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Wednesday, May 19, 2010
Homeowners kept in grip of banks by archaic laws
By James Laffey
AS PART of the excellent Aftershock series on RTE, broadcaster Matt Cooper offered a novel solution to the negative equity crisis that is now afflicting so many homeowners across the country.
He proposed a form of “debt amnesty” where a financial institution would write off a portion of a homeowner’s mortgage on the understanding that the institution would gain a percentage share of the value of the home. If nothing else it is an innovative idea but Cooper has been excoriated, even by some of his own listeners on Today FM.
Yet the inescapable logic of Cooper’s argument will only become apparent in the coming years as more and more homeowners default on their mortgages. The truth is that the Government and the banks have offered absolutely nothing – I repeat, ABSOLUTELY NOTHING – to hard-pressed mortgage holders who bought at the peak of the boom and are now living in houses that are overpriced by as much as 50 per cent. Some homeowners will be paying off negative equity for at least ten years before they can even start to tackle the part of their mortgage that actually reflects the real value of their homes.
These same people are staring down the barrel of possible wage cuts, probable tax increases and definite interest rate hikes. Yet the best the Government can offer them is wishy-washy statements about the “compassion and understanding” financial institutions will demonstrate to those in mortgage arrears – as if we should be grateful to receive compassion and understanding from the very people we have bailed out.
But every person has a breaking point and one of the most noticeable features of the Aftershock documentary about the ghost estates in the Midlands is that there are now many homeowners who are close to throwing the key in the letterbox and walking away. Indeed, I am convinced that if Irish banks continue to screw mortgage holders with interest rate hikes that have nothing whatsoever to do with the European Central Bank they will end up with an endless amount of empty homes on their books.
In America – where the laws governing personal bankruptcy are far less restrictive than Ireland – there is now a growing trend of mortgage defaults. There is even a phenomenon called “strategic default” where homeowners make a calculated decision to call time on their mortgage on the grounds that it would cost them more to keep paying it than to file for bankruptcy.
Only in America could a company like youwalkway.com become a national success story, and anyone who wants to learn more about it should log onto its website. I’m sure any Irish banker who views the site will shudder at the thought of a homegrown version of this company pitching for business in the ghost estates of the Midlands or the box-room apartments of the Dublin Docklands.
There has been some discussion in the Seanad about solutions to the mortgage arrears crisis but I will bet all my negative equity (and that’s a lot!) that there will not be any changes to the draconian laws governing personal bankruptcy in Ireland. The banks and the Government are too committed to screwing ordinary Irish citizens to offer them the sort of get-out clauses that exist in America.
Indeed, this is one area where we are most definitely closer to Berlin than Boston – to paraphrase that great PD philosopher Mary Harney. And when I say Berlin, I mean Berlin circa 1939, because when it comes to personal bankruptcy laws this country and its banks have a stranglehold on ordinary citizens that any fascist dictatorship would envy.
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