Sir, – I have an issue with the idea of mortgage forgiveness due to the moral hazard aspect (Front page, August 19th). Many mortgage-holders continue to meet their monthly repayments in full and as such would effectively be penalised if those in arrears were given debt forgiveness with no strings attached.
To overcome this moral hazard, I suggest that a debt for equity swap is used instead of straight forgiveness. In a hypothetical example, a mortgage of €300,000 is forgiven €100,000 leaving a residual balance of €200,000 to be repaid. In return for this debt forgiveness, the bank receives a 33.33 per cent stake in the house. The bank’s equity stake in the house is redeemable either at the end of the mortgage period or when the house is sold. This idea ensures that there is a consequence to seeking debt forgiveness and reduces the risk of free loaders trying to avail of any scheme designed to assist those genuinely in trouble. – Yours, etc,