THE SPEED with which the main mortgage providers accepted new measures to protect homeowners in financial difficulty indicates the dangers that widespread defaults would pose. Whatever about that, struggling homeowners will welcome the various reliefs now on offer. Many will be able to defer interest payments on one-third of their loans for five years, without penalty. Others will benefit from more rigorous controls on the repossession of their homes.
The improved protection regime has been criticised for not going far enough. At this stage, however, it comes down to a question of what can be afforded. Other approaches might be too costly. Minister for Finance Brian Lenihan and Financial Regulator Matthew Elderfield ruled out debt-forgiveness. That is understandable, given the views expressed last July by the International Monetary Fund (IMF) and its likely engagement in the financial management of this State. The IMF accepted the need to protect vulnerable homeowners from repossession, but insisted any relief measures should be narrowly targeted.
The measures proposed by a Government-appointed group and now being introduced are broadly in line with that IMF prescription and are unlikely to be challenged. There is, as the regulator has recently observed, no silver-bullet solution to mortgage arrears because the introduction of debt-forgiveness could incentivise some homeowners to breach their obligations. That would add to the burden on taxpayers. The alternative – a debt forbearance scheme – will protect many of the 70,000 mortgage holders now in arrears and provide a five-year breathing space within which their circumstances may improve. Critically, no penalty interest will apply to arrears. For those unable to make two-thirds of their interest repayments or who are more than 18 months in arrears, it has been suggested the Department of the Environment should provide social housing before homes are repossessed.
Mr Elderfield expects to have debt-forbearance measures in place by the end of the year. There are concerns, however, about the slow pace of Government action on equally important issues. Some months ago, the Law Reform Commission recommended reform of the bankruptcy laws and reducing the 12-year discharge period to six years or less. It also proposed that debt enforcement systems be reviewed and, where possible, debt enforcement procedures removed from the courts. These matters require urgent attention.