Morgan Kelly calls for debt forgiveness for struggling mortgage holders

mathie

http://www.thejournal.ie/morgan-kelly-struggling-mortgage-holders-should-be-given-debt-forgiveness-204994-Aug2011/

THE ECONOMIST WHO predicted Ireland’s property crash has said that a €6 billion bailout for householders in mortgage arrears that allows them to walk away from their home loans would solve most of the problem.

The UCD economist Morgan Kelly told the Irish Society of New Economists at the university yesterday that “spending €5 billion to €6 billion on mortgage forgiveness, mortgage principle reduction and allowing those hopelessly indebted to walk away from mortgages, would probably solve most of the problem,” for mortgage holders the Irish Examiner reports.

The Irish Times goes on to quote him as saying: “We are talking sums in the region of €5 billion to €6 billion which would be necessary to spend on mortgage forgiveness, which by our standards are not very large”

“This sum to sort out tens of thousands of people with big problems does not seem enormous.”

He delivered what he deemed “good news” by explaining that “if you leave investment mortgages out [of total mortgages owed], which are largely the banks’ problem, and look at mortgages people have on their own houses, there are about €55 billion of these out there.”

Looks like a step closed to debt forgiveness when MK trumpets it as the answer.

Paulw

But why should there just be debt forgiveness for those struggling?

Why is that fair?

Would it not be fairer for blanket debt forgiveness? Why should those who have managed their money well (not that I'm blaming anyone who is struggling) not also be assisted?

Frank Black

I don't think most people would have an issue with 'debt forgiveness' if the assest on which the debt is based is surrendered.

Some people seem to be under the impression that their debt will be written off and they will be allowed to continue living in the overpriced place that they bought during the boom.

Dades

So, how would this work?

Does the "negative equitee" have to sell the house, give the bank the proceeds, and walk away?
Or do they just walk away leaving the property in the hands of the bank?

Either way there are big potential issues.

Also, there would be a serious flood of houses on the market.
/Rubs hand in glee

Raskolnikov

Dades wrote: »

Does the "negative equitee" have to sell the house, give the bank the proceeds, and walk away?

I doubt it.

The most likely scenario would be that part of the negative equity would be written off.

variety

So what happens if the person given debt forgiveness retains the property and sells it in the next property bubble (say 30 year time) making an enormous windfall as a result. Would they then be expected to pay back the amount given debt forgiveness to the bank? Unlikely.

I agree with the other posters- if there is debt forgiveness for those in trouble, there should be a comparable benefit given to the savers.

Zamboni

Moral hazard alert.
I'm surprised at Prof Kelly to be honest.

When this kind of solution was bandied around before I remember the common attitute by people who keep up with their mortgages, despite NE, would be to stop paying too. i.e. why should one group be let off the hook etc...

Raskolnikov

Zamboni wrote: »

Moral hazard alert.
I'm surprised at Prof Kelly to be honest.

It's too late for moral hazard alert.

We're already bailed out the banks for making mistakes and allowed most people in these companies to keep their jobs.

We've already written down and forgiven part of the debt that NAMA developers owe.

These people were speculators, and they've been forgiven; so what's the problem in forgiving ordinary homeowners?

krissovo

What a crazy notion, already half the country feel hard done by by the down turn. Now there is a possibility of upsetting the other half if people are excused thousands of euro and there is nothing in return for those who were "smart" during the good times.

Balmed Out

I presume they would also have to be walking away from their houses, a reduction is silly, everyone would be struggling all of a sudden:D. I dont have a problem with helping out people who have lost their income and are struggling with their mortgages but on the other hand most of the people struggling bought in the expectancy of their asset rising in value. If it had would they be giving up the profit? People forget that more then politicians, bankers and developers those who fuelled the boom buying overpriced houses got us into this mess.
Im in my mid thirthies and have wanted to buy a home for over 10 years, what I could affoard never represented value for money for me so I havent. All of these measures as well as the existing NAMA situation seem to be designed to protect those who made mistakes thus meaning I still cant get value for my money.
So many many people in this country have income thats not declared. I remember in college in the 90s people who were recieving grants getting dropped in by parents driving fairly expensive cars. There would be no way to do a scheme like this without an awful lot of people taking advantage of it to wipe out bad investments at the taxpayers mistake.

People need to start taking responsibility for their own decisions instead of looking for bailouts. I do feel for those jobless and would like to see some sort of mortgage freeze until they get on their feet agian but at the end of the day if you take out a loan then you not the taxpayer should pay it. Obviously we do also need to update the bankruptcy laws so people do have some sort of an option if they are in a hopeless situation but not this.

Zamboni

Raskolnikov wrote: »

These people were speculators, and they've been forgiven; so what's the problem in forgiving ordinary homeowners?

I'm not arguing about the moral hazard regarding banks and property speculators.
I'm talking about rewarding poor financial decisions by the individual.
Multiple wrongs don't make a right.

Dades

So unless every homeowner will be allowed have their property valued, and their mortgage principle cut to that new value - there will be serious inequity.

Compare the guy who is not 'struggling' to pay a 400K mortgage on a 200K house - with a guy in the same property position but with no job to make the repayments. The struggling guy gets to walk away from his mess, but then gets a job down the line and is debt free if he wants to buy the same house for 200K. The guy who kept his job is still in debt the red to the tune of 200K and hasn't cost the taxpayer a cent.

The more you look at this the more it looks like a can of worms.

Faolchu

Paulw wrote: »

But why should there just be debt forgiveness for those struggling?

Why is that fair?

Would it not be fairer for blanket debt forgiveness? Why should those who have managed their money well (not that I'm blaming anyone who is struggling) not also be assisted?

Couldnt agree more, I've managed to get by not miss a payment and wwhat not. why should i be expected to continue like this while someone that lied on an application form, over extended themselves or just had a run of bad luck gets their debt written off. what are they more deserving than me?

Zamboni wrote: »

the common attitute by people who keep up with their mortgages, despite NE, would be to stop paying too. i.e. why should one group be let off the hook etc...

if this started happening across the board the first thing i'd do is stop my direct debit on my mortgage account. actually i'd probably close my bank acocunt and open a new one elsewhere and use that for everyting instead.

sharper

Faolchu wrote: »

Couldnt agree more, I've managed to get by not miss a payment and wwhat not. why should i be expected to continue like this while someone that lied on an application form, over extended themselves or just had a run of bad luck gets their debt written off. what are they more deserving than me?

For any type of debt forgiveness you end up with haves and have-nots, since the current crisis is ultimately debt driven the "haves" are those that precipitated the crisis and the "have-nots" are those that didn't.

Consider two people living on the same street side by side. Guy A did as you describe: over extended himself to get a mortgage. Guy B thought it was all madness and rented instead. Now guy A gets bailed out using taxes from guy B. Guy A is left with the house, guy B is left without a house and with less money to ever buy one.

The only real solution is bankruptcy reform. The process of discharging your debt must be a painful one and not one that leaves the person ahead, it simply unloads a burdon they can never hope to satisfy.

If people want to lose the house, lose their assets and any savings in order to discharge their jumbo mortgages then fine. You can be pretty sure though that what people are actually expecting is simply for their mortgage to be reduced by 20-50%.

snickerpuss

I can't believe someone I thought was vaguely sensible has come out with this idea. If only I'd been reckless and bought what I couldn't afford, I'd get a free house. Whoop! Honestly... Why in Ireland must we always reward people who are reckless and unprepared?

Zamboni

snickerpuss wrote: »

Whoop! Honestly... Why in Ireland must we always reward people who are reckless and unprepared?

As a very young and naieve nation, we vote on popularity rather than competence.

seamus

Dades wrote: »

The more you look at this the more it looks like a can of worms.

Not necessarily, if you use the carrot-and-stick approach that I posted on AH. That is, "Here's a lovely carrot if you want it, but I will beat you with this stick while you eat it".

Basically you give people options for getting out of their situations that aren't completely just get-out-of-jail-free cards.

So, let people walk away from their mortgages, but leave them in a "bankrupt" legal state for five to ten years or so. They can rent or emigrate, or whatever, but they'll never get credit. Ten years is a surprisingly long time when you have to live it, so I don't think this would be an "easy" way out by any means.

Or you could reduce someone's mortgage but leave them in a no-profit position for the life of the mortgage. If they move or die, the bank takes everything.

Both would provide ways for people to escape from an impossible debt burden, but come with harsh enough consequences that simply sticking with it isn't a bad choice either.

Wile E. Coyote

Debt forgiveness will never happen in this country because as a nation of begrudgers we don't want to see someone else benefit where we can't.

What I'd like to see happen is the government force banks who benefitted from a bailout to drop the interest rate on all homeloan mortgages, bought during the boom, to 2% and fix them there for the next 5-10 years. This would still hold people responsible for the principle amount that they borrowed but would significantly reduce their month bill. Any one who isn't struggling to meet their payment could maintain the current amount and clear down their negative equity a lot sooner putting them in a position to sell the house if they wanted.

Theboinkmaster

Wile E. Coyote wrote: »

Debt forgiveness will never happen in this country because as a nation of begrudgers we don't want to see someone else benefit where we can't.

What I'd like to see happen is the government force banks who benefitted from a bailout to drop the interest rate on all homeloan mortgages, bought during the boom, to 2% and fix them there for the next 5-10 years. This would still hold people responsible for the principle amount that they borrowed but would significantly reduce their month bill. Any one who isn't struggling to meet their payment could maintain the current amount and clear down their negative equity a lot sooner putting them in a position to sell the house if they wanted.

I agree Irish people can be more begrudging than other nationalities however this has nothing to do with it. Why should someone who is financially prudent pay for someone being reckless? It's a morality issue - it's just wrong.

Why should the government reduce rates for just a select period? Therefore this charge to the country's finances will be paid for by whom exactly - everyone else?

IMO best solution is either the bank takes equity stake in house or mortgage is passed onto next generation.

Wile E. Coyote

Theboinkmaster wrote: »

I agree Irish people can be more begrudging than other nationalities however this has nothing to do with it. Why should someone who is financially prudent pay for someone being reckless? It's a morality issue - it's just wrong.

Not everyone who bought a house was being reckless. Most people were buying homes but things have changed and a lot of people are now struggling to pay bill and maintain mortgages on houses that are worth half of what there were a few years ago. Hindsight is a great thing that we all have but we're not all mind readers and economists who could forsee the severity of what was to come.

Why should the government reduce rates for just a select period? Therefore this charge to the country's finances will be paid for by whom exactly - everyone else?]

The cost would be paid by the bank as it should have been from the start, not the taxpayer. I'm not saying the government should make up the additional 3% that the bank would have received over that period, simply the bank don't make as much profit.

If not for all homes bought during the boom how about just for family homes in negative equity? We've bailed out everyone else and the only complaints about it were from the keyboard warriors on the internet so why not help the average person in the street?

IMO best solution is either the bank takes equity stake in house or mortgage is passed onto next generation.

Why should the next generation be forced to take on the mortgages? So your happy to pass on the burden to a generation who probably haven't reached voting age or been born yet as long as it doesn't come near you?

Dades

seamus wrote: »

So, let people walk away from their mortgages, but leave them in a "bankrupt" legal state for five to ten years or so. They can rent or emigrate, or whatever, but they'll never get credit. Ten years is a surprisingly long time when you have to live it, so I don't think this would be an "easy" way out by any means.

Or you could reduce someone's mortgage but leave them in a no-profit position for the life of the mortgage. If they move or die, the bank takes everything.

You'd need a combination of the two, really.

In option 2 there's no incentive to keep repaying the mortgage. It becomes simply rent, and once the owner decides they can actually rent a better place for the same as their monthly repayments they'll move on.

Also, I would suggest the "bankrupt" legal state would have to be ten years. Five years would just be doing people a favour by forcing them to stay out the market for a sensible time.

But overall you would have to address the effects of a huge amount of good homes suddenly coming on the market, and 10 years from now a whole load of people suddenly becoming solvent again.

Theboinkmaster wrote: »

IMO best solution is either the bank takes equity stake in house or mortgage is passed onto next generation.

Terrible idea to burden our children even more - like we didn't fcuk it enough for them already!

seamus

Dades wrote: »

In option 2 there's no incentive to keep repaying the mortgage. It becomes simply rent, and once the owner decides they can actually rent a better place for the same as their monthly repayments they'll move on.

Indeed, that would need a little more work. Theoretically someone with financial sense might see that they have 15 years to pay off the mortgage, so they'd be silly to move after ten years and throw away €X amount of equity when they can keep going for another five and then claim the equity when the mortgage has been paid.

The problem arises with people who might need a 25 year mortgage to pay off their smaller amount. When given the option of ten-year bankruptcy or ten years of renting their own home, they'd likely go for the latter, and then move when it suits them, with a solid credit record behind them, effectively giving them debt forgiveness with no stick.

But overall you would have to address the effects of a huge amount of good homes suddenly coming on the market, and 10 years from now a whole load of people suddenly becoming solvent again.

Just implement another debt forgiveness program 15 years after that when that bubble bursts. Lather, rise, repeat. What could go wrong?

Spiritofthekop

I would lose all faith in this country if this was even spoken about happening.


In fact I would openly do everything from that moment on (if it happened) to never pay taxes, bin charges, water charges etc etc again. I would consider this country a place of disgust & an immoral place to live & I would speak of Ireland as a country in this manner to anyone who ever asked about it.

Its wrong & immoral & makes me so angry that this person would even mention it as a possiblilty.

Why should the greedy be bailed out & helped & the people who lived with-in their means suffer again.

Shocking!


edit....

to self...

Count to 3..........1....2...3...now relax :P

Snakeblood

Wile E. Coyote wrote: »

Debt forgiveness will never happen in this country because as a nation of begrudgers we don't want to see someone else benefit where we can't.

What I'd like to see happen is the government force banks who benefitted from a bailout to drop the interest rate on all homeloan mortgages, bought during the boom, to 2% and fix them there for the next 5-10 years. This would still hold people responsible for the principle amount that they borrowed but would significantly reduce their month bill. Any one who isn't struggling to meet their payment could maintain the current amount and clear down their negative equity a lot sooner putting them in a position to sell the house if they wanted.

But taxpayers own the banks. So instead of getting the money from people who took the loans, taxpayers would be paying the banks to service the interest on loans that people *decided* to take out. It's debt forgiveness by another name.

mebird

I don't think debt forgiveness can or will be operated in any formal manner. It is however, already being operated on a case by case basis where people are being allowed walk away without being followed by the debt...

The only solution for someone who wants to remain in the property is a debt / equity swap.

One option is that they would pay back what they could afford and the bank would retain the equity on what they couldn't afford. On their debt... sorry death...their beneficiaries do not inherit any debt but have the option to buy out the rest of the house, or if it is placed on the market benefiting of whatever may be left after the bank has been repaid.

The second option is the bank takes back the asset and leases it to the borrower for 40, 50, 60 or 90 years at a rate they can afford. But they will never own the house.

For some reason I do not know, the banks will not entertain the notion of any debt equity swap. I think it is because they cannot afford to do it.

Which brings us back to the main problem. Our banks are bust. Any capital we injected went straight out the back door to departing deposit holders who put it in Rabo, gold, or under their bed. The banks need money and not reduced mortgage payments.

What a mess.

mikemac

I haven't heard such madness since Fine Gael wanted to compensate Eircom investors

boogerballs

Spiritofthekop wrote: »

I would lose all faith in this country if this was even spoken about happening.


In fact I would openly do everything from that moment on (if it happened) to never pay taxes, bin charges, water charges etc etc again. I would consider this country a place of disgust & an immoral place to live & I would speak of Ireland as a country in this manner to anyone who ever asked about it.

Its wrong & immoral & makes me so angry that this person would even mention it as a possiblilty.

Why should the greedy be bailed out & helped & the people who lived with-in their means suffer again.

Shocking!


edit....

to self...

Count to 3..........1....2...3...now relax :P

You would take this stance now when ordinary folk on the street are being helped.... where was this attitude when the banks were being bailed out, where was it when pensions reserves were being drained... another keyboard warrior... all bluster, no substance!!

Zamboni

boogerballs wrote: »

You would take this stance now when ordinary folk on the street are being helped.... where was this attitude when the banks were being bailed out, where was it when pensions reserves were being drained... another keyboard warrior... all bluster, no substance!!

Banks are scum = collective responsibility.
Individual mortgage = individual responsibility.

You cannot socialise an individuals losses. Sure if that were the case, why not refund every non winning lotto ticket from the excheuquer?

Ray Palmer

Spiritofthekop wrote: »

I would lose all faith in this country if this was even spoken about happening.

Why should the greedy be bailed out & helped & the people who lived with-in their means suffer again.

WOW!

It is being spoken about. Missing some understanding about how things work in this country by the looks of it. Media leak gauging public reaction then they do it if the reaction is not that bad.

There are lots of people who weren't being greedy and bought within their means. In case you didn't notice wages and jobs dropped. The main idea seems to be in order to get people spending money. If people don't spend money we are in real trouble.
Money has to keep moving and if it just keeps going into the banks we are going to be in more trouble. The national debt was simply moved to individuals and then a bigger national debt was created when the banks crumbled. Very little of this was really an Irish thing we were just bobbing on the financial sea.

boogerballs

Zamboni wrote: »

why not refund every non winning lotto ticket from the excheuquer?

Ah come on now, that is getting a bit ridiculous when comparisons like this are being made do you not think.

The facts are:

1. Banks are not lending to small business, individuals, mortgage applicants etc..
2. The whole economy is completely stagnant
3. We need money to start flowing around the country
4. We bailed out the banks out under the assumption they money they received would kick start the economy - we know how that worked out!!

The idea of debt forgiveness which may sound unfair to some, is just another attempt to fix this mess. Something needs to be done and done quick. Last June the banks were told they could only repossess houses after 12 months of arrears plus another 6 months of legal process. That 18 months is this Christmas - wait and see what really starts hitting the fan then.

Zamboni

boogerballs wrote: »

Ah come on now, that is getting a bit ridiculous when comparisons like this are being made do you not think.

The facts are:

1. Banks are not lending to small business, individuals, mortgage applicants etc..
2. The whole economy is completely stagnant
3. We need money to start flowing around the country
4. We bailed out the banks out under the assumption they money they received would kick start the economy - we know how that worked out!!

The idea of debt forgiveness which may sound unfair to some, is just another attempt to fix this mess. Something needs to be done and done quick. Last June the banks were told they could only repossess houses after 12 months of arrears plus another 6 months of legal process. That 18 months is this Christmas - wait and see what really starts hitting the fan then.

Unfortunately, not one word of that makes debt forgiveness a good idea.

boogerballs

Zamboni wrote: »

Unfortunately, not one word of that makes debt forgiveness a good idea.

I'm not saying it is or isn't a good idea... I'm also not advocating debt forgiveness, I'm just saying we need to do something. My original point was on how people jump on here and say things like I'll stop paying my bins, mortgage etc... Yet when it comes to the crunch nothing gets done.

furstenburg

Debt forgiveness could always be a scheme to pay off a persons negative equity only. I know I for one bought a house for my family to live in, not to make a profit.

Maybe if you agreed to enter the scheme the government buys the negative equity. So if you bought a house for 200k and have 180k left to pay and its now worth 150k then 30k is bought from you. If however you sell the house in 3-4 years time and the house is now valued at over 150k then the government takes any money over.

This would prevent the argument of people making a profit from this. It would also not matter if you have made improvements to the house. Once you enter the scheme you agree to the value at the time of agreement.

This forgiveness of the negative equity could help kick start the housing market as people could then sell up if they wanted and move on, It would also help people with large mortgages handle their debts if they have lost their jobs or are on jobs with alot less money. tThis would onviously be on a case by case basis depending on circumstance but anyone could apply and be judged. The govenment could also agree that the first time buyers tax relief is to be left alone

sharper

boogerballs wrote: »

1. Banks are not lending to small business, individuals, mortgage applicants etc..

And your idea to get lending going is to force banks to take on enormous losses by simply writing off debt?

Irish banks are then supposed to go onto international markets and attract investment in a country where debts may simply be nullified but the assets they were used to secure retained?

I'm not saying it is or isn't a good idea... I'm also not advocating debt forgiveness, I'm just saying we need to do something.

In other words you're not prepared to defend the idea in any way but are prepared to call for it to be implemented anyway.

I'm not saying giving me a €1bn is good or bad idea, I'm just saying we need to do something.

Ray Palmer

sharper wrote: »

And your idea to get lending going is to force banks to take on enormous losses by simply writing off debt?

Irish banks are then supposed to go onto international markets and attract investment in a country where debts may simply be nullified but the assets they were used to secure retained?



In other words you're not prepared to defend the idea in any way but are prepared to call for it to be implemented anyway.

I'm not saying giving me a €1bn is good or bad idea, I'm just saying we need to do something.

Isn't the whole point to stabilize the banks once and for all. Instead of them claimiing to have assets worth a particular amount that nobody believes we get to the point where we know how much assets they actually have with a more stable revenue. No point in them claiming they have mortgages worth X when they actually are only worth Y. As people speculate the difference between X and Y we have a huge problem with the value of banks.
On top of that Y is decreasing constantly as people can't keep their payments up. If we make the banks stable and keep people in their homes along with increasing disposable income we would get from those who would not have to spend so much on their mortgages.
Those without mortgage would gain by getting cheaper rents and increased job opportunities. Small business would get loans as the banks would be able to get investment and borrow on even terms without the uncertainty there at the moment.
Not sure it would work like that but that is the principle. People here don't seem to be arguing the merits of the idea just they don't like it as it means other people may benefit and they don't feel they will to the same extent. . It isn't meant to save the people who bought 2nd homes as investments.

sharper

Ray Palmer wrote: »

No point in them claiming they have mortgages worth X when they actually are only worth Y. As people speculate the difference between X and Y we have a huge problem with the value of banks.
On top of that Y is decreasing constantly as people can't keep their payments up. If we make the banks stable and keep people in their homes along with increasing disposable income we would get from those who would not have to spend so much on their mortgages.

How are you going to define which mortgages aren't really worth X? On the basis of someone claiming they can no longer afford X?

Those without mortgage would gain by getting cheaper rents and increased job opportunities. Small business would get loans as the banks would be able to get investment and borrow on even terms without the uncertainty there at the moment.

So...people with mortgages benefit by getting to keep the house they couldn't afford. Those without mortgages benefit by...getting to continue paying rent and owning nothing. A major advantage of renting versus buying is that one is a short length contract allowing you to move and renegotiate easily while the other is a long term fixed contract. Debt forgiveness transfers the major advantage of renting to mortgage holders without transferring any of the risks (I doubt that, for example, in the future mortgages will be arbitrarily increased on the basis the holders can afford to pay more).

Even if we do accept smaller rents as a benefit, that can only happen if you're willing to apply debt forgiveness to investment mortgages.

Not sure it would work like that but that is the principle. People here don't seem to be arguing the merits of the idea just they don't like it as it means other people may benefit and they don't feel they will to the same extent. . It isn't meant to save the people who bought 2nd homes as investments.

This sounds a lot like the "begrudgery" argument.

Once you establish that buying a house is something that always works out regardless of whether it's sensible or you can afford it then how do you ever stop people from being irrational in future? You might as well buy that one bed apartment for 500k, why not? If you get in trouble we'll just write off the difference!

Debt forgiveness as a principle simply cannot work. You cannot run a country that way.

Bankruptcy is a common solution to this problem all over the world and there's absolutely no reason why we can't modernise our laws and employ it here. If people really can't afford their mortgage then fine they can lose the house and spend a few years rebuilding their finances and credit rating.

swirlser

http://www.irishtimes.com/newspaper/frontpage/2011/0822/1224302808105.html

I've a lot of time for Morgan Kelly, but in this case I don't agree, at least not without extensive revisions to any plan that even resembles such actions as debt forgiveness.

It's not that I don't think plans need to be put in place for those genuinely struggling/going under. It's a moral minefield (for starters) giving those who bought around the peak a get out of jail free like card, while others who are only barely keeping their head above water get nothing, or as an earlier poster put it - it's a can of worms.

Spiritofthekop

sharper wrote: »

How are you going to define which mortgages aren't really worth X? On the basis of someone claiming they can no longer afford X?



So...people with mortgages benefit by getting to keep the house they couldn't afford. Those without mortgages benefit by...getting to continue paying rent and owning nothing. A major advantage of renting versus buying is that one is a short length contract allowing you to move and renegotiate easily while the other is a long term fixed contract. Debt forgiveness transfers the major advantage of renting to mortgage holders without transferring any of the risks (I doubt that, for example, in the future mortgages will be arbitrarily increased on the basis the holders can afford to pay more).

Even if we do accept smaller rents as a benefit, that can only happen if you're willing to apply debt forgiveness to investment mortgages.


This sounds a lot like the "begrudgery" argument.

Once you establish that buying a house is something that always works out regardless of whether it's sensible or you can afford it then how do you ever stop people from being irrational in future? You might as well buy that one bed apartment for 500k, why not? If you get in trouble we'll just write off the difference!

Debt forgiveness as a principle simply cannot work. You cannot run a country that way.

Bankruptcy is a common solution to this problem all over the world and there's absolutely no reason why we can't modernise our laws and employ it here. If people really can't afford their mortgage then fine they can lose the house and spend a few years rebuilding their finances and credit rating.

Very well said!

Ray Palmer

First off I don't know if it would work or is a good idea. I was pointing out people didn't seem to be discussing the actual idea.

sharper wrote: »

How are you going to define which mortgages aren't really worth X? On the basis of someone claiming they can no longer afford X?

From what I understand he is talking about allowing people default and go bankrupt without the mortgage following them. He then appears to be suggesting that mortgages would be devalued and not just those struggling would get a reduction. The exact details didn't seem to be stated so without that detail criticizing it and saying it is not possible seems to be an overreaction.

sharper wrote: »

So...people with mortgages benefit by getting to keep the house they couldn't afford. Those without mortgages benefit by...getting to continue paying rent and owning nothing. A major advantage of renting versus buying is that one is a short length contract allowing you to move and renegotiate easily while the other is a long term fixed contract. Debt forgiveness transfers the major advantage of renting to mortgage holders without transferring any of the risks (I doubt that, for example, in the future mortgages will be arbitrarily increased on the basis the holders can afford to pay more).

I think you are missing a huge factor here. People didn't simply take out mortgages they couldn't afford the economy world wide has tanked, very different. All well and good to say people should have made allowances for time out of work but when it goes beyond a year and your partner is on 50% less than they were. That is not what most people plan for. This is not transferring the risk it is dealing with a very real problem. People weren't planing on this solution it may simply be required. If your view isn't begrudging I really don't know what is. This is not an individual plan it is a suggestion to save the economy.

sharper wrote: »

Even if we do accept smaller rents as a benefit, that can only happen if you're willing to apply debt forgiveness to investment mortgages.

That isn't true. You really are not thinking about the market holistically.

This sounds a lot like the "begrudgery" argument.

You can put that label on it but is simple you are complaining about how it wouldn't be fair to those who didn't buy. What has fair got to do with it. No matter whether you bought or not you benefited from the money being spent

sharper wrote: »

Once you establish that buying a house is something that always works out regardless of whether it's sensible or you can afford it then how do you ever stop people from being irrational in future? You might as well buy that one bed apartment for 500k, why not? If you get in trouble we'll just write off the difference!

Debt forgiveness as a principle simply cannot work. You cannot run a country that way.

Bankruptcy is a common solution to this problem all over the world and there's absolutely no reason why we can't modernise our laws and employ it here. If people really can't afford their mortgage then fine they can lose the house and spend a few years rebuilding their finances and credit rating.

That is half rant half begrudgery. Somebody is going to loose and somebody is going to win. This is not just about mortgage holders but about stabalising the banks and the economy. It is an extraordinary measure. Why are you bothered about teaching people a lesson? That is resentment at the suggestion.
I don't know if it would work but I am not angry about the concept and you certainly are. That is not a rational thought out response you have some moral objection and don't care about a solution that offends it. No surprise some people will agree but it doesn't make it a reasonable well thought out response.

Lets get something clear all those who didn't buy would have nowhere to live if there hadn't been a building boom. Rents would be massively higher than they are. Quality would be much worse. The type of place you could rent would not be as varied nor would there be so many locations to choose from. Anybody renting has benefited whether they admit it or not.

Zamboni

Leaving all begrudgery aside, socialising individual losses on that level would be setting an extraordinary precedent and a remarkable statement of our society.
That is, socialising it at the cost of the credit available to the state, financed by the raped taxpayer.
I, for one, believe in personal responsibility and suffering the consequences of ones actions to the extent that if this debt forgiveness happened, I don't think I could in right mind remain living in that type of state.

Do we all get a bike too?

sharper

Ray Palmer wrote: »

I think you are missing a huge factor here. People didn't simply take out mortgages they couldn't afford the economy world wide has tanked, very different.

Nope. People took out mortgages they couldn't afford and the world wide economy tanked. Not so different after all. We're dealing with multiple problems simultaneously, you can't simply organise such that one is a direct result of the other.

People took out 35 year mortgages handing over 40-50% of their joint income with partners for 1 bedroom apartments. This was completely and utter madness and totally unaffordable by any metric.

They did this because property always goes up in value. They did it because rent is "dead money". They did it because if they didn't buy now they were afraid they'd never be able to afford a one bedroom apartment.

They also did it because they didn't expect to actually live in that 1 bedroom apartment. They bought into the idea of a "starter home" where you bizarrely buy a property you only plan to live in for a few years.

If your view isn't begrudging I really don't know what is. This is not an individual plan it is a suggestion to save the economy.

Then you don't know what begrudging is so you should stop using it.

It's "a suggestion to save the economy" which transfers wealth and money to a chunk of the population purely because they acted irrationality. It rewards that irrationality with properties they couldn't and can't afford. People who acted rationally are left without property and with the bill for the others.

This sounds a lot like the "begrudgery" argument.

That is half rant half begrudgery.

Mmmhmmm.

This is not just about mortgage holders but about stabalising the banks and the economy. It is an extraordinary measure. Why are you bothered about teaching people a lesson?

The world works a certain way. The ways in which doesn't work are endless. One of the ways it doesn't work is when people that act without regard for consequence are protected from those consequences by those that did. You simply increase the population of people acting without consequence, you make irrationality a rational choice.

I note that again you have completely failed to defend the proposal. Instead you've declared it's necessary and should be done regardless of whether it's a good idea and that anyone in opposition to this is a "begrudger".

This is precisely the sort of irrational and hard headed approach that got us into this mess in the first place. I suggest you read the Housing Bubble Bursting and see what people were saying at the time. You know, stuff like

Conor74 wrote: »

Well, all the talk and stats doesn't phase me. Subject to a very generous helping hand from my local bank manager, I'm going back into the market here to get an investment property. I heard the dire predictions and 'it can't go higher' 5 and 10 years back, from people who had no intention of buying a property, and how wrong they were then. Of course, that is not to say the gains will be as big, or indeed that the market is immune from adjusting, but if you keep saying the sky will fall for the next billion years some day it may happen. I'm just trying to make a few quid before then...

Ray Palmer

sharper wrote: »

Nope. People took out mortgages they couldn't afford and the world wide economy tanked. Not so different after all. We're dealing with multiple problems simultaneously, you can't simply organise such that one is a direct result of the other.

This has happened but to suggest everybody who took out a mortgage and are now in trouble did this is just simply not true.
I know somebody who took out a mortgage for 30% of their combined salary. He lost his job in his 2nd year of unemployment and his wife is on 60% of her wages now. They now have a daughter. Negative equity and struggling to pay the mortgage and live a life. These people paid taxes buying the house and large amounts of income tax.

You are assuming everybody in trouble was an idiot. That was not the case.

You are making the argument about morals and what you think is right. I don't know if this would work just pointing out you are making it about what is fair regardless of the consequences. Where are all these people going to live and who will pay? Is it much cheaper to keep these people in their houses rather than have them with rent allowance.

You are talking about cutting your nose off despite your face. You don't have a solution because what you are suggesting will cost more money the way I see it.

Try exploring the idea rather than dismissing it off hand with out thinking about it is all I am saying. All this talk about how people will act if this is done is wildly hypothetical as far as I am concerned. You seem to suggest people knew this would happen and it has it is only a suggestion which we know won't actual happen.

previous user

You see these are the peope that matter, they're the *good middle class people* and you can recognise that they're *good* people because they wear nicer clothes and live in nice neighbourhoods, I propose that money should be diverted from the social welfare to help these, better people, because lets face it they are more valuable to this country.

Zamboni

Ray Palmer wrote: »

I know somebody who took out a mortgage for 30% of their combined salary. He lost his job in his 2nd year of unemployment and his wife is on 60% of her wages now. They now have a daughter. Negative equity and struggling to pay the mortgage and live a life. These people paid taxes buying the house and large amounts of income tax.

You are assuming everybody in trouble was an idiot. That was not the case.

Sounds like they had substantial cash/earnings.
All they had to do, was not buy.
They would now have no debt and the ability to mobilise for employment and the savings to finance it.

That sounds remarkably idiotic to me.

antiskeptic

Ray Palmer wrote: »

I know somebody who took out a mortgage for 30% of their combined salary. He lost his job in his 2nd year of unemployment and his wife is on 60% of her wages now. They now have a daughter. Negative equity and struggling to pay the mortgage and live a life. These people paid taxes buying the house and large amounts of income tax.

As your unemployed friend will have found out by now, welfare assistance first ensures you exhaust your own resources before the States stepping in with support. You consume assets such as shares and savings - then your means are considered sufficiently low to warrant state support.

Would you agree that this couple might first 'exhaust' the resource of (let's say) a "4 bed house in a nice area" before the notion of debt forgiveness should even come into play? Some such would be made possible by a scheme which allows a person to carry their negative equity with them to a new property. Their 'downgrading' their residence by some proportion or other would alleviate their debt and be on a par with normal methods of welfare assessment.

Where are all these people going to live and who will pay? Is it much cheaper to keep these people in their houses rather than have them with rent allowance.

If you consider society a food chain, the person would merely come to settle somewhat lower down on it before being considered for debt forgiveness (which might include the stake taking up a portion of the equity in the persons home). There would be no need for rent allowance since the person would have a mortgage taken out on a more affordable home.

mebird

Zamboni wrote: »

That sounds remarkably idiotic to me.

That's harsh. Naive is probably a better description.

Regardless, everyone can relax. There will be no formal debt forgiveness scheme where someone can live in a house they borrowed 600K on but can now only afford 250K.

I would suggest though, as a solution, that people like those Ray Palmer described who bought during a specific period of madness, should be allowed walk away from the property without the debt following them.

If they choose to remain, they should only be entitled to an extension on the life time of their mortgage or a debt for equity swap on the part they cannot afford.

That may help those that need it, and allow for some social justice aswell.

sharper

Ray Palmer wrote: »

You are assuming everybody in trouble was an idiot. That was not the case.

No I am assuming that a very large proportion of people acted irrationally which is demonstrably true. As a group any "for free" assistance has the effect of incentivising that irrationality.

Your friend should be able to do what people in other Western countries can do - lose the house and go bankrupt. The notion that your friend gets to not pay for the house but keep it anyway is a non-starter.

You are making the argument about morals and what you think is right

I haven't discussed morals at all. I've discussed what people did, what they took possession of and whom you are now expecting to pay for those possessions. That is not a moral proposition, we live in a democracy and it's reasonable to discuss whether people should be able to vote themselves things for free paid for by others.

You don't have a solution because what you are suggesting will cost more money the way I see it.

So "the way you see it" it would cost more (something you've provided nothing whatsoever to show) therefore I don't have have a solution. That's quite a train of logic.

Try exploring the idea

I have explored the idea. Do you think this is the first time I've heard the debt forgiveness proposal?

Ray Palmer

antiskeptic wrote: »

As your unemployed friend will have found out by now, welfare assistance first ensures you exhaust your own resources before the States stepping in with support. You consume assets such as shares and savings - then your means are considered sufficiently low to warrant state support.

Having worked for the social welfare I know a fair amount about the workings of the system. What effectively you are saying is the people who paid for the social welfare system are not entitled to it. This is actually how it works. People who have never worked or paid taxes receive rent,dole, medical card etc...
Not very equitable.

antiskeptic wrote: »

Would you agree that this couple might first 'exhaust' the resource of (let's say) a "4 bed house in a nice area" before the notion of debt forgiveness should even come into play? Some such would be made possible by a scheme which allows a person to carry their negative equity with them to a new property. Their 'downgrading' their residence by some proportion or other would alleviate their debt and be on a par with normal methods of welfare assessment.

That is one way of doing it.
While the reality of what really happened was the country's debt was transferred onto one group of people. With people not able to afford the debt it returned to the state and has been increased as some companies involved took their fees and left.
What happened to all the stamp duty? did people get anything for that realistically?

antiskeptic wrote: »

If you consider society a food chain, the person would merely come to settle somewhat lower down on it before being considered for debt forgiveness (which might include the stake taking up a portion of the equity in the persons home). There would be no need for rent allowance since the person would have a mortgage taken out on a more affordable home.

If you consider it a food chain then you would see eliminating part of the chain doesn't fix things it makes it worse and unbalanced.

At present you can't get away from the mortgage so rent allowance is going to be the only route for some people. Anyway part of the idea is to allow this to happen as you described.

@Sharper
You made your points and they are quite obvious a moral stance. You are not exploring the idea here. You have not backed up your view with any values either. It reeks of outrage which I only attribute to resentment and begrudgery. You aren't stating anything new and assume everybody has been completely selfish and stupid but you. I don't accept that idea it's just that simple. I think it is overtly aggressive and not applicable to the majority. We aren't going to agree because you can't discuss it.

I don't even think it will work or happen because there will be too many people who won't accept the idea and you would be that type of person. If it was actually applied in a measure way it might actually work.

antiskeptic

Ray Palmer wrote: »

Having worked for the social welfare I know a fair amount about the workings of the system. What effectively you are saying is the people who paid for the social welfare system are not entitled to it. This is actually how it works. People who have never worked or paid taxes receive rent,dole, medical card etc...
Not very equitable.

I'm not saying their not entitled to it, it's just that after you've exhausted that which you've contributed into (unemployment benefit) you go onto means tested unemployment assistance.

Since folk who are up to their neck in mortgage debt haven't contributed to a fund designed to support them in times of trouble the idea would be that they go straight to the assistance department. The means tested assitance dept.

That is one way of doing it.

It's a way of doing it that takes some account of individuals central role in the financial decisions they were making.

While the reality of what really happened was the country's debt was transferred onto one group of people. With people not able to afford the debt it returned to the state and has been increased as some companies involved took their fees and left.

I'm not sure what you mean here. Developer debt was transferred to the taxpayer - some of whom are in trouble with their mortgages, some who are not. Debt forgiveness would appear to shift the burden of those in trouble to those who aren't currently.

So far, all I've suggested is that those whose own decisions lie core to their problems contribute in the first instance by way of asset-degradation. Trading down houses for a start, trading down vehicles if need be.

What happened to all the stamp duty? did people get anything for that realistically?

What we got was a government splurge. From a government we voted in.

Stamp duty wasn't intended to bail out people in debt - you might as well point to all the income tax and road tax and tv licence money we pay as if that gave us the right of access to mortgage debt forgiveness.

Debt forgiveness money could only come from other taxpayers. And you can be sure that some of those on the edge would be pushed over had they to contribute to a debt forgiveness fund.

If you consider it a food chain then you would see eliminating part of the chain doesn't fix things it makes it worse and unbalanced.

At present you can't get away from the mortgage so rent allowance is going to be the only route for some people. Anyway part of the idea is to allow this to happen as you described.

I don't see how trading down eliminates a part of the chain - perhaps you could elaborate? In proposing debt forgiveness you are assuming the current situation is changed. In proposing contribution by way of downgrading I too am proposing the current situation is changed. I even mentioned it in saying that negative equity would need to be allowed to be transferred during the downgrade in property.

If you went from a large 4 bed in a decent area to a modest 3 bed in a less decent area you could reduce your mortgage by half. Wouldn't that get a lot of people out of trouble without any debt forgiveness being invoked?

fontanalis

Ray Palmer wrote: »

Having worked for the social welfare I know a fair amount about the workings of the system. What effectively you are saying is the people who paid for the social welfare system are not entitled to it. This is actually how it works. People who have never worked or paid taxes receive rent,dole, medical card etc...
Not very equitable.


That is one way of doing it.
While the reality of what really happened was the country's debt was transferred onto one group of people. With people not able to afford the debt it returned to the state and has been increased as some companies involved took their fees and left.
What happened to all the stamp duty? did people get anything for that realistically?



If you consider it a food chain then you would see eliminating part of the chain doesn't fix things it makes it worse and unbalanced.

At present you can't get away from the mortgage so rent allowance is going to be the only route for some people. Anyway part of the idea is to allow this to happen as you described.

@Sharper
You made your points and they are quite obvious a moral stance. You are not exploring the idea here. You have not backed up your view with any values either. It reeks of outrage which I only attribute to resentment and begrudgery. You aren't stating anything new and assume everybody has been completely selfish and stupid but you. I don't accept that idea it's just that simple. I think it is overtly aggressive and not applicable to the majority. We aren't going to agree because you can't discuss it.

I don't even think it will work or happen because there will be too many people who won't accept the idea and you would be that type of person. If it was actually applied in a measure way it might actually work.

It's just not good enough to call anyone who criticises plans to write off peoples debt as begrudgery. It's just lazy and an attempt to denigrate the arguement before it get off the ground.

Ray Palmer

fontanalis wrote: »

It's just lazy ... .

I call it as I see it but I don't need to over quote. Read the thread and you might see it is explained