The U.S. is used to leading the world: economically, militarily, in space exploration, you name it. Even in the special niche of housing policy, other countries look to the America as a place that has pioneered public-private partnerships, an affordable 30-year fixed rate mortgage, and a vibrant rental sector. But in the post-Great Recession, post-housing crash world, we’re not quite the model we once were. We need only look to Ireland as an example of a country struggling with a deeper real estate correction but able to muster stronger policy responses.
Two telling examples:
- Housing counseling. Despite the proven benefits of housing counseling, the U.S. Congress cut housing counseling funds in 2011 and only partially restored them. Ireland is providing them as-of-right to homeowners offered a mortgage restructuring by their lender.
- Writing down mortgage debt. The U.S. has taken only small steps to reduce mortgage principal, most of them through HAMP and individual actions by lenders, none through Fannie Mae or Freddie Mac. Ireland is expected to pass a program for widespread principal reductions by banks for borrowers struggling to make payments.
Another part, however, is political will. Ireland has nationalized much of its banking sector, which means taxpayers are on the hook either way. That’s made it easier to recognize the economic reality that writing down debt now prevents the painful and destabilizing vacancies that result from widespread foreclosures. Perhaps Ireland’s experience in coming months will help to demonstrate to U.S. policymakers that principal reduction is viable.