Minister warns that debt forgiveness from state-owned banks will not happen.
There has been so much debate in the media recently that the Minister for Finance Michael Noonan today warned struggling mortgage holders that there will be no extensive debt forgiveness programme for borrowers.
Michael Noonan said the government would work to help those who cannot pay their loans but he said nobody should think there will be a big pool of money which would be handed out in substitute for the lottery.
Mr. Noonaan did say that action would be taken as soon as an expert group examining the issue delivers its report to the government at the end of the month. Until then we will just have to wait and see what the experts have to say in their report.
Debt forgiveness- who will pay for this?
The problem for government is that if they decide to pursue a policy of debt forgiveness where will the funds for the bank write downs come from? Given that the Irish banks are state owned and that Ireland Inc is relying on financial support from the ECB/EU/IMF it is difficult to see where the funding will be available.
A series of recent articles have stated that a €6bn debt forgiveness scheme for struggling mortgage holders would plug the gap in the ever increasing arrears and put those in negative equity back on track from a property value and loan repayment perspective.
It is estimated that the €6bn would be used to write off some of the debts of at least 40,000 people unable to pay their mortgages. There were warnings that such a scheme could encourage some of the 746,000 people making “great sacrifices” to pay their loans to start defaulting.
I would have thought that best practice would be that those in arrears and in default on their mortgages should be dealt with on a case by case basis. I would imagine that this fund could be put to better use by creating and retaining jobs for these home owners as it is likely that unemployment is one of the main factors that they are no longer able to meet their debts.
Should there be a debt forgiveness scheme for everyone?
If it is a case that government decide to go ahead with a debt forgiveness scheme for home owners, will there then be a case from those people who invested in property or who borrowed to purchase or set up a business during the boom years to be ‘bailed out’?
Rather than becoming bogged down in trying to finance a mini-NAMA, government should start devising new and creative initiatives to kick start the economy and provide real access to bank funding for business so that they can raise working capital to expand their business if required or to support their business over the next 18 months until such time as our economy eventually begins to recover.
Where could the money be better spent?
The recent Jobs initiative (funded by a levy on private pension funds) is a good start but there must be further support mechanisms for business and entrepreneurs to ensure that the domestic economy recovers and that we aren’t relying solely on the export sector for economic growth. There are ongoing discussions at present in relation to an Enterprise Loan Guarantee Scheme but realistically this is unlikely to come into place until 2012.
The main problem over the last number of years from a business perspective has been the lack of funding available from banks and the delay in the timeframe for decisions on loan applications, if they happen at all.
This was a point made by Ian Talbot (chief executive-Chambers Ireland) who recently stated that the delay in banking decisions was due to “ Banks having gone back to a standard of documentation and verification that they should never have left. Bank are dusting off the 1980’s manuals for loans based on future cashflow and for a lot of bank officials, cashflow lending is a new process” Also the level of financial and personal documentation required to support loan applications has increased considerably from the days of lending based on property values and deeds.
As recently as last week John Trethowan (head of the Credit Review Office) agreed that lending was taking more time, but he said that he felt that the banks were improving.
Whether this is the case or not is debatable but it crucial that our banks start to get there act together and implement government policy, to ensure that viable businesses can borrow to invest in new markets and ultimately create and retain more jobs for the future.
As long as the domestic economy continues to stagnate and the number of mortgages in arrears continues to increase, the debate over whether or not some form of debt forgiveness scheme needs to be put in place for home owners will continue to rage.
Regards,
Mark is a Director at Quintas and heads up the Business Centre.
Quintas Business Centre provide outsourced ‘Financial Management, Accounting, Bookkeeping, Vat, RCT and Payroll Services’.
“The views expressed in this article is not reflective of the views or opinions held by Quintas. The material contained herein includes facts, opinions and recommendations which we neither guarantee the accuracy, completeness or timeliness of, nor do we endorse. We do not accept any liability for any act, or decision not to act, use, misuse or distribution resulting from use of this material”.
Tags: Business Management, Business Support, Cashflow Management, Debt Forgiveness, Ireland, Irish Economy, Irish Tax, Mark Ryan, Minister for Finance, Quintas, Quintas Accountants, Recession in Ireland, SME
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