposals, Mary and Joe are determined to have “affordability” of €300 per month, as per an Affordability Certificate, which could be issued by the Insolvency Service, by Mabs or the IMHO.

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 per cent interest for the lifetime of the loan.

The €750 is funded by Mary and 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 two years for a new Certificate of Affordability._


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## demoivre (30 Mar 2015)

Or : "The State would save money by thinking outside the box".


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## Brendan Burgess (30 Mar 2015)

It is certainly cheaper to keep people in their homes and for the state to pay MIS instead of letting them be repossessed and the state paying them rent supplement.

But this solution, and most solutions, fail because they are not based on a definition of what a sustainable mortgage is.

A mortgage is sustainable for the lender, while the borrower can pay the market rate of interest on the current value of the property.

Using the above example, if the lender gets 4% of €140,000 or €470 a month, then it's of no benefit to them to repossess this property. All they will do is lend the money onto someone else at 4%.

So freeze the €60,000 NE for 3 years and switch the €140,000 to interest only.

If the state wants to supplement this mortgage, then they should contribute only €170 per month.

They should not be paying €470 per month to pay down the capital outstanding on the mortgage!

But what most debt advocates miss out on is the following
30,000 families are in arrears over 2 years.
Around 40% have positive equity and should not receive any state aid.
That leaves around 20,000 in deep arrears and negative equity.
75% of those are in employment and so would not get rent supplement. They are simply choosing not to pay their mortgage.
That leaves around 5,000 who would benefit from any such scheme.  A bit more if you include those in less than 2 years' arrears.

Most debt advocates claim that everyone in default, is in default "through no fault of their own".  That is rubbish.  There are many Misguided Mortgage Holders out there. The only way to get them to engage and pay their mortgage is to make repossession easier.


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## Gerry Canning (30 Mar 2015)

Brendan Burgess said:


> It is certainly cheaper to keep people in their homes and for the state to pay MIS instead of letting them be repossessed and the state paying them rent supplement.
> 
> But this solution, and most solutions, fail because they are not based on a definition of what a sustainable mortgage is.
> 
> ...


...............
Agree  the State ;

1. Should not be involved in reducing the Principal borrowed.
2. If the full cost to state of having the 40% who are in positive equity sell out is shown as  more than
is gained by not selling out eg extra cost work/schools/etc then a case can be made to aid them for a period, but only for a period.
3. The 20% in deep arrears must not be aided until their situation is checked, as you say most are working and it is unreasonable to have state pay out willy-nilly. 
4. 75% may well be in work , but are they getting close to boom time hours/wages?
The genuine ones could benefit from Split Mortgages etc.

I do not believe most debt advocates claim {everyone is in default through no fault}
I do agree there are too many miss-guided Mortgage Holders but am firmly of the view that most can and would welcome workable solutions.
You may well be correct Repo threat will force people to sort things.


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## trasneoir (30 Mar 2015)

Brendan Burgess said:


> If the state wants to supplement this mortgage, then they should contribute only €170 per month.
> They should not be paying €470 per month to pay down the capital outstanding on the mortgage!


Absolutely. At best, this idea smells of moral hazard. At worst, it could actively incentivise reckless borrowing and tactical delinquency.


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## demoivre (31 Mar 2015)

Brendan Burgess said:


> Most debt advocates claim that everyone in default, is in default "through no fault of their own". That is rubbish. There are many Misguided Mortgage Holders out there. The only way to get them to engage and pay their mortgage is to make repossession easier.



We have arrears problems because of the unprecedented nature of the property bubble ten years ago. Most repossession advocates don't seem to realise that for every borrower there was a  lender ,supervised by a regulator and a central bank. The repossession advocates and the banks want the borrower to take the hit for the combined madness that was the borrowing / lending during the crazy days. Here's a novel idea. How about we use the tools that are already at our disposal to solve the arrears problem. Most restructures do not involve splits and we have only had 200 PIA's since the launch of the ISI. Why is that?


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## trasneoir (31 Mar 2015)

demoivre said:


> We have arrears problems because of the unprecedented nature of the property bubble ten years ago. Most repossession advocates don't seem to realise that for every borrower there was a  lender...


The only unprecedented aspect I've observed is the increasingly popular notion that the lender is supposed to act as the borrower's nanny. At the same time, it seems like every other post here is railing against the unfairness of not being granted a 130% negative-equity mortgage. We can't have it both ways.


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## Gerry Canning (31 Mar 2015)

Trasneoir.

The Lender is not supposed to act as anyones Nanny.
But it is fair to point out that Mr Professional/supposedly Regulated Lender fanned the Mortgage flames. When he was beaten , he passed the embers back to us. We have bailed him out and still have to work out the arrears .
It means you and I have thus far acted as Nannys to Mr Bank.

Few enough are looking for this 130% .
From what I view most are trying to find workable solutions.

If paying something from Public purse is cheaper for us than the cost of public housing , let us go for it.
And to be clear , I would hammer the leg lifters that refuse to engage/pay.


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## 110quests (31 Mar 2015)

There are 10 members of my and my extended family members who were working at the height of the boom and are still working TG. All are on reduced wages/salaries since then. All are paying the same level or higher of mortgages/rents though. In order to maintain their payments, they live to work. Three families have childcare costs.....we know how expensive that is... all have cars 10+ years old and scarce prospect of saving to improve that position. 

They have barely anything to spend in the local economy or on treats or everyday enjoyments. It is one tough slog , and there are many like them. So what do they need?  They need a boost in income, money to spend. Even then, they would not be back to income levels when mortgages were granted unless they get 12-14% increase.  Now I don't see that happening.

Mortgage Interest relief  would aid their situations. 

What will happen in 2017 when MIR ceases for the category of first time buyers who are the only ones entitled to it currently ?  Another surge in arrears..?


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## Dermot (31 Mar 2015)

110quests said:


> What will happen in 2017 when MIR ceases for the category of first time buyers who are the only ones entitled to it currently ? Another surge in arrears..?




The vast majority if not all the purchasers whose MIR ceases in 2017 would have benefited from the crash in the property market and their properties would all be in positive equity.


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## 110quests (31 Mar 2015)

As of 2015 ....3 out of 3 still in negative equity , Dermot. No joy there.  I'm sure the positive equity situation depends on geography even though this place is within 35 mls  of the city.

Equity +or - will not defray the extra to be  paid by the mortgage payer.  Unless incomes rise substantially there will be a shortfall as there is no discretionary spend available. So MIR re instatement might prevent arrears arising .


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## demoivre (1 Apr 2015)

trasneoir said:


> The only unprecedented aspect I've observed is the increasingly popular notion that the lender is supposed to act as the borrower's nanny



Really? Bailing out the banks to the tune of €64 billion for their monumental incompetence was unprecedented, but it's a minor detail so not surprising you overlooked it.


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## Grizzly (13 Apr 2015)

What do you say to those people who wanted to purchase a house back in the day and were outbid by people paying crazy money to outbid them. Some people never got the chance to purchase their own homes and are now looking at the people who outbid them, looking to being helped by the state with taxpayers money?


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## Bronte (13 Apr 2015)

trasneoir said:


> The only unprecedented aspect I've observed is the increasingly popular notion that the lender is supposed to act as the borrower's nanny. At the same time, it seems like every other post here is railing against the unfairness of not being granted a 130% negative-equity mortgage. We can't have it both ways.


 
If we went down the route that David Hall is suggesting I can see the figure of defaulters rising.


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## Bronte (13 Apr 2015)

110quests said:


> . Three families have childcare costs.....we know how expensive that is... all have cars 10+ years old and scarce prospect of saving to improve that position.
> 
> . It is one tough slog , and there are many like them. So what do they need?


 

The childcare costs are a normal fact of life for couples and should have been considered when taking out a mortgage.  As for your comment on life being a tough slog, buying a house, having a mortgage and young children is always a tough slog, nothing has changed there. But for some people at the height of the celtic tiger madness a lot of people seemed to think they could have it all and the holidays too.  Some people in the not so distant past couldn't even afford any kind of car.


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## Delboy (13 Apr 2015)

Just to point out that Hall is also suggesting that the people who get bailed out and remain on in the house (no matter how large or how desirable the location) should also retail ownership of the house.
Just keep that in mind!


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## Bronte (13 Apr 2015)

Grizzly said:


> What do you say to those people who wanted to purchase a house back in the day and were outbid by people paying crazy money to outbid them. Some people never got the chance to purchase their own homes and are now looking at the people who outbid them, looking to being helped by the state with taxpayers money?


 
It would seem to be vastly unfair of course.  But it has to be looked at as a whole.  As in what is best for society.  Not sure that evicting lots of families would seem like a good idea, not if another solution can be found.


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## Delboy (13 Apr 2015)

Bronte said:


> It would seem to be vastly unfair of course.  But it has to be looked at as a whole.  As in what is best for society.  Not sure that evicting lots of families would seem like a good idea, not if another solution can be found.


Eviction is a loaded word in this country...I prefer 'relocation' myself


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## Waver (13 Apr 2015)

Brendan Burgess said:


> Around 40% have positive equity and should not receive any state aid.




What is the rational for this?

If someone is in positive equity to the tune of €10k but is unable to afford their full mortgage payment do you think hey should have to sell up and use the equity to fund maybe 10 months of rent in Dublin and then receive rent supplement?



Brendan Burgess said:


> That leaves around 20,000 in deep arrears and negative equity.
> 75% of those are in employment and so would not get rent supplement. They are simply choosing not to pay their mortgage.




Again what is the basis for this? Surely a household can have someone in employment but the household income be such that hey are unable to pay their full mortgage payment. Some of these households would qualify for Rent Supplement as it is available to those working less than 30 hours per week.


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## Sarenco (13 Apr 2015)

Waver said:


> What is the rational for this?
> 
> If someone is in positive equity to the tune of €10k but is unable to afford their full mortgage payment do you think hey should have to sell up and use the equity to fund maybe 10 months of rent in Dublin and then receive rent supplement?



Yes!  The banking system is a highly unfair and inefficient form of social welfare.

[/QUOTE]

Again what is the basis for this? Surely a household can have someone in employment but the household income be such that hey are unable to pay their full mortgage payment. Some of these households would qualify for Rent Supplement as it is available to those working less than 30 hours per week.[/QUOTE]

Well, if the household cannot afford their mortgage then they should not be entitled to remain in the house.  Nobody is arguing that the State should not provide assistance to those that could not otherwise afford to house themselves.


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## Grizzly (13 Apr 2015)

Bronte said:


> It would seem to be vastly unfair of course. But it has to be looked at as a whole. As in what is best for society. Not sure that evicting lots of families would seem like a good idea, not if another solution can be found.



There are many people who cannot pay their mortgage for lots of reasons. I don't think that anyone should be able to hide in amongst those unfortunates who have found themselves in this position. And believe me there are people hiding in the multitude and getting away with it. My neighbour parks his expensive car down the road from his house and not in his driveway. What's that about?. He will also disappear to his holiday home when the kids are out of school for the summer. The kids are in a fee paying school. His debt collectors call to my house in error. Why should I pay for him?
We now know that NAMA was about bailing out the speculators and the builders and the big players. This has already cost the taxpayers billions. Is this going to be round 2.
We are now down to to the ordinary person and I think that the banks should reschedule the term of these people's mortgages and capitalise their arrears but only after a thorough trawl has been done of their finances and lifestyle. Then the banks should be told to drop their rates and bring them in line with the European average. Lots of stuff can be done before the tax payer is asked to pay up again.


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## Codogly (13 Apr 2015)

I would agree with Grizzly on last point and for the life of me i cant understand why the government dont take what appears to me to be the obvious option : Extend the terms of the mortgages :
Outcomes :
1. Family stays in family home - no additional social housing issue.
2. The tax payer doesn't have to fund the mortgage.
3. The bank capitalised and arrears and takes ownership of the property when the morgagee dies ... hopefully this covers the   outstanding loan.  Note under no circumstance should the tax bayer bail out a morgagee only for them to pass that asset onto there childern.
4. Morgagee should be required to pay whatever they can reasonably afford (independently assessed).

Why would this not work...?


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## Brendan Burgess (13 Apr 2015)

I will be discussing this with David Hall on Matt Cooper at 5.45 this evening.

Brendan


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## Delboy (13 Apr 2015)

I don't know how you manage to stay calm around that guy, Brendan. He's accused you of being a banking shill at the weekend and again this eve. He's practically accused you of being a liar and a fantasist.

He just attacks with bluster and bombast if anyone is against his side of things


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## Brendan Burgess (13 Apr 2015)

Hi Delboy

It's something I have learnt from Askaboutmoney.  Readers and listeners lose respect for someone who attacks the person and not the argument. 

I think his attacks on me reflected badly on him and not on me. I just ignored them and focussed on the argument. 

The Saturday with Claire Byrne was particularly stupid of him. I had spent 30 minutes arguing why mortgage rates must be reduced and then in the second half of the programme he attacked "you and your banker friends".  I don't think that the listeners are idiots. I assume that they see through it.

I have long argued that we need repossessions. It's not easy to convince people of that, but, I think that they will see it in time.

Brendan


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## Gerry Canning (14 Apr 2015)

To Delboy/Brendan.

From reading your threads on Banking/Mortgage issues , you both seem to always start on .
1. Pay your bills.
2. Live within your means.
3. Minimal bail-outs ,unless absolutely necessary.

And you are both correct.

Another view.
1. It is a mess fanned by greedy Banks.
2. Poor Joe Soap got suckered in.
3. The Banks/Us should help Joe Soap.

Again correct.
................

Another-another view.

It is difficult to read/listen without getting caught on soundbites.

This issue requires no (sides) but a pragmatic look at what is best for Ireland.

a. If it means that in subsidizing mortgage holders is better/cheaper for Ireland than large scale repos ,then go for it . I do understand that Moral Hazard comes in but we ain,t structured to carry huge numbers of repos.
b. Subsidies can be engineered to stall Banks or mortgage holders having full control of any future upside.

.........
From my own view.
Those that can and won,t pay should be chased down and thrown out now,
All these chancers do, is dilute our empathy with genuine people who should be assisted.


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## IMHO (14 Apr 2015)

Brendan Burgess said:


> The Saturday with Claire Byrne was particularly stupid of him. I had spent 30 minutes arguing why mortgage rates must be reduced and then in the second half of the programme he attacked "you and your banker friends".  I don't think that the listeners are idiots. I assume that they see through it.
> 
> I have long argued that we need repossessions. It's not easy to convince people of that, but, I think that they will see it in time.
> 
> Brendan



Hi Brendan did you get the email about our open letter on mortgage arrears?


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## Bronte (14 Apr 2015)

IMHO said:


> Hi Brendan did you get the email about our open letter on mortgage arrears?


 What letter, is it in the newspapers?


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## Sarenco (14 Apr 2015)

http://www.askaboutmoney.com/threads/open-letter-to-government-re-mortgage-arrears.193281/


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## Bronte (14 Apr 2015)

That's funny Sarenco, that's the letter I put up for the Duke yesterday - that you subsequently opened a thread on.


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## Brendan Burgess (14 Apr 2015)

Hi IMHO

I didn't get it directly, but I have seen it discussed on askaboutmoney. 

It's a great name.  I got a good laugh from it.

Brendan


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## Sarenco (14 Apr 2015)

Bronte said:


> That's funny Sarenco, that's the letter I put up for the Duke yesterday - that you subsequently opened a thread on.



Yep, I assume it's one and the same letter that you brought to our attention.


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## Delboy (14 Apr 2015)

Brendan

You said on the radio yesterday that you had attended court in Trim recently where over 80 repossessions cases were heard but very little happened except more adjournments.
You mentioned 1 case where the person involved actually showed up before the Registrar- it transpired nothing at all had been paid for at least 5 years on the property. And yet the Registrar gave another 8 month adjournment to allow the person make contact with the bank!!!

Did I hear that right?


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## Delboy (14 Apr 2015)

The ever excellent Seamus Coffey has a great post up on his blog from a recent court sitting in Cork
http://economic-incentives.blogspot.ie/2015/04/cork-county-registrars-list-civil.html

Here's a snapshot from the days proceedings:





Could you imagine how worse that would read if we did have Strategic Defaulters in this country which we of course!!!!


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## IrishHusk (14 Apr 2015)

I think the comments from the registrar make for interesting reading


"Everyone needs to show goodwill; some repayments need to be made."
"Nothing possible without engagement; engagement involves making some repayments."
"There needs to be a level of engagement; make interim payments."
"It is helpful if one makes interim payments;  it doesn't have to be all or nothing."
"I have little interest in making orders for possession but there has to be engagement."
"Some money must be paid; take it one step at a time."
"I am concerned to see few repayments; some repayments have to be made on a regular basis."


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## Bronte (14 Apr 2015)

Delboy said:


> The ever excellent Seamus Coffey has a great post up on his blog from a recent court sitting in Cork
> http://economic-incentives.blogspot.ie/2015/04/cork-county-registrars-list-civil.html
> 
> Here's a snapshot from the days proceedings:
> ...


 
I just love the owner of no 10 in Colorado.  Paid 38 Euro, that's right three eight Euro in August 2014.  With montly payments at 360 Euro.  I'd love to know the thinking behind the 38 Euro.

And 11 already adjourned in Dec 2014 for engagement, none and a stay of 6, yes six months.  What a circus and there is no other word for it.


Thanks Delboy for posting, I knew it was a circus but it's even worse than I had thought.


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## Bronte (14 Apr 2015)

aidamcg said:


> I think the comments from the registrar make for interesting reading
> 
> 
> "Everyone needs to show goodwill; some repayments need to be made."
> ...


 
One borrower has made no payment since April 2009 and it was adjourned.  That's 6 years !!!!!


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## Bronte (14 Apr 2015)

Brendan Burgess said:


> I will be discussing this with David Hall on Matt Cooper at 5.45 this evening.
> 
> Brendan


 
It might be helpful, just saying,if you could post up the links or transcripts would be better.  In 10 years time we will all think we dreamt the whole thing.  The celtic tiger and aftermath that is.


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## dub_nerd (15 Apr 2015)

Gerry Canning said:


> It is difficult to read/listen without getting caught on soundbites.
> 
> This issue requires no (sides) but a pragmatic look at what is best for Ireland.
> 
> ...


You're right but why, oh why, does Ireland think it has to do this differently to the rest of the civilised world? Restructuring, insolvency, bankruptcy and repossession *are* the humane mechanisms by which this is achieved. People should be dealt with fairly and evenhandedly, and helped to restart their lives through insolvency or bankruptcy where necessary.

There is simply no way to go back and undo the fact that the "hit" of our false credit boom fell very unevenly, depending on people's circumstances. You cannot now do anything that involves subsidies for mortgage holders that isn't unfair to everyone else (with the sole exception of debt write-off upon asset surrender for those in unsustainable situations which, again, needs no new convoluted mechanism that doesn't already exist). There is simply no case to be made that having a huge loan entitles you to handouts. If we're going to go that route, why is nobody talking about levying a huge windfall tax on the hundreds of thousands of home owners who bought in the last millennium and have seen soaring equity that they did nothing to deserve? I'd love to see that one run up the flagpole and see who salutes!

Property booms and busts have been around a long time, probably since _Homo sapiens_ first took a shine to nicely appointed south-facing caves. The mechanisms to deal with them have been around a long time too. We just need to use them, and stop pretending we're in some kind of unique situation. Anyone proposing handouts needs to stand back and consider why those receiving them deserve them more than those who will be paying for them. They need to consider why those who -- however unfortunately -- can't pay their mortgages, should be prioritised above those who have to rent, live with relatives, queue for social housing, or any of the plethora of situations that the rest of the population lives with.

This is not about being mean spirited or hard hearted, it is about equable treatment for all.


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