Mortgage arrears - Evictions are not the answer

IT is not too hard to feel a sense of injustice, even anger, at remarks made by Financial Regulator Matthew Elderfield when he insisted that the principle of moral hazard must apply to mortgage holders.

Declaring, earlier this week, that there was “no silver bullet solution” to the growing problem of arrears, Mr Elderfield outlined a range of options for struggling mortgage holders very different to those afforded by taxpayers to ruined banks who were, unlike most homeowners, architects of their own downfall. If moral hazard must apply to one then why not to the other?

From a financial regulator’s perspective Mr Elderfield was, unfortunately, correct to say what he did but from a social point of view another way will have to be found. It is not acceptable, and we all know it, that families who cannot meet their obligations because they have lost jobs might be forced out of their homes.

After all, any industry that can come up with a whizz as complicated and risky as contracts for difference can surely resolve this issue. If they can’t then it will have to be resolved for them.

The scale of the problem was made clearer yesterday when Mr Elderfield confirmed that mortgage arrears at Irish banks rose 13% in the first three months of the year. At the end of March, 32,321 residential mortgages worth €6.1 billion were more than 90 days behind with repayments. This is over 4% of the total of 791,000 property loans in the State, which are worth a total of €118bn. Some 2.8%, or €4.1bn, were more than 180 days behind.

These figures represent the depth of the crisis facing mortgage providers and a great deal of human misery and Foreign Minister Micheál Martin, speaking in China yesterday, acknowledged that challenge. He said that any measures to resolve the crisis will have to have real credibility or else further complications might arise.

Of course there are those whose commitment to repaying their debts is not what it should be but it must be assumed that the vast majority of people would repay their mortgages if the conditions under which it was granted still existed.

Nevertheless, it seems that there is no easy solution to the problem. As Mr Elderfield pointed out a taxpayer-funded bailout would be unfair to those who were lucky enough to be able to manage their affairs. That may be true but it would not be the first or last time exchequer funds would be used in an inequitable way.

This crisis has raised an issued that, when the dust settles, should be given consideration. Under American law a person who cannot sustain mortgage repayments just sends the keys to the property back to the lender – in that wonderfully evocative American way the process is called “jingle mail” – and they are then no longer responsible for the mortgage.

In this country the cards are dealt differently and very much in favour of the banks. Even if you vacate the mortgaged property the lenders can, and will, pursue you for the debt. If this trump card was not available to the banks then they might have been more responsible about how much they lent to aspirant homeowners and we would not be in the mess we are in. What better reason do we need to change the law?