29 Aug 2013

A Solution To Mortgage Arrears

A Solution To Mortgage Arrears The decision imposed upon Ryanair this week regarding its 29.8% stake comes as a welcome note in the airline industry, and indeed a ruling that many would view as a step towards favouring the smaller party in business. Evidences of similar resolutions have been few and far between in recent years, particularly among the Government Ministers attempting to get the Nation “back on track.” This mentality has filtered down swiftly to the financial providers in this country, with draconian measures put in place to those involved in repaying existing mortgage agreements.

Debt forgiveness is a phrase seldom heard in Ireland, reserved solely for those occupying the ‘upper’ echelons of our society, most notably to the lofty heights of the Property Developer. When those with less significant borrowings (mortgages, etc) fall upon hard times, their consultants in banking look unfavourably upon their shortcomings. In other European Countries, and additionally on occasion in the United States, many banks are willing to negotiate arrangements in which portions (some institutions have been known to offer up to 60% debt forgiveness) of the mortgage holder’s loan is written off completely. AIB, the only bank that is reported to have offered any form of debt forgiveness in the current crisis, will grant forgiveness under a small number of cases. It appears the country’s former largest bank has a more holistic approach to dealing with its clients. According to Garry Stran, head of AIB Arrears unit, is offering reductions in mortgage repayments to those “who are wholeheartedly trying their best, but can to no effect, keep up with their payments.” Minister for Justice, Alan Shatter has lauded this approach and encouraged other Banks to do the same. Many banks leave much to be desired in this field, with the five other largest mortgage providers allowing their customers little or no respite in the current economic climate. It is understandable that the Banks find themselves in an increasingly difficult economic situation, with little capital to undertake new ventures, however once clients and customers are given the opportunity to spend their disposable income, instead of channelling all of their earnings into a monthly mortgage repayment, their purchases will eventually filter back to Banks with profit in new business.

In order to highlight the treatment at which around 100,000 individuals in Ireland are currently receiving, it is necessary to envisage the mortgage holder as a commodity, comparable to gold or oil stocks which are publicly traded on the stock market. Should the value of Gold increase, plainly it costs more to purchase. Should the value of Gold decrease, it is cheaper to buy and costs less to sell. Currently the value of the mortgage holder’s investment (their property) has decreased significantly, and they do not have the means to repay their mortgage, due to a drop in earnings etc… As a bank will accept the loss of value in the price of gold, Banks should be prepared to accept the loss of value in a mortgage loan, when the client does his/her utmost to repay it. It is understandable, in the current economic situation that Banks need all available capital, however forcing customers into equally harrowing situations is not desirable for the economic health of the nation. As Ireland has followed the lead of Europe, under the guise of the ECB & IMF in Frankfurt, it is now time that the Irish Banker accepted his/her client’s losses and followed the European lead in mortgage reconciliation and debt forgiveness.



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