Debt Forgiveness.


You are right, if we merely replace interest with rent it might not have a big enough impact on improving people's day to day finances. This is why it should be rolled up.

An example of this is as follows:

Mortgage €400k, Market Value €250k.

Bring the mortgage down to a manageble amount - say €300k (I'm assuming there are a lot of people who would be out of immediate trouble from a 25% reduction in mortgage payments).

For this €100k reduction, the bank takes 40% (100/250) ownership of the property.

Say a rental yield of 4% is set. The owner must pay the bank 40% of this or 1.6% of the market value of the property.

If the person is unable to pay this, it is knocked off their equity i.e. if they simply continue to make the payments on the €300k with no rent, after ten years their ownership drops a further 16% (1.6% * 10) to 44% of the property.

The advantage of this is that they are no forced to move out of their house and take a forced loss at a firesale price.

If their circumstances improve over the next 10 years they can start to buy back a full share of their house. Additionally if the house can be sold on better terms at a later date, the losses are not as severe as in the forced sale situation.

It does us no good to engage in mass forced sales in the current environment and equally it does us no good to pardon debts of people who may bounce back in the future.
 

I'm sorry Purple but honour and integrity??? How do you think we got into this mess. I really don't see why children should be deprived of their father for a sizeable part of their childhood because of high minded ideals. These are exceptional circumstances and I think should be dealt with by exceptional measures. I agree with The Banker.
 

If they can lead a confortable lifestyle even allowing for topping up whatever rent they make to meet the mortgage, I see no reason for them to illegally walk away from their debt.
 
Perhaps there should be different types or restructuring then.

Firstly for those who can no longer afford to pay their mortgage due to job loss.

They should be the priority, negative equity is to me anyway,a different issue.
You can live with negative equity,while it may restrict your life choices,it is not the same as being unable to pay due to job loss.

Luckily for me,Im not in negative equity and can pay my mortgage.I did borrow for an extension,but the price first quoted was double what I was willing to pay,so I waited..and got it for less than half of the original quote.

The point is ,how can we turn our backs on the younger crew,who tried to get a home for themselves and possibly a family.These were mainly bought in towns far from their workplace away from family and friends and have a long commute every day..if they have a job..

SO what happens to them now,if they dont have a job,they cant pay the mortgage,so the bank lets them go on interest only for a couple of years,but then what..no one seems to know..but I think if we dont do something for them,they will end up in rented accommodation,paid for by the tax payer.
If we just leave them,what will happen to the thousands of houses out there that have been taken over by the banks?

What will the people who are in that position do?
What do people suggest they do?

Think about it,you are young,you may well have saved for years for a deposit,your mortgage could be very reasonable,then you and /or your partner lose your job/s,what would you do? What would you hope would happen.

We cant say,hard luck..that just wont work,how could it?

Regarding those who bought during the boom being immature,and the suggestion that they rent,you must bear in mind that if all of those who bought houses,rented instead,surely that would mean that a lot of people would have invested in apartment building,the people who built the houses,the plasterers,plumbers electrics, block layers,jcb drivers,home furniture stores.curtain makers,architects etc etc would not have had jobs either.so while they may have added to the boom by buying a house ,they also helped many others giving them employment which meant in turn they could give others jobs by eating out,buying cars etc..

If people are in trouble in their thousands, we must do something or else society will break down..
I would love to hear what others suggest they do?
 
If a tenant cant pay the rent,they would normally be entitled to rent alllowence,so that is their bailout..

What is the alternative Purple?
 
Mortgage holders in real trouble don't want to keep something that doesn't belong to them. They would be very happy to give up the house if they could give up the mortgage too. They just want a fresh start.

Its just not about integrity. I came across a guy once who was not very educated, he was a skilled laborer. His Dad did some business with a particular business bank that I suppose I shouldn't name. He applied for a personal loan with the mortgage section of that bank and got a call shortly afterwards from the manager in the business section to tell him that he didn't qualify for a personal loan (he didn't earn enough) but not to worry they would "sort him out". He was given a business/investment loan at a rate of 6.5% variable (this was in 2004) to buy his first home. He managed payments for about 24 months, then things started to slip. He is unemployed with two small children today. He's a simple guy who bought a simple three bed semi because he wanted to provide a home for his kids. He now has no job, huge NE, and no choices. He suffers from depression. I'm sure he would have grounds for mis-selling against the bank, but the bank took a personal guarantee from his Dad so he is terrified of rocking the boat. So that's one person among many. It is not lack of integrity or honour that is keeping him from paying his mortgage. If he can't afford the house then he should give it up - he would have no argument with that - but then he would be in state housing. Wouldn't it be better though to reduce the mortgage, give him something realistic to work for and give him some pride back?
 

Hi Derkaiser I think this is really interesting but if you do the sums (unless I'm missing something) it doesn't work out.

A reduction in mortgage from €400k to €300k (assuming 30 yr term 4.4%) works out in a reduction of monthly payment of about €500. However 4% yield (I assume on the reduced amount of €300k?) is €12k and 40% of this is €4,800 or €400 per month. So the borrower in question would be better off by €100 per month. This is not going to do the job and the borrower still can't sell the home as he is still in NE. Did I misunderstand you?
 
thedaras said:
If a tenant cant pay the rent,they would normally be entitled to rent alllowence,so that is their bailout..
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Mortgage holders get interest relief. I am against rent allowance as it is just a subsidy to landlords to keep a floor in the rental market.

thedaras said:
What is the alternative Purple?
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People go bust (lose everything but have no legacy debts), banks go bust; depositors lose their money and bondholders lose their investments. The tax payer shouldn’t have to pony up one cent for any of this. Even at this stage we should default, with or without the cooperation of the IMF/EU.
We need to wipe the slate clean and start again. Moral hazard should always be there, like the sword of Damocles, as a cautionary sign to anyone taking or offering a loan or making or taking an investment. Once we forget that then we will have a form of free market socialism where debts are nationalised and profits remain private. It is fundamentally wrong.
 

While I wouldn't go as far as you Purple (purely for realistic reasons), your point is valid. One of the biggest problems in this Country at the moment and is forgotten about is personal bankruptcy laws. There is something wrong when a company owing millions can go bankrupt easier and with less consequences than an individual owing tens of thousands.
 
Purple said:
I agree but it is being suggested that people should keep the home they can't afford and a portion of what they borrowed should just be written off. I don't think that's acceptable. What sort of a lesson is that to teach your children?
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The tale and the possible solutions to this tale are why this debate is necessary.

We have people in serious financial peril. Some, undoubtedly due to their own need for maintaining a certain lifestyle and some through unfortunate circumstances and timing. However, it does this state no good to have either struggle, homeless, on welfare, or emigrate. It does families no good to live through this.

Some of us here will have lived through the daily pressures of the bad old days and the impact that had on families. I hoped we'd never be back.

Debt forgiveness is not a solution, but it's a starting place. There are other options.

Take your friend. Why should we lose that earning potential, intellectual potential, tax income, vat income, etc? He needs to down grade to support his circumstances. Forgiveness should come into it in terms of selling a house to downgrade and what we then do with the negative equity. Again it does no good immediately to demand this money. Can a structure not be put into place then in terms of a new loan with a fixed rate that takes account of the new property and the negative equity. Maybe the NE is fixed to not be subject to interest.

It is then set within a scale of periodic review whereby when circumstances improve, then the repayment system reflects this.

So yeah, some who weren't careful will be recipients of a scheme, but it does us no good to just ignore the increasing problem facing a lot of people. We either end up with a greater social welfare bill or we start splitting up even more families or lose whole families to go off and pay taxes elsewhere.

We've gone past the stage of shoulda, coulda, woulda. Lectures on financial responsibility won't feed a family. Restructuring debt along with debtors taking responsibility with a proven downgrade in their lifestyle and a longer debt repayment system wouldn't make huge dent in our current economics. But the potential for recovery is huge in that we retain them here, we have weights taken off their mind and we still have them as potential future good earners and spenders.
 
@Purple;Mortgage interest relief is being phased out as far as I remember and its not comparable to rent allowance which is much higher.( I may well be incorrect in this though)

If those who need rent allowance dont receive it,what do you suggest they do if they cant afford to put a roof over their heads?

And what will happen to all the landlords who own apartments that then cant rent them out?

I dont think it has been said that the tax payers should necessarily pay for those who go bust,rather that they come to some arrangement that will allow them to pay over a longer term? Or until their circumstances change?

I understand the moral hazard,and I dont like the idea of bailing out anyone,banks etc,however we are talking about thousands of men,women and children and we need to find a way for them to make it through this.

Obviously it must be very closely monitored and even if one or two make it through that shouldnt be bailed out,it may be something we have to sacrifice for the greater good.

I just dont see how we can leave all these people with no homes,no jobs,no prospects,no light at the end of the tunnel,It would be one hell of a world we live in where we have to bail out the banks and yet tell those who have nothing to get stuffed.

Its all about how this is done,and how it is implemented,I dont think any of us know how the government propose to do this,it will be interesting to see how they can appease everyone,and take moral hazzard into account.

The logic is that if we do nothing we will have thousands upon thousands of families with no homes ,we will have thousand upon thousands of houses vacant,we will have to pay to accommodate these families.and that is neither workable nor fair.
 
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The 4% (set below the prevailing interest rate) would be on the market value of the property owned by the bank, in this case €100k. This would be €333 rent p.m. compared to €500 p.m. interest plus capital repayment on the €100k.

The key would be
1) the rental yield is set below the interest rate to ensure the borrower is better off - this is a form of debt forgiveness (€170 p.m. in this cse)
2) The first point on its own will almost certainly not be enough in most cases, so the rental portion can be exchanged to leave the bank with further equity. In this case €60k of waived rent over ten years would leave the bank with €160k of equity.



The main advantages are:
  • The bank does not prematurely write off debt and lock in losses only for circumstances to improve
  • The customer has a chance to stay in their home, with reduced monthly payments and some breathing space to sort themselves out over a reasonable period of time
The main disadvantage would be if the economy and the individual is in an even worse state 10 years from now
 
Purple said:
We are a nation that behaved like spoiled children over the last 10 years and many of us have learned nothing from it, still expecting someone else to clean up after us. Maybe someday we’ll grow up.
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Some people behaved like spoilt irresponsible children gorging themselves until they got sick, some people just wanted to put a roof over their heads and bought at the wrong time out of panic that prices were going to keep going up. Seriously, a bit of sympathy instead of tarring everyone.....
 
I have read this thread from start to finish, and I think it is the same arguments we have been hearing for a while now. Personally I do not want to see any debt forgiveness because it will cost the taxpayer and I do not agree with the mistakes of a few being paid by everyone. The same goes for the bank bailout, which I am totally opposed to, but I think that sooner or later the country will have to default on a large portion of the socialised bank debt.

Reading posts on this thread I see that one thing that has not been affected at all is that so many people still believe that owning your own home is some sort of right even obligation. So many people still think it impossible to have a family in a rented property. I bought a house in 2004 and sold in 2008 because I changed job and prices had clearly started going down. Since then I have been renting and we now have a baby. To this day I have people asking me how I can live in a rented house with a baby. A friend of mine and his wife want to start a family but "are stuck in an apartment". Even after I pointed out that they could cover 75% of the mortgage by renting it out, and then rent a nice house a little bit further out of town for less than what their mortgage is, they refused to acknowledge this as a solution.

It is this obsession with property ownership and this bizarre idea of a property ladder that contributed to the mess and it certainly continues to do so now. Any form of taxpayer subsidised debt forgiveness will not bring the necessary change in attitude.
 
I agree we would be better off if we lost this obsession with owning our own property. But that has to go hand in hand with a properly regulated rental market where rents can't be put up at the drop of a hat, properties have to be well maintained and tennants can't be evicted because the landlord's son wants to move into the property. There is no way, in the current situation, that I would want to be renting in old age or see any of my siblings in that position.
 
Agree Liaconn.

The idea of owning your own property in Ireland is a cultural norm. Its not easy to change the culture of an entire population. And certainly not easy when the rental market is not properly regulated.
 
Purple said:
We are a nation that behaved like spoiled children over the last 10 years and many of us have learned nothing from it, still expecting someone else to clean up after us. Maybe someday we’ll grow up.
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This would be fine if we weren't on the verge of a very serious problem. As Liaconn states not everyone of those pursued an unrealistic lifestyle. It may not be the most accurate survey, but the fact that 250,000 people have no money left after paying bills is worrying. Any interest rate change or any inflation is going cause serious issues for them and those nearly at that point.

This is not just people looking at a big house, two cars, holidays, credit cards and shopping in BTs. This is people who bought property as a home at the peak of a market, who have seen wages reduced to 2002 levels, but prices remain at 2011 levels.

But it's that critical mass of out of 4 million people in the state, 250K may not be able to put food on the table.

This is where empathy and what is best for us can meet. It is not in my interest as a tax payer that they are left to struggle. Whether it be welfare bills and other benefits, there's health issues and more importantly the prospect that they just up and leave the state so we are left with the complete loan on our books (as we own the banks) and we lose tax revenue.

What we aren't show is just how the cost of restructuring loans (it will never be full forgiveness) compares with the long term cost of leaving people in that situation. I'm not coming at this from an empathy level, I'm purely looking at what other burden I'm likely to carry if we leave it like it is in the short term and then the effect of that on long term recovery.

Yes people will have to change their attitudes to property, but then that should be part of a deal, downgrade, lower costs and debt will be reasonably restructured. For many of those involved it will be a temporary measure and once there's recovery, then we renegotiate the loans.

If we control the downgrading and then how we structure the negative equity, we also get to control the house prices to some extent and aren't left with fire sales of abandoned or repossed properties. While not artifically propping it up, at least preventing an even greater crash and the consequences then on pensions.

I've stated all along, when it comes to the bankers, developers and those citizens who tried to achieve a lifestyle on credit, I'm as annoyed and disgusted as the rest. But I just want the problem fixed rather than, as we have, spending 3 years fixing the blame. I'd rather my future was more optimistic than see it ruined for the short term satisfaction of schadenfreude.

Long ranting way of saying, yes we should grow up, people should accept responsibility, but there also needs to be maturing done by others that we may need to shoulder some of this to prevent an even bigger disaster and an even bigger bill for us.
 
Ok, I am all for helping those young families who bought a long way from home etc.but what happens in the following scenario..
A one child family buys a house,expensive but affordable,they knock it and rebuild to very high spec ,costing a fortune,all during the boom.While other neighbours with more kids didnt do this.
Now they are in trouble with trying to repay their mortgage,what should be done about that situation?
I for one,do not want to help them out..I am more that willing to help some but not others,does this make sense?
 

That's the conundrum alright. There's no denying that some people did behave atrociously during the good times, borrowing large amounts of money for complete inessentials and purely motivated by showing off and trying to make other people jealous. I do agree that they should have to face up to the consequences of their foolish behaviour. I do think, though, that people who simply bought a very ordinary house or apartment in a very ordinary area and are now on a hugely reduced salary and in negative equity are not in that category. I definitely don't think taxpayers should be funding people's holidays, SUVs, re done kitchens etc. There would have to be strict criteria as to who got some help with their debts and who are really victims of nothing except their own greed.
 
Plus 1.

Very well put and I couldn't agree with you more..
 
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