Mortgage defaults – No prospect of government help & More Bank bailouts!

Ann Orr writes about the increasing problem of mortgage defaults : In December 26,271 mortgage holders were behind in their mortgage re-payments due to the dramatic increase in unemployment. And Michael Murphy writes about the government’s plans for another bank bailout.

 

In December 26,271 mortgage holders were behind in their mortgage re-payments due to the dramatic increase in unemployment. Minister for the Environment, Eamon Ryan, at the start of February announced plans for new measures to help people who find themselves in mortgage arrears which included the transfer of equity to lenders and the re-scheduling of debt.

These measures would not be able to solve the problem and would fall far shot of what is necessary. However, even these limited proposals were rolled back by Brian Lenihan when he said shortly afterwards that he would only broaden the membership of an existing group responsible for investigating possible ways to help people in mortgages arrears.

On top of that Minister for Social and Family Affairs, Mary Hanafin, has indicated that mortgage supplements could be restricted because the cost of the scheme to the government is rising fast. So instead of addressing the problem of people not being able to make their monthly payments, the government is attacking one of the measures already in place designed to help people in that situation.

House prices have plummeted by an average of 22% over the past 12 months. In Galway, they even fell by a record 50% in the same time frame! Negative equity is predicted to affect 196,000 households by the end of this year, yet these people are expected to pay mortgages based on property prices of the boom. It is disgraceful that while Anglo Irish can still give 0% interest on loans to property developers, ordinary people are being forced to continue to make repayments that are based on values that are far above the actual value of their homes.

If we had the socialist nationalisation of the banks then mortgages on people’s homes should be re-evaluated and based on the true value of the property. Along with the provision of cheap credit these measures would dramatically lower mortgage repayments and be part of a strategy to prevent anyone from losing their home.

No more banking bailouts – we can’t afford it!

By Michael Murphy

The spectre of a banking collapse and a further bail out hangs over the Irish economy like the Sword of Damocles.

The government hopes that NAMA will stabilise the banking sector and over time, when the property market recovers and interest rates rise, the banks will repay the tax payer. This is nice in theory the problem is it’s not going to happen. The reality is that there is the real prospect of a second banking crisis emerging in the course of the next year.

The European Central Bank (ECB) is being forced to loan billions to banks in the form of very cheap credit. However, because of a certain stabilisation in the banks in some of the bigger European countries like France and Germany, the ECB are tightening their rules again and insisting that only “AAA” rated assets as collateral can be exchanged for cash. The problem for Ireland is that there are no “AAA” assets in our banks. Hence the Irish government will have to borrow elsewhere and at a much higher cost adding to an increasing national debt or there will be a further bail out by the tax payer, possibly by the government raiding the National Pension Reserve Fund.

RTE’s Prime Time Investigates estimates that the government will have to bailout the banks this year to the tune of €15 billion. On top of this, there is the possibility that thousands of householders will default on their mortgages. It is estimated that 3.3% of Irish mortgages (26,000) are in arrears and 196,000 people experiencing negative equity i.e. their property is worth less than they owe on the mortgage.

If thousands of homeowners default on their mortgages, we will have another banking crisis, because banks won’t have the capital to absorb so much bad personal debt at once.
The Socialist Party is opposed to the bank bailouts. The banks should be nationalised but not nationalised like Anglo Irish Bank where-by the state simply takes over the debts of property developers.

What is needed is an entirely different type of nationalisation – nationalisation under democratic workers’ control. This means bringing the industry’s workers and the wider working class to the heart of the control and management of nationalised enterprises. The assets of the defaulting property developers should be taken and sold and the money used to pay their debts back to the banks. Why should the taxpayer who is being hit with pay cuts and job losses, bail out these people who made a killing off our backs during the boom? By doing this cheap credit could be made available to people to allow them buy a home that won’t be a millstone around their necks.