Monday, November 08, 2010

Morgan Kelly Irish Times Article

A massive failure in Irish policy in the last four years has been the failure to publish a comprehensive analysis of the prospects for mortgage default in the Irish economy. There is no history of strategic default in Ireland and the recourse nature of mortgage debt and the tough personal bankruptcy laws make it particularly difficult to default. Instead what has been happening is a loose hotpotch of deals being struck between banks and mortgage holders with debts being rolled-over and so on. One argument is that the 37,000 or so mortgages in 90 day plus arrears are not of sufficient magnitude to cause more systemic issues and therefore this is not an issue that requires major coordinated intervention. However, Morgan Kelly argues today that there is a strong potential for a wave of strategic defaults in the Irish system that could have a further destablisiing effect on the Irish economy. Given Morgan's prophetic past commentaries, one has to take him seriously. One way of doing this would be for the Central Bank to publish a clear and fully realistic account of the potential for mortgage default in the Irish economy along with a strategy for dealing with this. The regulator has already ruled out mortgage write-downs but there are an entire basket of potential solutions to deal with people in mortgage distress including the banks taking equity in the homes, accelerated foreclosure proceedings, renegotiation of the timing of repayments. Some of these are already happening in bilateral fashion betweeen the lenders and borrowers but hopefully Morgan's article will act as a spur to make a move in getting this sorted out more systematically even if in the context of a substantial lowering of economic living standards envisioned in his article.

1 comment:

Anonymous said...


The interim report of the Mortgage Arrears and Personal Debt Expert Group is the only official document that I have seen in relation to the prospects for mortgage default in the Irish economy:

The Financial Capability Survey may also be of interest to people investigating this area:

UCD graduate student Yvonne McCarthy has been working with this data: