In the midst of the European Debt Crisis that has has toppled governments and pushed a number of countries into a second recession, Ireland has drafted a new plan to save their housing market and keep families in their homes. With house prices on the emerald isle being 50 percent below their peak value, more than half of Irish mortgages worth less than the outstanding debt, and about 39% of homes in default, the Irish government has been forced to take steps that many economists would deem as far too risky to enact. The government is expected to sign a law that would encourage banks to substantially lower the amount that borrowers owe on their mortgages, which could prevent mass-scale foreclosures, and also a blueprint for other nations seeking to resolve their housing dilemmas.
Unlike the Irish, many countries that have suffered housing busts, like the United States, have decided against significantly slashing mortgage debts in favor of using mortgage write-downs, or the process of forgiving a portion of the principal on the loan. The decision to do so has stemmed from the fear that borrowers who can afford their mortgages would eventually stop making payments following a large bailout, as well as possible unexpected losses for banks. For Ireland, however, the government still owns a large stakes in some of the country's largest mortgage lenders after a bailout of its banks. Therefore, the responsibility of mortgage losses already falls with taxpayers, which saves privately owned banks from the hassle of having to borrow more money from Ireland's central bank.
For the international community, and especially the European Union, Ireland's case stands as significantly important for governments looking for a new means of overcoming the enduring financial crisis. Spain, another country overwhelmed with mortgage defaults, introduced similar yet ineffective measures last March that allow for debt forgiveness, though under strict circumstances. Many countries have their doubts about Ireland's plan, such as that banks won't have the money to absorb the potential losses on mortgages, or that the bill will be too restrictive to make a difference. Nonetheless, this new law could potentially deter a struggling Irish population from having to declare bankruptcy on their homes, and should this legislation provide a jump-start for Ireland's financial services sector of their economy, nations around the world will be looking to Ireland's example to save their homes.