May 16, 2011

Mortgage Crisis My Mad solution

Posted in Your Ideas · 11 comments ·
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Hi All, I have a very ‘out there’ idea that will be welcomed by a lot of people and not by others but something has to be done for people and also to increase peoples spending power. The situtation we find ourselves in requires urgent creative solutions and a bit of vision.

My idea is and of course it needs to be tweeked:-
1. All mortgaged houses (especially family ones) to be re-valued as at 2011 value, a date for valuation to be picked, for example this year 1st August 2011 , a group of Estate Agents to be given the job by the government to value all houses in all areas.
2. People will get a valuation cert from the Estate Agent or government appointed agency for this.
3. This valualtion cert to be given to the bank the people have their mortgage with and that is the amount they will have to pay going foward, i.e. the current market value.
4. What this will do will give a once off debt forgiveness to a lot of people having their houses re-valued and to those who dont need complete debt forgiveness it will free up the rest of their money, thus increasing spending in the economy.

For example if I bought my house in 2006 and it was 300,000 and now worth 175,000 I pay back a mortgage only on the 175,000 on todays valuation leaving the rest of my salary free.

The banks will still get their money just not as much and those who are struggling will get a break while still paying back the true value of their homes in todays value. The knock on effect is people will spend more as they will have more disposable income.

This is a once off solution and I’m sure theres loads of reasons it cant be done, but for once why cant we be creative, pro-active and stop dragging our feet in the sand. To those who say debt forgiveness is unfair – what would you rather see, more people throw themselves off cliffs etc just because you didnt want to do something really decent and good to get this economy out of the mess its in, the only people to get us out of this mess is us, lets have a bit of courage and goodwill, we can do this.

Coffey.


  1. namarama

    I think that this idea has a lot of merit, but I would add on a couple of conditions.

    1. Everyone who receives the mark to market write-down must surrender their tracker mortgage and be offered a long term fixed rate mortgage at similar rates that are available in France and Germany. This would allow the banks to cleanse their books of loss making loans and should enable them to sell of the remaining books as they will be profitable and comparable to other european loan books.

    2. There should be a substantial capital gains tax ( 60-80% ) on any property transactions which are sold at a profit between the mark to market value and the original mortgage value. This would give a return to the state on this effort.

    3. Legislation is passed to make all domestic mortgages current and future non-recourse. This will allow people who cannot affort the mortgage on the mark the market value to surrender their house and walk away. Such individuals should have a mark on their credit file for 3-5 years.

    4. Banks should offer a long term debt consolidation loan 15-20 years for all credit cards, personal loans and business loans at long term fixed rates. These loans could be repaid through the PAYE system. Foreign lenders can make their own arrangements but are currently accepting short settlements of 30% of original loan value ( credit card company starting with M and ending with NA )

    The measures above are not a free ride for anyone, but a mechanism to give people time to sort their issues out, and giving the Banks an oppurtunity to cleanse their balance sheets and return to the markets sooner.

    Somebody please stick the pin in the little hole in on the back of the country which says RESET !

  2. shanejunkin

    With namarama additions, I think this is a very good idea. However, we would have to remember that cost would be incurred by the tax payers for the debt forgiveness. Every hundred grand written off the mortgages would be paid for by the tax payers under the current policies. However, if you were to do this and then apply a haircut to senior bondholders it would be them that would shoulder this cost.

    It’s a good solution. The tax payer has paid to keep the system up and running and finally the bond holders could be asked to pay to release the indebted people to drive growth in the economy.

    A clever government would impose this strategy with a view to freeing the growth engines (the people) and then sell it to the tax payers (lots of whom won’t want to pay for other people’s mortgage write downs) by applying the haircut to the bonders at the same time to fund. Tax payers would be somewhat happy they weren’t shouldering anymore, the clever government could blame FF for that and the people would be free to spend again.

    You’d have to come up with some better way of valuing the houses though than allowing estate agents or a government agency to do it though!

  3. Luke Tilesdotie

    Would agree with namarama also however no allowance is made for payments already made from the peak until now or indeed for equity put in at time of purchase. While I’m in agreement that some lateral thinking must be applied, whats proposed here would appear to be a solution for those in negative equity regardless of their ability to repay.
    There are many people in negative equity who can repay and equally there are many not in negative equity who cannot pay…….

  4. Juanjo R

    No.

    This is crazy – as its an across the board cut which is indiscriminate in its affects.

    Taxation/government policy should be directed towards a particular end result, i..e. its about shaping the society we live in as well has paying the bills.

    What this proosal would do is it would make no difference for someone who has had their income destroyed and can’t pay a 300,000 or 175,000 mortgage and its gives a huge break to those that can still afford their mortgages ( and many can ) more than anything it would give huge breaks to those who speculated and accumilated many properties through interest only loans etc. These are very different senarios – and so to would the affect of the proposed measures.

    Irish society has to make a definate decision about housing i.e. thats its for people to live in not for massive finanical speculation and national policy needs to be directed toward this end not against it. When the IMF pushed for reinstatement of a property tax thats what they meant – curb the speculation cause its a bad thing in excess!

    Aside from this the proposal actually is mad because you have government crossing over into private markets and contracts. It would be endlessly fought over in court and overturned more than likely.

    Aside from that do you really trust estate agents after all thats happened?

    For me you haven’t detached yourself from the very makey-uppy valuation mentality which created the problems in the first place.

    I don’t mean to be too harsh your heart and interests are in the right place I feel but solving craziness with even more craziness isn’t going to work – we need to get back to basics.

    @namarama – the national reset button was our own currency and revaluation of it – and the government had sole control of it – which we gave away to join the Euro. Reinstate that and we have a common easy to push reset button what everyone, markets included, understands no crazy mixed half measures

  5. thejeckel

    Juanjo R – its just too easy to poo-poo on creative ideas like this. Your ‘return to the punt’ will screw everyone, just like it did in Argentina. Devaluing my house and my savings by 75% – I’d poo-poo on that long before resetting the property market, the heart and the belly of the monster of our problem.

    His idea might not be fully thought out, but I like where he is going with it, not AT ALL with yours. yours screws people (who didnt cause this problem) out of their future.

    • Juanjo R

      Jeckel

      I’m not being negative for the sake of it. I’m not poo-poo ing.

      From you though I hear me, me, me.

      Your completely missing my points on housing valuations and the role of the economy i.e to serve to society. You want it just to serve you I think.

      Your house value and your mortgage are two different things. Your house ( if you have one ) is devaluing – punt or no punt – as is every one in the country. Theres 1.9 million dwellings and 1.6 million households.

      I you don’t believe me check the CSO data.

      I don’t know where the decline will stop. There is four years supply if things were going were here and people stayed here and there was fullish employment.

      I’d say it will be several years into a strong economic recovery ( if we get one ) before the market

      Theres up and downsides to devaluation point is this is the only measure across society that place the whole of us at a new starting point quickly and gets things moving again. Credit being to follow again as lenders see a picture they can understand.

      West Germany was in a state of virtual wipeout in the years immediately after WW2 look were it went after the introduction in 1948 of the D-Mark.

      Theres an effect and therefore should be point to taxation or other economic policies for that matter.
      McCreevey thought in terms of vote buying with his tax policies / economic policies. Remember SSIAs? Your mortgage / makey uppey valuations etc are a symptom of the failures of that era – which were dressed up as success. What he put in place need to be completely dismantled.

      Tinkering with it is only going to make more of a mess.

      • lff12

        There is a point in this post. What happens WHEN house prices start to recover? Do people who were “forgiven” then have to pay back their gift from the state?

        Perhaps some kind of buyout scheme whereby those who are having major difficulties can have an interest bought out by social housing agencies, which can be purchased back at cost if their finances recover. People keep going on about wanting to keep people in the family home, but there is no problem in kicking people out on the street if they rent, so why should home owners be so special?

  6. mumenomics

    Kudos to Coffey for the creative thinking. HOwever, a one size fits all approach won’t really work. I have a home in negative equity-I never expected to be forgiven my debt but I am the very person you want to spend more in the economy-I am still in employment but my income has been reduced significantly so I am cutting back all round. How about a write down on on the interest payable on my negative equity mortgage? That way I could pay back the capital amount more quickly. Not sure if its do-able, but it would get people like me out of the woods more quickly. To qualify you would need a home which has been deemed to be in negative equity?

  7. roc

    I would add to Coffey’s solution.

    If we do as she suggests, we set down in our law that ‘going forward’, everyone must also pay their mortgage calculated on any increase in future value.

    The additional income generated would be distributed to the younger generations and non home owning classes, whose pockets and prospects were most hit in the aforementioned write-off.

    This would also have the effect of damping down future speculation and expectations of asset value increase etc.

  8. The root of the debt crisis problem is that banks create digital money every time they process a loan. Since money is created through the loan process every digital euro has a corresponding debt.

    Written off debt is one solution but it if we still allow money to be created by banks we’ll run into a debt crisis again in the future.

    It would be great to use this opportunity to implement a second source of digital money to complement or replace the first.

    For more information feel free to visit our website http://www.sensiblemoney.ie

    Thanks,
    Paul Ferguson
    Sensible Money

  9. jor200

    The only snag with your mad solution is that the banks would have to write down the loans and their Balance Sheets would become massively negative triggering liquidation. Mind you this is probably the reality as things stand only it has not been formally recognised. Incidentally contrary to a lot of the eco-babble floating around consumers passing money around the economy solves nothing – the solution is serious reductions in government spending and huge increases in exports.

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