Irish lawmakers are contemplating a measure that would make it easier for underwater homeowners to reduce their mortgage debt. As the New York Times reported, “The initiative, which would lower a borrower’s monthly payment, could prevent a tide of foreclosures, an uncertainty that has been hanging over the Irish housing market for years”:
While banks aren’t required to reduce the mortgage debt, the legislation gives them a powerful incentive to write down mortgages for troubled borrowers. Under the new rules, it will be less onerous to declare bankruptcy, making it easier for people to walk away from their homes altogether. As the threat rises, banks are more likely to reduce homeowners’ debt, rather than risk losing the monthly income and getting stuck with the property.
“For the banks, where there are losses, they have to be recognized,” said Alan Shatter, Ireland’s justice minister, who has sponsored the new law, called the Personal Insolvency Bill. “This legislation gives homeowners hope for their future.”
As ThinkProgress has reported, Iceland had significant success with a debt forgiveness program that it implemented to help it recover from the 2008 financial crisis. Ireland’s move is in the same vein.
Here in the U.S., however, such measures have not been put into place. In 2009, the banking lobby and Senate Republicans blocked a bill that would have allowed judges to write down mortgages for homeowners in bankruptcy. That defeat prompted Sen. Dick Durbin (D-IL) to pronounce that, when it comes to Congress, the banks “frankly own the place.”
Federal Housing Finance Agency director Ed DeMarco, meanwhile, has prevented government backed mortgage giants Fannie Mae and Freddie Mac from writing down federal loans for underwater homeowners, even though several analyses show that doing so would be good for both homeowners and taxpayers. A bipartisan bill before Congress has the potential to help hundreds of thousands of underwater borrowers stay in their homes, but hasn’t gone anywhere.