Thursday, 14 April 2011

Nama attempts to provide mortgage finance to maintain high prices, while banks moot debt "forgiveness".

The repossession cases that appear, in a constant trickle, before the courts these days make interesting reading.

Recently there was a case of a couple who took out a mortgage in 2003, but had not paid any repayments on it since 2006. Bear in mind it is now 2011.

Then there was another one a couple of weeks’ back. The borrower was up for mortgage arrears on 29 investment properties, and had to promise the court that he would put some of them for sale on the market. 

The above examples beg the question: what do you have to do in Ireland to have a property repossessed?  

It seems that the principle of moral hazard that applies in other countries does not figure here, as the attitude is that someone else – that is, the taxpayer – will pick up the tab for your recklessness.  We have been forced to do it for the institutions thanks to Lenihan’s bank guarantee, now must we do it for individuals as well?

It is not too far an imaginative leap to forecast how people who could pay - but are unhappy with negative equity - could elect not to, on the basis that they won’t suffer any consequences as a result.   The rest of us will bail them out, and they can continue to live in the dwellings they outbid us on during the market madness.

The thing is, someone has to pay.  To me, it seems most logical that whoever ran up the debts in the first place – investors in particular – should be obliged to do so.  They won’t be able to repay them in full of course, as they paid way over the odds,  but fire-sales of their bad investments would at least repay some of the debt and establish the true worth of property in Ireland today.

The banks and Nama will not do that though, as they have an interest in keeping property prices artificially high.   Indeed Nama, the Government creation that bought the developers and banks’ debts at a high price, is even talking about providing mortgage finance to the very same banks.  It has €1 billion on its balance sheet, according to its chairman Frank Daly, speaking to a “group of property professionals"  last Tuesday, according to The Irish Times.  (April 13th, “Nama may provide mortgage finance, Barry O’Halloran).

So let me see.  Nama, the “bad bank” that took on the bad loans of the bust banks, is now looking to "change the legislation that established it" so it can provide loan funds to the same banks it bought the bad loans from.    All in order to “generate sales in the market”, as Daly puts it, with the rider that “sales would have to be at prices people would pay”.   Where else would you get it?

And therein lies the problem.  Ireland is the basket case economy of the EU, a country kept from insolvency only thanks to the bail-outs, yet house prices are still higher than in many other European countries (have a look at The Irish Times "Take Five" feature every Thursday).  That does not add up.

And neither does Nama’s attempt to further prevent the slow dawn of reality in the Irish property market.

Brussels had better keep an eye on this one.

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5 comments:

atoast2toast.com said...

hi GM, the Euro is taking a hammering today on rumours of default from Ireland. Maybe they were watching vinb last night where NAMA was called a Ponzi scheme by Max Keiser.

It is proving very difficult to send anyone to jail for owing money unless its a TV licence fee. Social welfare payments are not going to be reduced. This all makes me very despondent because I have a job and no mortgage. I wonder would it be better to have no job and 5 houses and to get the taxpayers to pay for it all.

The Gombeen Man said...

Yes Toast... I know what you mean. You'd wonder "why bother?" sometimes in this place.

Ponzi scheme - Max summed it up well. Nama is a murky scandal, it really is.

anna said...

Indebted generation must find their voice- Fintan Toole Irish times April 13, 2011

“The negative-equity generation should be out on the streets – but it’s
hard to embrace collective power when you’ve grown up an ardent individualist…“
(see link below for the rest ) _
The gist of the article is people in negative equity here aren’t complaining as this is also the age of individualism.
The Debate now is ’should there be a NAMA for ordinary people ‘? The Worry now is the real no of home repossessions will soar this year or next year- and the State can’t stand by because of the crippling debts the state will pick up if it has to Then pay for people living in renting accommodation and on housing benefits because they lost their job and home. Now there is talk of banks reducing amount of mortgage arrears , finding ways to stop this massive foreclosure bomb happening etc .
There are 2 classes involved here(1) Greedy and unwise investors who speculated on a number of properties and weren’t just buying their own home .
(2) ordinary people desperate to own their home ( having experienced grasping landlords in ROI I understand why). People who had to take on Huge mortgages as their fellow citizens were Unjustly Enriching themselves by Massively over charging for small/ very old homes etc ( and they could do this due to low interest rates- thanks to all the bank slush finds that came in from Europe=- at the Heart of all Bubble is Easily available credit)
It’s this 2nd class that the Government should provide some relief for - housing is a basic necessity and there are desperate people who just wanted to own their own home shafted by the greed of their country men- oh and then having to suffer paycuts ( from pay already depleted by huge mortgages) to pay for the greed of the bankers and develops behind dit all..
However what I fount very interesting about this F O’T article was the blog comments below- I copied them below here, in separate post :

http://www.irishtimes.com/newspaper/opinion/2011/0412/1224294483327.html

anna said...

" The Irish Times - Tuesday, April 12, 2011
Indebted generation must find their voice FINTAN O'TOOLE
COMMENTS :

(1) BRUXELLAS: “one of the best articles I've read . As a 1982er who is ½ Irish, I long wondered WHY Irish people are so apolitical. Is it Ireland being post-colonial, overly-influenced by US and UK media, due to common language, a peripheral European country, isolated by its island status, etc. but it does not explain the phenomenon. I have lived in 3 European countries and the state of Irish civic life is shocking.’ Oppression by the majority’ comes to mind! There is next to no ideological debate. People seem to vote against their best interests. I was amazed that the majority voted Bertie and co. back after examples of 'horse-racing corruption' and others . And amazed at the concrete shoeboxes being built , since 1999...why would people buy such hovels at such elevated prices and where was government regulation protecting consumers from badly designed and badly built shacks? Truly shocking! And saddening...
(2) TOM: I didn't build a 6 bed house I didn't need. I didn't put in designer kitchen and bedrooms. I didn't buy 4 by 4 jeep. I didn't buy property here and abroad. Therefore if those who did are bailed out by my taxes Ill be out on the street protesting. GOT THE MESSAGE.”
(3) TOMMY: “Fintan, many people are not in negative equity - are they the 'Non Negative Equity Generation'!! are you going to be balanced now and write a homage to them ? There maybe a book there . You could use phrases 'Read the contract', 'Live within your means', 'Budgeting', 'Save', 'Do you really need a holiday home?', 'Nothing is forever', 'Don't believe everything you read' and 'No such thing as a free lunch'
Perhaps maybe organise another march on the streets for the NNEG and demand that their taxes not be diverted to the NEG for your implied bailout. “
(4)SHELLSHOCK: “Toms comment actually typifies the attitude that Fintan alludes to . Tom does not mind being saddled with a debt of 100 billion of money that neither he nor 99% of the Irish people accrued or spent. But Tom does not have a problem with that. That is why Tom has not been out protesting on the streets at the highway robbery that has been commited on his pocket.
!!!***But if a neighbour or friend or colleague, or some other average Joe soap gets help with his mortgage, then Tom will take to the streets.
The Irish psyche summed up perfectly. Deference to the big fellahs, and savage cruelty to his friends, family and neighbours. **!!!
Hopefully for him they will emigrate. After all, we can't all live on a small Island (Lenihan senior circa 1985). “
I agree with 1 and 4- especially 4. I think comments 2 & 3 are the same person. Tom may have bought a house when a mortgage was a sensible % of income -one women I know was so desperate for a home she’s paying 2000 PM mortgage for a 2 Bedroom FLAT- that’s @ 500 a WEEK!!! My INCOME IS 540 a week!!! She’s impoverished herself- all to own a shoe box now worth about 150,000..
But its poster 4 I agree with
!!!** Yes!!! I Totally agree!!! Nothing raises the hackles of an ordinary Joe O’ Soap than having to grudgingly admit an ordinary fellow citizen needs him to show solidarity*!!!

The Gombeen Man said...

Thanks for that Anna.

I would, however, be interested to know how SHELLSHOCK concludes that "99% of the Irish people" were not somehow responsible for bank debts?

Who was it, if it was not "the Irish people" (the "little men/women" and institutions alike), who ran up the massive property-based debts?

And was it not "Irish people" who were effectively getting mortgages extensions/top-ups to buy top-end cars? (Not that I've a problem with top-end cars).

It won't be that long before we start hearing the phrase "International Finance" being responsible for all our "ungluck".

But yeah, I think that people who bought places to live and have been hit by job losses, pay cuts and the rest, should be helped. It is in the banks' interests to faciliate them, and renegotiate terms etc.

But investors?? I don't care what their reasons are ("Little Oisin and Roisin won't be able to afford places to live in 20 years, so I have to buy two apartments off the plans). In my opinion, their investment properties - which they have not paid for - should be repossessed and sold on. However little they are "worth" now, at least it can draw a line under the debt and establish true prices here in Ireland.

Of course, many buy-to-let investors are also being propped up by rent supplements that have not been reviewed downwards since the "boom". A bit like commercial upward-only rent reviews. Again, two things that keep property values higher than they should be.

But on the subject of ordinary Joes/Josephines, I heard on the radio this morning that one-fifth (I think) of Irish people have no disposable income after bills are paid... and there are still some out there who talk about cutting the pay of the working poor!