Mortgage relief scheme ‘not feasible’

THE Government has played down the possibility of introducing a mortgage debt-relief scheme for struggling homeowners.

Although saying it would examine any proposal, Government sources said a €5bn-€6bn scheme similar to that proposed by economist Morgan Kelly was not feasible.

“The idea that you would have widespread debt forgiveness is mad, because the taxpayer will have to pick up the bill for that,” one Government source said.

Mr Kelly argued recently that the worst of the mortgage debt crisis could be solved for around €6bn.

“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,” he said.

The proposal appeared to gain traction over the weekend, when the Minister of State with Responsibility for Housing, Willie Penrose, said it should be considered.

“If the figure is as reasonable as [Kelly] is saying, then it would be foolhardy for us not to examine it properly,” Mr Penrose told the Sunday Times newspaper.

But the junior minister at the Department of Finance, Brian Hayes, said last night there were problems with mortgage debt forgiveness.

“Every proposal is being actively considered at the moment. There’s a need to bring forward new measures to help people distressed with mortgages. Everybody accepts that,” he said.

“[So] it’s too early to rule out anything, but the problem with debt forgiveness is twofold. Firstly, it’s difficult for those people paying 100% of their mortgages when others are getting a write-down.

“But secondly, there’s the problem for our banks: how do you possibly create two new pillar banks when another part of your policy is based on debunking mortgages? So that’s a very tricky balancing act.”

A source close to Taoiseach Enda Kenny said Mr Hayes’s comments accurately reflected the administration’s current thinking.

A separate Government source was more emphatic, saying any debt forgiveness scheme would raise major issues of fairness.

“Proposals must be fair both to mortgage holders but also to the taxpayer, who will have to pay any costs. We already have measures to assist those in mortgage arrears and they’re very carefully targeted.”

A Government-appointed working group, chaired by accountant Declan Keane, has been tasked with examining the issue of mortgage over-indebtedness, and is expected to report back by the end of September.

“The group will look at any realistic proposal,” said a spokesman for Finance Minister Michael Noonan.