Moral hazard should apply to all or no one

Ireland’s leading housing association maintains moral hazard cannot be used as a reason not to assist those in danger of losing their home. Respond! Housing Association states that some form of debt forgiveness for those in arrears and facing repossession needs to be examined. The housing charity is making the call following recent comments by the Financial Regulator Matthew Elderfield, NAMA Chairman Frank Daly and Minister for Justice Dermot Ahern that there can be no ‘NAMA for the People’.

According to Respond! spokesperson Aoife Walsh, moral hazard is an argument that can no longer be used in the Irish context.
“Moral hazard is an argument that is being used by many not to assist homeowners in difficulty. Essentially it is believed that if people are not held responsible for their actions and decisions, they are likely to take more risks in the future. Perhaps that is true, but surely moral hazard is an argument that should apply to all or no one? In the past 2 years we have seen bank guarantee schemes, the nationalisation of Anglo Irish Bank, the recapitalisation of AIB and Bank of Ireland and the establishment of a National Asset Management Agency. All of these took place because banks and some of their larger clients took risks. They have been assisted so surely homeowners should be assisted too?”

In light of recent banking inquiry reports, the housing charity also believes the Government’s role in promoting home ownership cannot be underestimated. Tax incentive schemes fuelled the construction sector, driving prices upwards and forcing many young families to commit to massive mortgages. Given the part played by the Government, Respond! believes they have a responsibility to do more to assist those in danger of being made homeless.

The housing charity also maintains that the short term cost of assisting those in arrears is far less than the longer term costs of families losing their homes.
“In the US on average one third of the mortgage is lost during repossession of a family home. US Banks believe it is far cheaper to forgive debt and Respond! believes Irish banks should adopt a similar attitude. The financial costs of families losing their homes are extensive. The cost of providing emergency accommodation for a family with two children is €29,000 per annum, the cost of rent supplement in 2009 exceeded half a billion and for those who lose their home, the cost of rehousing them for the remainder of their lives is borne by the State. The big elephant in the room not being discussed is the financial and societal costs of families becoming homeless” concluded Walsh.