Mortgage arrears: Edmund Honohan poses a good question

Edmund Honohan

The Master of the High Court, Edmund Honohan, is correct in identifying the Government’s failure to address in any coherent way the concerns of the thousands of people in mortgage arrears.

It is a pity, though, that he has used intemperate language to make his point, thereby diminishing his central argument that, instead of banks such as Permanent TSB selling off distressed loans to vulture funds, they should be given to non-profit co-ops.

In an interview on RTÉ radio, Mr Honohan described as “a sick joke” a letter sent from Taoiseach Leo Varadkar to a man seeking to avoid repossession of his home to contact mortgage arrears adviser Abhaile.

Mr Honohan said he has people in his court, on a daily basis, who are struggling to hold off repossession, and he had asked them to contact the Taoiseach to see where they could find mortgage-to-rent as a solution.

Mr Honohan said Abhaile is of no use to them because it is “merely a voucher for €250 worth of legal advice” before going to the Circuit Court.

He has also drafted proposed legislation that would give greater powers to the State’s financial and legal support services and provide stronger protections for those in mortgage arrears.

However, the problem with his solution to the crisis is that it has the capacity to encourage wilful defaulters — those who can pay their monthly mortgage amounts but choose not to do so.

There is no doubt that, by selling off a bundle of loans at a knockdown price, what Permanent TSB is proposing is a very blunt instrument.

Those loans are likely to include not just wilful defaulters but many homeowners who have tried but failed for up to a decade to make repayments.

Some mortgage holders get better deals from foreign vulture funds than from Irish banks.

If a fund buys a €200,000 distressed mortgage for €20,000, it may be quite willing to sell that back to the mortgage holder for €30,000 while writing off the rest of the debt.

Banks, on the other hand, will rarely, if ever, offer such terms.

It is also important for the Government to recognise the hundreds of thousands of other mortgage holders who struggle to make savings from their domestic budgets in order to pay their mortgage.

It would be very unfair if they were ignored while others in default were allowed walk away, in whole or in part, from their commitments.

Forcing the banks to offer the same terms to genuinely distressed mortgage holders should be considered. That may mean dealing with bad debt on a case-by-case basis — cumbersome but also necessary.

It is also worth noting that the banks were bailed out by the Irish taxpayer to the tune of over €64bn.

That was to allow them deal with bad debts but it appears they used most of that money for day-to-day operations and are now seeking a double-whammy from the vulture funds.

No surprise in that.

Mr Honohan has posed an important question. What he has not done is provide a workable answer.

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