# NAMA income



## PaulHoughton (5 Aug 2009)

can anyone explain this to me?

NAMA will purchase property loans from the banks at a discounted rate. It will issue the banks government bonds in exchange for these non-performing loans. The banks get some sovereign bonds, an asset writedown and -if they need it- more capital because "we're all in this together".

The bonds will be interest bearing and the NAMA will pay the interest from its 'income stream'.

NAMA is then left holding loans secured on property held by developers who have not been paying interest to their banks. They are not paying because either they are insolvent or they have chosen not to pay in the hope of a bailout. 

One group of developers will never pay as they are bust while the others must be made to pay by repossession and forced sale - resulting in a flood of property assets onto the moribund irish property market.

Yet NAMA talks confidently about its future 'income stream' as if the loans are performing.

I don't understand the logic. Can anyone explain?


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## Brendan Burgess (5 Aug 2009)

The mistake made by a lot of people is to think that all the loans were 100% loans taken out at the top of the market to buy residential development land. 

They then reason that this is now worth 20% of the nominal value of the loans.

In reality
The loans were taken out over a number of years and not all at the top of the market.
Most of the loans were for property other than development land.
The loans were rarely at 100% of the value. 

So, NAMA will be acquiring loans which are paying some or all of the interest. They will be acquiring good investment properties with good tenants who are still paying rent.

I would be surprised if the income stream was sufficient to cover the coupon, but it might not be too far off.

Brendan


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## PaulHoughton (5 Aug 2009)

Brendan said:


> So, NAMA will be acquiring loans which are paying some or all of the interest.


I thought the main purpose of NAMA was to acquire non-performing loans from Irish banks and that the acquisition of any performing loans would be incidental. By definition, non-performing loans pay no interest or else pay only sporadically. 



> They will be acquiring good investment properties with good tenants who are still paying rent.


Again, I thought the purpose of NAMA was to acquire loans - not property. Presumably if the underlying property was producing a nice juicy rental flow, then the developer would be paying his interest. The non-performing loans are secured on unfinished or vacant property with zero income.



> I would be surprised if the income stream was sufficient to cover the coupon, but it might not be too far off.


I am guessing that the coupon will be paid out of taxation and even more state borrowing.

Additionally, NAMA intends to borrow up to 10b to spend on finishing developments. An massive increase in the supply of property can only lower prices further.

I just don't see any short-term interest income for NAMA. I see a lot of lengthy repossession of properties which will have to be rented out at a mraket rate if they are to generate any income. This will depress rents and asset values across the board.


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## DerKaiser (5 Aug 2009)

PaulHoughton said:


> I thought the main purpose of NAMA was to acquire non-performing loans from Irish banks and that the acquisition of any performing loans would be incidental. By definition, non-performing loans pay no interest or else pay only sporadically.
> 
> Again, I thought the purpose of NAMA was to acquire loans - not property. Presumably if the underlying property was producing a nice juicy rental flow, then the developer would be paying his interest. The non-performing loans are secured on unfinished or vacant property with zero income.
> 
> ...


 
NAMA are taking on the loans of the top developers (by amount borrowed), the performing business is not separated from the non-performing business.

Many of the developers will pay interest. Of the ones who can't, many of the properties in their portfolios are generating rent. Both of these receipts will offset coupon payments, though it remains to be seen if there will be a significant shortfall.

The whole concept of NAMA is that it can take a long term view towards the development of the unfinished properties so it will not flood the market. Being honest nobody knows whether these will ever have any real worth in the forseeable future, but they certainly have practically no worth in private hands with a shorter term view of credit availability and market demand.

The only alternative is to either continue to recapitalise the banks as their book of non-performing loans grow or to nationalise the banks immediately.  Pretty much all options result in the state taking the gamble. NAMA, at least, sets out a credible plan for the management of non-performing loans


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## PaulHoughton (5 Aug 2009)

DerKaiser said:


> The whole concept of NAMA is that it can take a long term view towards the development of the unfinished properties so it will not flood the market.


How is flooding the market a bad thing for society? Rent is a cost to business and low rents would make Irish business more competitive. Cheap residential housing is also surely a boon. Isn't that what all this affordable housing craic was all about? I for one would welcome low commercial and residential rents and prices.



> The only alternative is to either continue to recapitalise the banks as their book of non-performing loans grow or to nationalise the banks immediately.  Pretty much all options result in the state taking the gamble. NAMA, at least, sets out a credible plan for the management of non-performing loans


What about this option:

don't renew the bank guarantee scheme in September 2010. 
allow the banks to go bust if necessary
watch the shareholders getting burnt
watch the uninsured bondholders getting burnt
watch the cds writers getting burnt on covered bonds
payout deposit insurance for small depositors
allow large depositors to get pence in the pound for their deposits past 100k
everyone banks in future with NIB, Ulsterbank, Rabobank, Halifax etc
In this scenario, the state doesn't have to pay for the banks' mistakes beyond the agreed deposit insurance scheme.

Nobody loses who wasn't gambling themselves.

In the NAMA scenario every tax payer compensates the bondholders, shareholders and large depositors of the banks that were themselves limited companies. Now what about the taxpayer who simply wasn't involved. The man who didn't borrow money to bet on property, the man who didn't have 500k on deposit when only 18K was insured, the man who didn't invest in high yield bank shares, the man who didn't buy bonds from these crappy institutions - what about him? 

I am sure I am missing something here. What is it?


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## Brendan Burgess (5 Aug 2009)

Paul 

You asked a specific question which was answered.

there is really no point in diverting the thread into a repeated discussion of issues which are discussed on other threads.


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