€6 billion bailout for home loans ‘will end crisis’
UCD economist Morgan Kelly has also predicted house prices will most likely fall much further before bottoming out. However, he warned commercial property prices will probably see “big falls” beyond what has already taken place.
Speaking at the Irish Society of New Economists conference yesterday in Dublin, Mr Kelly called for some radical measures to tackle the growing mortgage crisis.
“Spending €5bn to €6bn on mortgage forgiveness, mortgage principle reduction and allowing those hopelessly indebted to walk away from mortgages, would probably solve most of the problem” for those mortgage holders, said Mr Kelly.
The country’s banks have been pressed on the need for debt forgiveness in recent weeks. AIB chairman David Hodgkinson has admitted there needs to be an “industry-wide, government-supported approach” for debt forgiveness.
However, Bank of Ireland has shown no interest in debt forgiveness, effectively ruling it out.
Ratings agency Fitch said recently that the number of mortgage holders falling into arrears is set to increase further. In its review of the Irish housing market, Fitch said it expected house prices to continue falling.
The agency predicted that in a best-case scenario, house prices would fall by 50% from their high point in 2007, but warned that, in a worst-case scenario, prices could fall by 67%.
The director of the Irish Mortgage Corporation, Frank Conway, said he would “absolutely agree” with some form of debt forgiveness.
“People who have taken a 10%, 20%, 30% or 50% drop in wages cannot be expected to pay debts that they took on during the boom.
“Remember, taking on debt is a two-party gamble which involves borrower and lender. However, in Ireland, debt is over-whelmingly structured as a one-sided matter. All responsibility is placed on the borrower.
“Lenders, too, have a role to play in the risk, which, in some cases, must involve accepting that their assumptions on repayment were simply wrong,” he said.
Although Mr Kelly is widely credited with predicting Ireland’s property collapse he came under fire recently after speaking at a festival in Kilkenny.
He had claimed the losses of the banks could spiral by several billion euro more than previously estimated as a result of 10,000 mortgages given out at the peak of the bubble to lawyers, solicitors and estate agents to purchase properties valued at €1m to €2m, which they cannot now repay.
He later admitted, however, that he based his information on an article written by someone else. He said his previous forecast that banks may lose 75% of property development loans and 10% of mortgages was probably “too optimistic”.
