McWilliams on mortgage debt forgiveness

MOD EDIT , Rick willya quote selectively in future please and link the original article too !

Which means that (if I remember the poll we had here a couple of weeks back correctly) over 60% of pinsters disagree.

My tuppence worth is that much of the debate we had here was centered on the rights of “savers” ( those who abstained from the housing market) versus everyone else. A fair number of posters, it seems to me, are more concerned about how they might be affected by debt forgiveness than the potentially horrendous societal consequences for Ireland McWilliams describes. Specifically, the insider/ outsider dichotomy. They too are VIs.

Can you add a link please?

Sorry

independent.ie/opinion/analy … vice=Print

Here is the link to that news article (which you should try to provide in the future):
independent.ie/opinion/analy … 16757.html

Also, no need for blue text, I’ll change it to a quote

I’m also moving this to the “The Return of the Banana Republic, Pt. VI The Slippery Slope” forum.

I personally don’t have a huge sum of money saved up but I’d be against this sort of action.

What sort of precedent would it set. No-one forced people to take out mortgages, they did it of their own free will (with one smart exception).

They are not the first people to lose money on a house and they should not be the last.

It’s a gamble to take out a huge multiple of your earnings in the hope that prices will always go up. Sometimes gambles don’t pay off.

Stupid decisions = consequences.

Yeah, sorry again. Lack the IT skillz :frowning:

I don’t remember this poll. Have you got a link to it?

McWilliams is predicting a lot of pain for a lot of people in the economy. His idea in this article says to me that he’s looking for a way to make the least pain for everyone on average.

Extrordinary times call for extrordinary measures.

Once off tax amnesties are not without precedent. Could a similar principle apply here?

viewtopic.php?f=4&t=17327&p=189031&hilit=write+off+mortgages#p189031

I’d rather see banks wound down, chief execs given prison time…come down on the banking system like a ton of bricks.

Why would future generations not mortgage themselves up to the hilt in the hope of an amnesty?

I think we should spend less time worrying about future generations / moral hazard and more time about this generation and the very real problems it faces.

I understand he’s looking at a massive problem which affects a lot of people quite severely. I have a lot of sympathy for their plight but they each chose it. Any solution like debt forgiveness merely rewards the reckless and punishes the prudent.

Why not just push the term of the mortgage out from say 25 years to 40 years,which would reduce monthly repayments instead of cutting the principle in half. Didnt Japan have generational mortgages whereby the children picked up the batton to pay off the mortgage, although that wouldnt be fair on them either as they would be paying for the mistakes of their parents.

Or in other words, we should solve this crisis even if it plunges us into a much worse one.

If we divorce risk from reward, make contracts meaningless and create a society where reckless abandon is paid for by those smarter than that then we’re looking at the end of free markets and the beginning of mob rule. It’ll be impossible to save money or even earn it without someone else deciding they “need” it to bail them out of their own stupidity.

Only if they want the house. And in any case the life insurance would cover it. Having said that, it will become a problem with pushing the term out that the risk moves to the life assurance companies - if you are thirty and the term is pushed out to 40 years, the chances of you collecting on the life assurance increase dramatically.

Part of the problem is that even with mortgage rates at the very low level they are at currently, people still cannot afford the payments. If you pick the average rates they will pay over the next twenty-odd years and the likelihood of wage deflation over the next couple of years, you have a really big mess.

I think some method of relieving pressure on these people should be a good thing - provided it doesn’t overly inconvenience savers.

So how does one structure a system so that it does not “inconvenience savers”?

But what if in return for a 50% stake in your house, as David says, the “upside” is transferred to the State?
Or that on the death of the owners of the house, the property is transferred to the State?

Basically devise some way that people can have the utility of a house, but not the speculation of a house.

Yes, it rewards the reckless and punishes the prudent.

But if the debt forgiveness also causes us to avoid a truly monstrous depression and/or massive emigration, then even the prudent should live with it.

I agree with that general statement of principle.
But I don’t see how a once-off and clearly-defined measure of debt forgiveness equals the end of contract law. At least I don’t see how it means that any more than a tax amnesty equals the end of taxation.

We already have insolvency procedures like examinership that causes creditors (contractual counterparties) to take a bath.
And, thinking of insolvency law, the whole purpose of examinership is to take a company that has a reasonable prospect of survival and give it a chance to show it can survive, even if that means depriving some creditors of their right to take action in the short term and, in the long term, encourages them to settle for partial satisfaction. Much as that could be said to encourage moral hazard, it is broadly recognised as being a better approach for public policy than condemning to death every company that falls on hard times or makes an investment mistake.

There’s not enough in his argument to convince me, not at all. (For one thing, it would be quite an injustice if any scheme cut/“postponed” half the debt where the debtor couple still enjoyed good jobs). But I think his only aim is to get us thinking, and at least consider this sort of radical action. Since most of us seem to be in agreement that we are facing a true catastrophe, we have an obligation to give serious consideration to any plans that can help.

I agree some method of relieving pressure on people who want to stay in their home is good but it’s not just savers we don’t want to inconvenience. We also don’t want to increase the pressure on other people looking to get into the property market - let’s remember that for every poor soul stuck with a mortgage they can’t afford there’s many more who would have liked to own property but decided not to because it was too expensive.

We also don’t don’t want to increase pressure on the taxpayer. People up and down the country are trying to deal with their own shit and don’t need the government knocking down the door to take more from them to give to others it finds politically expedient.

Someone already mentioned increasing mortgage terms. The government could probably step in and underwrite the life assurance part because I doubt the industry wants to touch 30-40 year olds with 30-40 year mortgages.

Let’s remember these people all knew they were signing up for 30-35 year mortgages but they chose to focus purely on the monthly premium. I don’t see how we can let people sign up for that and then come along later and say “Ah sure you probably didn’t understand 35 years meant 35 years, here let’s cut it in half for you, run along now you little scamp!”

The problem is even when you cut the price of a lot of houses sold in the last 3 years by 50% there will likely still be no upside for the state to reclaim. The state will simply be taking on the negative equity and letting the purchaser walk free.

The market is taking care of speculators quite handily, they’re not really an issue.

What is an issue is people stuck in shitty shoeboxes they don’t actually want and can’t afford. I know lots of folks who should have rented but decided they had to get on the ladder before it passed them buy, they naturally went for what they could afford not what they wanted.

We can easily devise a system that allows people to live in their current property assuming they remain in employment and keep paying a reasonable mortgage amount. The real headache is people in one bedroom apartments who will want/need to move to proper houses soon. I don’t see how this is possible without letting them walk away scot free and having the taxpayer/saver/FTB paying for their mistake.

It’s also worth noting that while we have a huge glut of empties I suspect we’ll hit a shortage of 3+ bed houses within reasonable distance of Dublin on fairly short timescales. Any canny builders who want to make money in 3-5 years time should start building those now.

This way already exists. It is called “renting”.

EDIT: Anyway, more back on topic. DMcW concept looks nice: nobody gets really hurt. No real money is lost, it is only on the banks books (which they need to write down anyway). However, I am sure that somehow at the end all of the taxpayers will pay for it.
I have my own mortgage and I took it out fully conscious of what happens if I can’t pay it. That’s why I didn’t stretch myself, have savings (and continue to save). I do not want to pay other people’s personal debt, in no way.

Does it not make more sense to reform Irish bankruptcy laws.

Can a bank operate if debts are written off but they do not take possesion of the house?