Families in modern Ireland skip food to pay the mortgage
70pc support debt forgiveness as Morgan Kelly shows how it can work

Independent.ie | August 28 2011
By Ronald Quinlan and Jody Corcoran

FAMILIES in modern Ireland are going without food to meet the demand of mortgage debt.

The arrival of the second wave of the economic crisis, giving rise for the first time in many decades to the spectre of hunger, has caused shock across the country.

The decision of homeowners to choose hunger over a fear of eviction helps expose as irrelevant the issue of "moral hazard", the defence of policymakers who resist calls for debt forgiveness.

A nationwide Sunday Independent/Quantum Research poll has found massive support for the concept of debt forgiveness to help those who are genuinely unable to meet their full mortgage payments.

The poll found that 70 per cent supported the idea of debt forgiveness and, more tellingly, 73 per cent would not resent such relief for homeowners while they themselves continued to meet their commitments.

Yesterday the economist Morgan Kelly, who was among the first to warn of such a mortgage crisis, said that the purpose of debt forgiveness was not to eliminate negative equity but to deal with the


risk of people defaulting on smaller mortgages and "losing their family homes".

Professor Kelly told the Sunday Independent: "The State can save itself huge losses in firesales of foreclosed properties and end the anguish of many ordinary families."

The fear of losing their home is causing many anguished families to go without enough to eat in order to ensure that they have sufficient money to pay their mortgage.

The case highlighted last week of a family in Co Kerry which feels obliged to "cope with a new torment -- hunger" to service a mortgage of €80,000 has caused widespread shock.

In a letter to the Irish Times on Friday, MP Mac Domhnaill -- possibly a pseudonym -- an unemployed man from Tralee, wrote of the "anxiety and pain" the economic crisis had wreaked on his family.

The letter writer, who has chosen to use his dole payment to meet a €780 monthly repayment, told of how he had nothing to feed his children except bread and cereal.

Anecdotal evidence suggests that circumstances such as his are now prevalent, even though help is available through negotiation with a mortgage provider as well as through other State services.

There are currently up to 60,000 mortgage holders in the country who are in arrears on their mortgages.

Having sparked a debate on the issue of debt forgiveness, the UCD economist Morgan Kelly, in an email to the Sunday Independent yesterday, outlined the targeted measures he believed the State must now introduce to "end the anguish of many ordinary Irish families".

Responding directly to the claim made last week by the Tanaiste Eamon Gilmore, amongst others, that he had called for a "blanket write-off of mortgage debt", Prof Kelly stated that the "purpose of debt forgiveness is not to eliminate negative equity, but to deal with the risk of people defaulting on smaller mortgages and losing their family homes".

Referring to these troubled homeowners specifically, he said: "By identifying the people at risk and reducing their mortgages to manageable levels, or, in the case of the unemployed, renting people their homes as effectively council houses, the State can save itself huge losses on fire sales of foreclosed properties and end the anguish of many ordinary Irish families."

Commenting on what he believes should be done to assist those in trouble with substantial boom-era mortgages, he added: "A few families with absurdly large mortgages will need to be given assistance to relocate to more affordable property, but they are a small part of the problem."

Prof Kelly dismissed outright the introduction of any form of mortgage debt relief for those in negative equity, but who could still afford to pay.

"However, the large majority who can afford to pay their mortgages must pay every cent; regardless of how much they are in negative equity or may now regret their purchase," he said.

His call for a targeted solution to deal with the issue of those at risk of losing their homes is supported by the vast majority of those who participated in our telephone poll.

While 72 per cent believed that many people would stop paying their mortgage in an attempt to avail of a forgiveness scheme, 65 per cent said it would be possible to restrict forgiveness to those genuinely in need.

Central Bank figures to be released tomorrow are expected to show in the region of 60,000 mortgages that are more than three months in arrears -- a marked increase on the 49,609 figure recorded at the end of March.

The growing problem of mortgage arrears for the AIB and Bank of Ireland is reflected in worrying detail in the latest annual reports for their respective mortgage subsidiaries.

The latest annual report for the AIB Mortgage Bank shows that as of December 31 last year, a total of €839.5m of its €20.074bn Irish mortgage book was classed as impaired. The figure marked an increase of €457.77m on the €381.74m of home loans the bank recorded as being impaired at the end of 2009.

The AIB accounts further show how an additional €927.13m in home loans was recorded as being past due on December 31, 2010, compared to the €477.78m of mortgages classed as past due on December 31, 2009.

But as worrying as the AIB's numbers are, they do not fully reflect the number or value of the mortgages on its books that are in trouble.

In a note to its 2010 accounts, the bank discloses how once the terms of a distressed mortgage have been renegotiated, it is removed from the bank's 'past-due' list.

Unlike other Irish mortgage lenders however, AIB is actively considering ways to deal with cases where there is no prospect of borrowers repaying their mortgages.

Among the possible solutions being explored are "intergenerational" mortgages and debt forgiveness, where a part of the loan is written off in return for the bank taking a share of the home.

The State-owned AIB recently submitted a package of possible proposals for consideration to Minister for Finance Michael Noonan, the bank's majority shareholder.

In the case of the Bank of Ireland Mortgage Bank, meanwhile, total impaired loans had spiralled to €624.5m by the end of 2010, an increase of €207.2m on the €417.3m figure recorded just nine months earlier.

Commenting on this, the bank's accounts for 2010 state: "The level of accounts falling into arrears is increasing due to rising unemployment, lower disposable income and declining property prices.

"The bank continues to work closely with customers who find themselves in financial difficulty, with a view to achieving mutually satisfactory outcomes."

Bank of Ireland Mortgage Bank had €20.915bn in mortgages outstanding on December 31, 2010, the accounts show.