“Does the government have a secret long-term plan for dealing with the mortgage problem, or are they just incompetents making stuff up as they go along?”
- Vilhjalm A.
Very good comments from EDA’s readers in response to this story.
Related posts:
The Billion ISK Question
Vilhjalm A.
2 years ago
And the results are in … the government is a bunch of incompetents who have no clear idea what they’re doing.
Today one of the ministers, Arni Pall E-sson (the monkey at the left in the photo), announced a new debt & mortgage relief plan. Payments will be rolled back to the levels that they were at before the crash last fall.
The plan is full of unknowns and problems. As I understand it, apparently payments (i.e. the interest and indexation portion) will be written-off, but not the principal. Maybe the write-offs are not really write-offs but become payments due at some time in the future, so that the length of a home-mortgage is effectively lengthened. Icelanders are still in debt prison, except that they get a bit more to eat, or avoid starvation. And the plan apparently would create havoc in the home-sales market, since who will buy a house and assume the existing mortgage if you don’t know how much is due? The government prefers this plan since it doesn’t have to declare the debt write-offs right away, which would create yet another debt crisis.
I suppose any debt relief is better than none, but maybe not, since implementing a bad plan rules out a sensible solution.
Another ad hoc (i.e. flailing about in the dark) solution that allows the government to delay any meaningful solution of the problem. Honestly, you could select Icelanders at random from the phone book to serve as government ministers and advisors and they would do a better job.
Blubber
2 years ago
The way I understood it the payments (interest and index) are not actually written off, but rather suspended until the end of the loan period.
Exactly how are they going to calculate this at the end of the mortgage? Is it all going to add up? When will it be calculated? Who? What?
Vilhjalm A.
2 years ago
Yes Blubber I think so – payments are suspended. I guess it “saves” a lot of people from drowning, especially those with foreign-currency loans, for either cars or houses, but what are the effects down the road? This is general debt relief – does the Icelandic government think that the IMF won’t recognize this?
Perhaps you remember one of the activists who spoke at an early Borgarafundur meeting last year, a film-maker named Herbert or something like that, who asked “Legal? Maybe. Ethical. Madur spyr sig.”
Here’s his brief opinion of the proposal:
“Höfuðstóllinn heldur áfram að hækka og maður mun samt sem áður ekkert eignast. Þeir sem eru með 40 ára lán geta átt von á að fá niðurfellingu eftir 40-45 ár þangað til mun fólk sitja í því húsnæði hlekkjað við yfirþyrmandi skuldir. Engin leið að losna við húsnæðið að eilífu amen. Það getur náttúrulega verið að að það sé verið að kaupa tíma til frekari aðgerða síðar meir, en við verðum þá að vera vakandi. ”
Basically he says that the loan principle continues to increase and at most you may get a write-off in 40 years, but until then you are a debt prisoner stuck in your house. The government is just buying time.
More discussion here for those interested:
http://www.malefnin.com/ib/index.php?showtopic=118736
Bromley86
2 years ago
Good news on the loans front:
http://newsfrettir.com/banks/glitnir/1181-25-reduction-of-the-capital-of-currency-loans
Whether a 25% write off of FC loans would be the “fair” amount or not is a different matter, but we are talking about actual write offs and non-indexed loans.
A 10% write off of indexed loans and their tranfer to non-indexed status also sounds good.
Best of all these are in addition to the government initiative, which seems a little more useful then.
Or am I allowing myself to be fooled here?