A general write-off of mortgages by 18.7 percent would involve an additional cost of ISK 200.3 billion (USD 1.6 billion, EUR 1.2 billion) for the Icelandic state in addition to the ISK 134 billion which have already been written off for homeowners.
Archive photo by Páll Stefánsson.
Most of the cost would have to be covered by taxpayers, not banks or depositors, as stated in a report on the bank rate of mortgages at the establishment of the new banks and the cost of writing off loans, which was made public yesterday, Fréttablaðið reports.
The report was conducted by Dr. Sigurður Jóhannesson and Dr. Sveinn Agnarsson for the University of Iceland’s Institute of Economic Studies, as of October 4, 2011.
It was conducted on behalf of the Icelandic government due to a demand of general write-offs made by the Interest Association of Households (HH).
Its authors were asked to estimate the cost of these write-offs and review documents on the bank rate of mortgages when they were transferred from the defunct banks to the new ones.
The authors deny that a large part of the cost can be obtained by the discount provided to the banks for their loan portfolios in the autumn of 2008, reasoning that the cost covered by the banks because of the write-offs that have already taken place are much higher than the discount.
The authors conclude that the direct and indirect costs from additional write-offs of mortgages would to the largest extent have to be covered by the Icelandic state, hence taxpayers.
They believe general write-offs aren’t manageable for the Icelandic economy and the strategy of the Icelandic government and the International Monetary Fund on eliminating the deficit of the state treasury in the coming years would be greatly upset.
Click here to read more about HH’s demands.