THE ECONOMIST CONSTANTIN Gurdgiev has said that the number of mortgage defaults in Ireland has grown to “an emergency situation”.

He said that the Government needed to introduce reform to the bankruptcy system immediately. Speaking just a short time ago on Newstalk’s Eamon Dunphy show, Gurdgiev said:

The bankruptcy law must be changed so that people can not be pursued for the rest of their life… In my view, a large quantity of mortgages were missold to people by banks and financial institutions. We have to recognise that this is an emergency situation.

He said that it was “complete bollocks” that negative equity only affects householders when they decide to move home.

UCD economist Morgan Kelly claimed at an address to a meeting of economists last week that a mortgage debt relief scheme would cost between €5 billion and €6 billion, and that around one-fifth of mortgage holders were struggling to meet mortgage repayments. He told the Kilkenny Arts Festival two weekends ago that Ireland is now “insolvent” and that mortgage debt and unemployment were huge millstones around people’s necks. (Listen to his lecture here).

Gurdgiev said that while he agreed with Kelly’s overall proposal of mortgage debt relief, he thought such relief should be “staggered” so that it didn’t become a divisive social issue and foster resentment in those who don’t receive the relief.

Willie Penrose, the ‘super’ junior minister at the Department of the Environment, told Sarah McInerney in this morning’s Sunday Times that he thought the Government should discuss the idea of a mortgage debt relief scheme.

A debt forgiveness plan was mooted by several economists in a letter to the Irish Times last December, including Gurgiev, Brian Lucey, Stephen Kinsella, Ronan Lyons, Karl Deeter, David Madden, Valerio Poti, Brendan McElroy and John D Masson. In the letter, they jointly argued that partial debt forgiveness would motivate people to spend more money and allow them to move forward in their own economic life, thereby boosting entrepreneurship.

Another proposal for reducing mortgage debt was suggested last February by the housing agency Threshold. They told TheJournal.ie that they wanted the new government to consider a “mortgage to shared equity” scheme. The proposal would see the State buy homes at a “significant discount” from financial institutions when a houseowner is in danger of facing repossession. The State would then rent the home back to the former owner, who could later repurchase the home when their financial circumstances improved.