The reality is that there are many people in this country in serious negative equity who cannot pay their mortgages, and there will be many more in that boat if tax and interest rates increase as expected.
IMO it is not at all unreasonable or unjust to try to do something for those people, if at least part of the reason for those tax increases is to bail out the banks.
Put yourself in their shoes for a moment.
Imagine you bought your family home in 2006 for €400,000. The last house in your estate sold for €250,000 six months ago. There are five houses with for sale signs up but nothing has sold since. So your home is at least €150k in negative equity but there are no buyers even at that price. Your mortgage is €1900 per month and most of that is interest. You are a civil engineer who has lost his job. Your wife is a public servant who has had a reasonable salary cut (levy) but is expecting more serious cuts (and possibly job losses) coming down the line. The family have one car loan (€120 per month), small amount of credit card debt (€100), and two children. The family have almost exhausted their savings paying interest only on their mortgage over the last year and a half but have reached the end of the line, particularly because his job seekers benefit is up and he doesn't qualify for job seekers allowance.
SO she's earning say €2k per month. Food, light and heat, clothing, school expenses and general expenses for a family of four - say €1400 per month. Leaving €600 per month to pay for car loan, credit card and mortgage.
Assume the house is repossessed and sold at a fire sale. Sale price €180,000, less costs of sale and repossession - about €160,000 comes off what the couple owe. So they are now homeless and they still owe the bank €240,000 or a monthly payment of €1,141 over thirty years! Guess what - they still can't afford to make that payment, and now they will have to rely on the state to provide housing. The bank writes off the loss which adds to the cost of the bail out, which she is partially funding through increased taxes! Where is the sense in that??
So some common sense is required.
What about this as a solution:
Value of the house is assessed at say €225,000 or 56% of the mortgage. The couple transfer 44% of the ownership of the house to the bank in consideration for forgiveness of the balance of the mortgage. The couple now owe €225k. They can just about pay interest only on that and agree to do so until he gets a job, at which point they will start repaying capital. The couple agree to keep the house, maintain and insure it for at least 10 years, after which they can sell if if they wish. On a sale the bank gets 44% of the sale price.
Fast forward 15 years. The house is sold for €350,000. The bank is entitled to 44% of that or €154,000. The couple are entitled to 56% or €196,000. The balance due on the mortgage is €136,000. When that is paid the couple are left with €60,000 from the sale. The bank has been paid the following:
€109,000 in interest over 15 years.
€89,000 in capital repayments over 15 years.
€154,000 from the sale
Total €352,000.
Obviously this is less than ideal for the bank. It has suffered a loss of €48k excluding cost of funds. But in a repossession it suffers a loss of €240k, the couple lose their home with all the dramatic social problems that causes (and ultimately costs society).
So what's wrong with trying to find a creative solution?
