Irish Bill Could Prevent Thousands Of Foreclosures
ROBERT SIEGEL, HOST:
Now to Ireland where the government is likely to pass a new law called the Personal Insolvency Bill. The legislation is meant to help people who are struggling to pay their mortgages by, in part, forgiving some of the debt that they owe to banks. It could prevent tens of thousands of foreclosures across the country, and here to tell us more about it is Charlie Weston, personal finance editor of The Irish Independent who joins us from Dublin. Welcome to the program.
CHARLIE WESTON: Thank you.
SIEGEL: And let's start by giving a bit more detail. What would the Personal Insolvency Bill do?
WESTON: Well, basically it puts a legal mechanism in place to allow banks and distressed home owners to agree on some sort of a write down on their mortgage debt. About one in five mortgages in this country are in some form of distress at the moment. Part of the idea here is that if you forgive them some of the mortgage debt that they may be able to spend again as consumers, and instead of putting huge proportions of their income into paying mortgages that they can't cope with.
SIEGEL: The dimensions of the housing problem in Ireland, they make our problems here look almost manageable. I gather half the properties in Ireland are underwater. That is they're worth less than the debt on them. And the property values are what? About 50 percent of what they were at the peak of the bubble there?
WESTON: That's correct, yeah, property on average has fallen by 50 percent since 2007 when it would have peaked. More than half of the mortgages out in the market are in negative equity. Yes, people paid more for the houses than they're now worth. So if you're not going to foreclose on the house, you have to come up with some other solution. So the solution is maybe write down some of the mortgage debt.
SIEGEL: Well, how much - typically how much of a person's debt on a home would the Personal Insolvency Bill forgive them?
WESTON: It really will depend from case-to-case and the banks are very much in control of this process. So the idea is that you put a formal process in place where you write down some of the debt and you lock people then into a six-year agreement with the bank, where they repay the new agreed amount over that six years. And if the people keep to that deal over six years, at the end of that six years if both sides are happy with the deal, some of the debt is then written off. So, there's no free ride here. You have to meet certain conditions and if you keep to the deal for six years, some of the debt can be written off.
SIEGEL: Assistance of this sort, even the potential for writing down mortgage debt, inevitably raises questions of, as they say, moral hazard. Do you rush to the aid of those who were deeply in over their heads on their home and not help somebody who was more prudent about the house that they, or that they bought, or perhaps house they didn't buy knowing that they couldn't afford one? How is that argument playing out in Ireland?
WESTON: Yeah, and that's a huge and contentious issue here. There are many people who all regarded what was going on in the housing market here as an unsustainable bubble, and those people deeply, deeply resent the fact that others went crazy during the boom and now have to be rescued. But I suppose the government has decided, looked back and said, the greater good here will be served by rescuing people here rather than people having to end up losing their homes, because if they lose their homes, we'll have to house them anyway. So, it is a difficult issue and it's one, it's a decision that will be left to the banks. The banks themselves have a veto over this entire process. They get to decide who gets saved, who gets rescued.
SIEGEL: You know, when you measure property values in Ireland today against those at the peak in 2007, it's a reminder that this has been going on for a long time, this housing crisis.
WESTON: Yeah, we're five years into it. Banks have been slow really to kind of even recognize the problem. As always, banks are in denial about the extent of the problem. Bankers just tend to operate on hope a lot of the time and hope that things will improve. But nothing has improved in five years. It could be a very long time. There's an estimate this week that it could be 20 years before the market picks up and reaches back to the peak levels, if that, back in 2007. So, we're going through a very deep crisis here at the moment.
SIEGEL: Charlie, thanks a lot for talking with us today.
WESTON: Thank you, Robert.
SIEGEL: That's Charlie Weston, personal finance editor of the Irish Independent.
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