herald

Saturday 18 August 2018

Forgiveness fever should not mean that those who can pay will have to suffer

I read disturbing commentary on one of the reasons why mortgage arrears have risen so much lately -- up 10pc in the past three months.

It's not just about rising interest rates, lowering incomes and banks putting on the squeeze. It's the suggestion that a number of people are so convinced that debt forgiveness will become part of the banking landscape that they're throwing the towel in prematurely.

They're convinced, if they owe enough, it'll be 'forgiven' in due course.

The hype surrounding the discussion is as reckless as these people, and Finance Minister Michael Noonan is letting it continue, even stoking a few flames himself. Debt forgiveness simply cannot happen, because it is not in the interests of anyone who is in a position to make it happen -- the Government, the IMF, the EU or, especially, the banks.

One in 20 mortgages is in arrears. Many of these are people who should never have been allowed a mortgage in the first place. Many bought from sub-prime banks on high interest rates. They had no hope of ever paying. This is at least partly the banks' fault.

They will be repossessed, join the housing list and start again. The bank will get a diminishing asset to sell off. It's lose-lose. Them's the breaks when you tout your business in a reckless manner.

Should they be allowed the folly of the rest of us paying for their house so they can stay put? 'Normal', prudent borrowers will certainly say no. That's the vast majority by a long mile. Only 40pc of homeowners have a mortgage at all, so those who are fully paid up will be expected to chip in.

In fact, most people would baulk at the very notion of paying their next-door neighbour's mortgage, however well-disposed they are feeling toward him. Add the neighbour on the other side, your brother's best friend and your second cousin, and it wouldn't be long before they're would be outright anarchy on the streets.

The term 'forgiveness' has a warm, fuzzy glow to it. It's about allowing a recalcitrant child away with a wrong doing. But with mortgage forgiveness, someone has to pay: not the errant borrower, but all the good borrowers.

Noonan talked firm but dumped the entire mess on the banks, by suggesting that if they wanted to go ahead and 'forgive' customers' debts, they have enough money to do so. They don't. And this is political cowardice.

To be sure, banks 'forgive' debts every day: commercial decisions made when the cost of recovery is greater than the hope of repayment. To formulate a Government policy on it for the masses is an entirely different matter.

What will happen is the implementation of the LRC proposals on bankruptcy, due early next year. This will allow those in deep indebtedness to admit it, get help and start afresh, with a balanced, measured set of guidelines. It is not a free for all.

The EU says we must have measures in by January. Some more people will lose their home, the taxpayer will have to stump up a bit more. Nobody will march on the streets if we do it properly. That's a sane society's approach, rather than a banana republic's.

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