Hallmark of Government is a good idea poorly executed

‘Government isn’t working’ has been a recurring theme of the past decade. In many ways, it has been the underlying message behind the rising wave of populism.

If the high point of what Government can do is exhibited in the complex problem-solving of the Good Friday Agreement, some of the low points are represented by the disjointed efforts to resolve the 2008 financial crisis.

Governmental dysfunction reached its nadir with attempts to impose extreme austerity while at the same time presiding over an increasing disparity in wealth between rich and poor.

Episodes of omnishambles and the incessant barrage of investigations, including the latest revelations surrounding the Charleton Commission, have devalued the currency of establishment credibility. Such is the level of distrust, some commentators say people of this country have had enough of experts.

The perception has taken hold that public policy has benefited the privileged at the expense of the man in the street.

At the heart of the matter lies ambivalence about when and how Government should intervene. There was a broad acceptance after the 2008 crash that intervention was required in order to fix a broken banking system.

The model for intervention was fairly well established, namely removing the bad loans from the banks balance sheets and managing them out over time in a separate work out vehicle.

Our version was Nama, which — regardless of your view on how it functions at an operational level — was the right thing to do then. The benefits for the State were that it would restore stability and allow the economy breathing space to recover. However, there was a fundamental flaw in the strategy.

Nama only dealt with a small number of large loans and left an unsustainably high number of bad loans on the banks’ balance sheets, most visibly in the form of mortgage arrears.

This disparity of approach left mortgage arrears unresolved and has compounded the Government’s difficulties in dealing with the housing crisis and making credit for Irish consumers among the most expensive in the eurozone.

Government’s persistent reluctance to intervene has generally relied on a belief that a case-by-case approach by the banks would suffice, and that remonstrations by the Central Bank to do better would be heeded. Despite a sequence of limited initiatives, there has been no indication that any of these approaches are working.

One of those initiatives was the 2012 Mortgage to Rent scheme. The idea behind this scheme is a very good one — enabling families to stay in their homes and avoiding the cost burden of repossession being transferred to the state. It worked successfully in the UK following the property crash in the 1990s.

However, the Irish version has been woefully inadequate, with only 217 households accommodated out of 3,575 applicants. If you needed an example of how Government doesn’t work this is it — unnecessary bureaucracy and complexity, accompanied by inadequate funding and inappropriate restrictions.

Recently, Minister for Housing Simon Coveney announced some welcome changes to the Mortgage to Rent scheme, allowing private companies to buy the properties, clear the debt and offer a 20-year lease. The objective is to make the scheme quicker, more transparent, easier to navigate for borrowers and ultimately, more accessible to more households in mortgage distress.

However, even if the new initiative managed to accommodate 3,000 families eligible, it would still represent a small proportion of the volume required to solve the problem. The menu of models and schemes required to deal with a long-term arrears problem are well known and have been successfully adopted in other countries.

Winston Churchill observed that the Americans could always be counted on to do the right thing after they have exhausted all other possibilities.

Having spent eight years exhausting all possibilities of non-intervention in the mortgage arrears crisis, it may be that Mr Coveney has recognised that the problem isn’t going to solve itself. On the other hand, one swallow doesn’t make a summer.

  • Eugene McErlean is an expert on corporate governance and banking. He has advised the Independent Alliance on mortgage arrears.

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