Mortgage Debt – How to fix distressed property markets

Mortgage Debt – How to fix distressed property markets

Mortgage Debt – How to fix distressed property markets. This ongoing problem was the topic of a conference last week held by the Central Bank.  This problem is 5 years old and still no meaningful solutions have been provided.  When we have a problem that has not been experienced by us in the past, we should look to countries that have had similar problems in the past.

Many counties have had this mortgage debt problem in the past, with the United States having experienced this several times.  The banks in Ireland have not to date taken steps to solve the mortgage debt problem. Until this problem is solved, the economy will find it difficult to improve.

In America, they move quicker to deal with mortgage debt. Where the borrower cannot sustain the mortgage they repossess the property. With many of their loans non recourse loans, the borrower loses the property and whatever money they paid as deposit and for loan repayments. The bank sells the property and move on. The borrower can move on without any losses relating to the loan due by them.  In some cases where the borrower can repay more than the current value of the property, the loan is written to a level the borrower can pay.

As our loans are not non recourse loans, the losses after a sale are owed by the borrower. We cannot use the same system as used in America for this part only. But the banks can deal with each borrower and agree what is the best solution for that borrower.  The structure should deal with the loan once and for all and not kick the can down the road.  The sooner each borrower has clarity and agreement to move forward, whatever that may be, the sooner the economy can move forward.

There are clear signs already this year that main banks are starting to meaningfully deal with borrowers.  The Central Bank needs to watch this space carefully and ensure that the mortgage debt problem is tackled head on this year so we don’t go into another year without considerable progress solving this problem.