Debt forgiveness and debt education will be key themes going forward, writes JACK FAGAN

WITH THE storm clouds continuing to gather over defaulting mortgage holders and homes in negative equity, public attention has finally been focused on the unfolding dilemma. The Green Party plans to unveil a Nama-style rescue plan while the Financial Regulator has effectively blocked lenders from repossessing homes for at least 12 months after the owners stop paying their mortgages.

These initiatives, while welcome, will not in themselves be sufficient to deal with the threat to struggling homeowners. Some experts insist that any rescue plan will need to be holistic in nature and will have to be accompanied by meaningful supports, like debt forgiveness and debt education before there is any chance of finding a long term solution.

The entire debate about mortgage arrears has so far centred on the issue of mortgages alone. Unfortunately, the problem is broader and as far back as 2003, the EU recommended that the issue of debt should be dealt with in a holistic manner as more and more people use a great diversity of agencies for their borrowing needs.

Frank Conway of the Irish Mortgage Corporation is one of those recommending a holistic solution to the worsening problem. Any debt solution, he says, must include all income and all debts. While mortgage debt would inevitably be the most significant, it could sometimes be the most accommodating. Many mortgage holders also carried significant “unsecured” debt where the lenders have various collection strategies. Mortgage lenders could sometimes offer a moratorium which would then be used to pay off unsecured debt.

Conway also argues that there should be some form of debt forgiveness. In simple terms, it could be offered to families who need to relocate but cannot afford to pay off the negative equity on their homes even though they continue to pay the mortgage.

One example of how this could be applied is where a mortgage holder is offered employment in another part of the country, or possibly overseas, but cannot clear off the mortgage because the property is in negative equity. In this case – similar to what is happening in the United States – a so-called “short sale” may be possible that allows the occupant to vacate the property and the banks to secure a buyer without having to repossess it.

An equally important issue for many Irish families is debt education. It can no longer be taken for granted that everyone has an understanding of money and debt. Just like learning to drive, people have to know how to handle money and debt.

A day-to-day working knowledge is particularly obligatory, now that Irish households are among the world’s most indebted after a decade long credit spree.

There seems little doubt that consumers will continue to struggle with debt for the foreseeable future, particularly as so many of them are burdened with a substantial legacy of debts at a time of salary cuts and job insecurity.

Some of those under pressure may never again earn the salaries that were available during the boom years and which were used to buy homes they can no longer afford. In the worst cases at least, debt forgiveness may be the only solution.

The present difficulties will undoubtedly be exacerbated by higher mortgage interest rates which are expected to kick in later this year. In the meantime, standard variable rates are moving up because of the higher cost of borrowing on the international markets.

Property taxes may also be on the cards, though the Government seems reluctant at this stage to formally announce the reintroduction of a measure which caused so much dissention in the past.

The recent success of an online system of collecting taxes on non-primary residences will obviously encourage the Exchequer to go one further and extend it to principal homes as well.