Hope for struggling mortgage holders

THE prospect of some general scheme of debt forgiveness being available to distressed mortgage holders has increased after the Government signalled that it may consider further ways to ease pressure on struggling borrowers.

Taoiseach Enda Kenny told the Dáil the Government was interested in considering a range of options to relieve stress on mortgage holders.

“Such options must be treated carefully, would require authorisation and, in some cases, legislation,” said Mr Kenny in reply to a query from Fianna Fáil TD Michael McGrath.

A state-appointed expert group on mortgage arrears issued its final report last November but its recommendations did not include debt forgiveness.

However, briefing papers prepared for Mr Kenny upon taking office said it was “likely that further measures will be required in the next couple of years, as interest rates rise while there is unlikely to be any rebound in house prices”.

The papers point out that nearly 80,000 mortgages were either 90 days in arrears or restructured at the end of last year.

AIB raised the possibility of debt forgiveness for some of its mortgage holders earlier this week, although no formal proposals are yet on the table.

Meanwhile, mortgage advisers have called for clear rules to be established to allow mortgage holders to avail of any offer of debt forgiveness.

The Independent Mortgage Advisors Federation has (IMAF) welcomed the announcement by AIB that it is considering wiping off some of the debts owed by mortgage customers.

The news has raised hope for thousands of home-owners that the Government may support a more general scheme to wipe out borrowings.

AIB executive chairman David Hodgkinson admitted earlier this week that debt forgiveness was one of a range of possibilities that was being “actively considered” by the bank for dealing with the issue of distressed borrowers.

IMAF spokesman Michael Dowling said debt forgiveness was worthy of consideration as other proposed solutions were clearly not working.

However, Mr Dowling stressed that each case would have to be assessed on an individual basis.

He pointed out that over 90% of the 786,000 residential mortgages held in the country are performing normally.

“The person who bought on the basis that they would have a job for life didn’t borrow recklessly. They borrowed on the basis of banking rules at the time,” remarked Mr Dowling.

However, former director of the IMF Donald Donovan said any form of debt forgiveness would ultimately end up being paid for by taxpayers.

He said the issue also raised concerns about “moral hazard” — the fear that borrowers will behave recklessly if they know that there is a prospect that they will not be required to fully repay a loan.

“Someone in the economy will have to pay if mortgages will be written off,” said Mr Donovan.

Joe Durkin, head of economics at UCD, expressed surprise at AIB’s announcement, claiming it was a strange proposal from a bank that was effectively bust and owned by taxpayers.