Quito Last night sitting in Casa Damian, an amazingly good Spanish restaurant in Quito, with two companeros, one of whom was a former chief adviser to the President Rafael Correa now working for the government on how to revise the procedures and update the judicial system and the other a former communications and policy adviser in the Labor Department, they started talking about real estate prices in central Madrid, which both of them had visited recently. These conversations are now normal and expected around the globe as people everywhere try to parse the worldwide housing crisis. One who had been in Madrid three months ago on business commented that it was now possible to buy a 900 square foot apartment beautifully located in central, historic Madrid for as little as 60,000 Euros.
Admittedly this is the kind of conversation also routinely held by people who don’t have 60,000 Euros in their pockets, but given that the price was perhaps a quarter to a third of what it had been, my friends were drooling. They were doing so in just the way people in the United States do who realize for $40,000 they could have a house with a pool in Phoenix or nearly a mansion for $150,000 in Vegas if they liked to gamble and sweat. But, an apartment in Madrid, well, that would be something.
Finally thanks to one country finally looking global banks in the eye, they might not be having this conversation so often in Dublin soon, because Ireland has finally done what all of us have argued should have been done in the United States, Spain, and elsewhere and force banks to write down mortgages to market value or at least borrower affordability to allow homeowners to stay in their homes and make their payments. According to the Times Dealbook, Ireland has done so in a very shrewd way. Rather than begging the banks to give a brother a break, which has been the USA non-policy, in Ireland they have locked the backdoor on the banks, forcing them to finally get realistic about the mortgages by moving to reform the bankruptcy laws and making it easier for citizens to reorganize their finances, which would mean walking away from the mortgage or getting a payment they can really handle.
Given the stalemate between banks and the government in Ireland (read USA, Spain, and elsewhere!), the Times argue they had little choice:
In many ways, Ireland has to try something audacious. House prices are still 50 percent below their peak, compared with 30 percent in the United States. And more than half of Irish mortgages are underwater, meaning the house is worth less than the outstanding debt. While some of those borrowers can afford to keep making payments, more than a quarter of mortgage debt on first homes, roughly $39 billion, is in default or has been modified by lenders.
Unfortunately in the USA, we lost the fight to reform bankruptcy laws here with little help from our friends in the White House or Congress, and decided to allow “ghost” banks, bailouts, and a lingering housing crisis hang like a sword over millions of homeowners trying to keep afloat. Ours was a policy based on “hope” things would miraculously get better, despite the little choice we had.
The Irish may have just stepped forward with a real plan that might tilt the world back toward homeowners and away from banks. Maybe there’s hope for the USA, Spain and other countries and their homeowners yet?