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State must not bank on bailout of bad mortgages

Brian Lucey The Irish Times
State must not bank on bailout of bad mortgages - Ireland - mortgage - bank - finance - loan

OPINION: GROWING UP beside the seaside, one becomes familiar with the sea and its actions. One thing that becomes clear is that while the first wave of a storm may do great damage, it is the subsequent waves that complete the destruction, writes BRIAN LUCEY

Irish banks are on the rocks, badly damaged by the wave of losses on commercial and speculative property lending. What is now evident is that a second wave of losses is heading towards them. While this is likely to be lesser in magnitude than the first wave, the system is so compromised that it is much less able to take a blow.

There are two interrelated problems. First, we have negative equity, where borrowers have outstanding a mortgage loan greater than the value of the property on which it is secured. A second problem is that of stressed mortgages, where individuals find it hard to meet the repayments on mortgages, whether they are in negative equity or not. Facing into at least another year of depressed economic activity, increases in unemployment, decreases in real wages and increases in interest rates, this problem will only grow.

So what is the extent of the problem of negative equity? Part of the problem is that we do not (officially) know. Despite the importance of property in the Irish psyche and economy, it is startling that there are no good property price indices available.


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