# New Beginning plans to buy 15,000 distressed mortgages from banks



## Brendan Burgess (16 Nov 2014)

*New Beginning plans to buy mortgages of 15,000 distressed borrowers*

I am all for innovative thinking to deal with the mortgage arrears crisis, but this seems like a bizarre idea.  Does anyone have further details?

Let's take AIB as an example - they have been the most flexible and innovative so far. 

New Beginning buys 5,000 distressed mortgages from AIB.
 Let's say that they have a gross value of €200,000 each or €1 billion. 

 AIB has probably made provisions of €500m against these.
Let's say that they sell them to New Beginning for €500m
New Beginning gives AIB a bond worth €500m on which they will pay some coupon, let's say 4% 



Why on earth, does New Beginning think that they would be better at collecting in this money from the customers than AIB?  They have absolutely no experience on the collection side. 



 Many, probably a majority, of these loans are strategic defaulters if they have not already done a deal with AIB. If they are not paying AIB, they won't pay New Beginning either.  


New Beginning is talking about repossessing the house and letting the previous owner rent it from them.  If they are people in genuine difficulty, and not strategic defaulters, they won't be able to pay the rent either. 





> After seven years, New Beginning would plan to sell the homes to the  tenants or sell the properties to an investment vehicle, which would  continue to let them to the tenants.


With what shall the former owners buy the houses?  They are the most distressed borrowers already. It's very unlikely that they will be in a position to buy their homes back in just 7 years.


If New Beginning or someone else came along and offered AIB €500m cash to buy loans with a book value €1b which were in deep distress, then AIB might consider it. But I presume that they won't sell the houses in exchange for bonds secured on the very same loans. 

This was quoted in the Irish Times, but I  am not sure I  understand it. 


> “If their circumstances improved the homeowner has the right to buy back  their property in the first seven years at a 40 per cent discount to  any uplift since the agreement was entered into.”


Loan €300k 
House worth €200k 
NB buys loan for €150k 
NB repossesses house and rents it to the former owner for €1,400 a month for 7 years
House increases in value from €200k to €300k
Renter's financial position improves and buys house for €260k (€200 + 60% of €100k increase) 
NB makes profit of €110k  (€260k - €150k)
If Renter's financial position does not improve, they will be evicted after 7 years and the property will be sold for €300k making New Beginnings a profit of €150k. 

That is going to be even more difficult.  Will they really evict a tenant after 7 years?  Most of these guys have not been paying their mortgages for two or three years.  Some of these are genuine cases who can't pay their mortgages - they are unlikely to recover in the next 7 years.  But many are pure strategic defaulters who are not paying because they know that the bank can't repossess.  They will resist repossession and will not pay rent to NB.  They will resist eviction after 7 years.


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## Dermot (16 Nov 2014)

I do not know anything more about it than the press release announcing that New Beginnings were going to purchase 15,000 houses from the Banks.

I think this is a "hot air proposal" and will never see the light of day. This type of operation would need a serious operator to manage the numbers that they are talking about.
The management costs including costs of collecting rents/carrying out repairs and compliance with the various taxes and registration fees with PRTB etc and Insurance and legal fees would be absolutely huge.

The purchase and sale costs have to be taken into consideration as well.

I would foresee a lot of rent defaulters giving the nature of what is being proposed. 

I cannot see how they will be able to raise this amount of money at a reasonable cost.

I agree with your scepticism about the proposal


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## jhegarty (16 Nov 2014)

Sounds like they would have 15,000 x €0 every year to payback the bank.

Unless they compete the eviction process they own the loans and not the property.


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## Delboy (17 Nov 2014)

Ross Maguire was interviewed by Sean O'Rourke on this last week.

They expect the taxpayer to pay the rent for those that can't make the market rate that NB would charge (rent allowance).
At the end of the 7 years:
Your able to take out a new mortgage yourself and buy the house back
You give up the house and move into social housing
The Govt step in with Mortgage to rent or some such other scheme

My guess is that NB will have a lot of gaffs in their possession in 7 years time ...cha ching


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## Brendan Burgess (30 Nov 2014)

The Mail on Sunday Investigations Unit has published all the details in this morning's paper. (I can't find it online)

New Beginning passed on data on 1,500 clients to an investment fund in error.   They forgot to redact the names and addresses. They sent this on August 25th but have not notified the clients of this breach of data security yet. Both Arizun and New Beginning have confirmed that the unredacted information has been destroyed. Unfortunately this makes the headline, rather than the much more interesting details of the proposed deal. 

The company is called Arizun 
The deal is codenamed:  Project Cowboy (apparently the nickname of Arizun's director John L McDaniel, about which little is known)

They have offered to pay the €720m for 5,000 non performing mortgages. 
New Beginning has been paid €20,000 and are on a retainer of €5,000 per month for three months for "information and lobbying" 

If all targets are met, New Beginning stands to gain €5m 
There is a "sourcing fee" of 3% of any equity raised which would be available to "New Beginning, its officers or directors" 
New Beginning will be paid to do all the conveyancing work for houses acquired by the fund. 
They will also get €100 each time New Beginning gets social welfare payments for the clients who rent from the fund. 

In a briefing note sent to potential investors such as hedge funds, Arizun explained the benefit of partnering with New Beginning

"though they are perceived as a non-profit social advocacy group, they have a commercial operation which will be fully remunerated for the work they will do for us." 

Ross Maguire said that no New Beginning directors would benefit from the Arizun project.  Any revenue would be used to subsidise their activities on behalf of borrowers.


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## Brendan Burgess (30 Nov 2014)

I think that this project is misguided and will damage their credibility. 

New Beginning does great work on behalf of borrowers in trouble and they should not put that at risk by getting involved with this. 

If they believe, as I presume that they do, that this project would be good for the borrowers, then they should be far more open about it and how it will work.  They cannot be advising people on how to keep their homes while being paid performance fees by the owner of the mortgage.


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## Brendan Burgess (30 Nov 2014)

Arizun has set up a website although there is very little on it

[broken link removed]

The company behind it is Casa Mundi Ireland Limited  (It may have changed its name to Arizun) 

80% of the shares are owned by John L. McDaniel of "10 Killnasalla, Richmond"
who is also a director of Aisling Financial Ireland Limited (Doesn't seem to have traded either) 

20% are owned by Diarmuid McAuliffe , 208 Trimbleston, Goatsown, D 14

Other directors: Ray Murphy, SARM, Roundwood, Co Wicklow
Thomas Grey, 1 Lower Basin Stree, Dublin 8


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## Dermot (30 Nov 2014)

This is just another vulture outfit with not much funds who are trying to get credibility by linking up with an high profile advocacy group.

I would think that this is not a very good move by New Beginnings.  The do not appear to have thought this through and it leaves a question mark in my mind about how sharp they are.

New Beginnings should stick with their original model.

Very difficult to ride two horses in the same race.


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## Brendan Burgess (1 Dec 2014)

This was quoted in the Irish Times article


> “If their circumstances improved the homeowner has the right to buy back   their property in the first seven years at a 40 per cent discount to   any uplift since the agreement was entered into.”



So will it work something like the following? 

Loan €300k 
House worth €200k 
NB buys loan for €150k 
NB repossesses house and rents it to the former owner for €1,400 a month for 7 years
House increases in value from €200k to €300k
Renter's financial position improves and buys house for €260k (€200 + 60% of €100k increase) 
NB makes profit of €110k  (€260k - €150k)
If Renter's financial position does not improve, they will be evicted  after 7 years and the property will be sold for €300k making New  Beginnings a profit of €150k. 

That is going to be even more difficult.  Will they really evict a  tenant after 7 years?  Most of these guys have not been paying their  mortgages for two or three years.  Some of these are genuine cases who  can't pay their mortgages - they are unlikely to recover in the next 7  years.  But many are pure strategic defaulters who are not paying  because they know that the bank can't repossess.  They will resist  repossession and will not pay rent to NB.  They will resist eviction  after 7 years.


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## Delboy (1 Dec 2014)

Perhaps NB will lobby the Govt of the day for changes to the current repossession laws to make it easier to take back a house....oh, the irony of it!


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## Brendan Burgess (1 Dec 2014)

Hi Delboy

I think you highlight the huge problems that this proposal would caused for New Beginning. They defend people in court who are facing repossession. Will they defend their clients against Arizun? 

I think that New Beginning would come down to earth very quickly with a full appreciation of what strategic default is and how widespread it is. 

New Beginning does good work. This proposal would severely compromise them. 

If it's a good proposal, let Arizun do it without New Beginning.  That would leave NB free and independent to criticise Arizun.


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