Posted: Wednesday July 07 2010, Blog Tags:
THE group appointed by the Government to look at the thorny issue of mortgage arrears has been meeting regularly for four months now.
Yesterday, it issued an interim report that recommended measures to make life easier for those struggling to meet their mortgage repayments.
However, its conclusions amount to little more than a tinkering of existing rules.
The failure to recommend a bailout for homeowners contrasts with a revised business plan for the National Asset Management Agency (NAMA), also issued yesterday.
Recommended are a ban on penalties for those in arrears, changes to the State's mortgage interest support scheme, and restrictions on lenders taking valuable tracker mortgages off those who are renegotiating their mortgage with their lender.
Some of the changes to the mortgage interest scheme will actually make it harder to qualify for it.
Also recommended is a standard framework to be developed by all lenders to handle cases where homeowners are struggling with repayments.
Controversially, the expert group recommends that homeowners who are unable meet their mortgage repayments because the loan is too big should be encouraged to voluntarily hand their home back to the bank.
It is hard not to conclude that under-pressure householders digesting these recommendations today will feel mightily let down.
Nowhere is there any recommendation that will inflict financial pain on the banks.
Instead, the group will wait until next month to look at whether or not it will recommend some form of debt forgiveness.
When the expert group was set up it had been expected that it would come up with schemes to modify the mortgages of those unable to pay.
This could be done by forcing a bank, building society or subprime lender that engaged in irresponsible lending to write off some of the mortgage debt, or even force it to park a portion of the mortgage until the householders get back on their feet financially.
That kind of approach may not go down well with many of those who are managing to pay their bills in a financially dire environment. However, it needs to be remembered that even in bastions of capitalism like the US and the UK they have recognised that it is better to keep defaulting borrowers in their homes, and have designed limited bailout schemes to do that.
But the muted measures announced yesterday should hardly came as a surprise when a few weeks back Financial Regulator Matthew Elderfield, himself a member of the expert group, seemed to pre-empt the recommendations of the group.
He did this when he dismissed debt forgiveness as risking "moral hazard", or an encouragement to bad behaviour.
With four officials from the Department of Finance and two bankers joining Mr Elderfield on the expert group, do not expect the final report of the expert group in September to recommend debt forgiveness either.
Article by Charlie Weston, ,
Published 7th July 2010.