# NAMA considering providing home loans or guarantees against price falls



## NorfBank (20 May 2011)

Article in the IT

[broken link removed]

The State agency is in preliminary discussions with Bank of Ireland and  AIB to see if they would provide financial support to buyers of  properties controlled by debtors in Nama or by receivers. It expects to  have “a more detailed engagement” with the banks over the coming weeks.



The plan would involve a buyer paying a 10 per cent cash deposit and  one of the banks lending a further 70 per cent of the value of the  property.
If the property rose in value, then the buyer would draw  down an additional loan – agreed at the time of the purchase – to cover  the 20 per cent difference after several years.
If there was no recovery, Nama would write off the 20 per cent.
The proposal – which is known as “staple financing” – is one of several options being explored.
So does this effectively mean a 20% discount on current prices in certain areas?

Say NAMA owns No 1 Main St, Joe Public owns No. 2 Main St.

Joe Public has No. 2 up for sale at 100k (his mortgage is 100k) but a buyer can buy No 1 from NAMA for 80k so Joe will have to drop his price to compete.

If he does drop his price, Joe is now in negative equity to the tune of 20k and can't sell.

This plan favours buyers but screws sellers it seems?

Joe defaults because he can't sell - NAMA takes his house.  A pretty vicious circle.


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## aristotle (20 May 2011)

By stating the 20% difference is it not telling everyone that we expect another 20% reduction in prices? Therefore it just puts people into further "sit and wait" mode.

Who values the property? Does Nama have auctioneers\valuers working for them in which case they have an obvious incentive to put as big a value as possible on the property.


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## Complainer (20 May 2011)

tvman said:


> If it leads to NAMA releasing it's stock onto the market it can't but help to give some clarity on prices - but (bearing in mind the AAM rules on discussing house prices) increasing supply can only have one impact on prices...


But wouldn't it also increase demand, by giving mortgages to those who wouldn't otherwise be getting mortgages?


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## amh (20 May 2011)

Whilst there is the problem that people may feel that they would be best to adopt a wait and see strategy a 20% drop based upon today's value is significantly less than a 20% drop in value from peak prices. Those people who waited to buy a property, whist not now paying a tracker mortgage on a house at peak price will now be making a repayment of approx the same amount on a smaller loan at a variable rate. At the end of the day for me, it's not so much about the loan value its about the repayment amt.

Waiting and seeing might have paid of in some regard but then there is the argument re time lost making repayments and higher rates to be paid with prosept of rate rises at any time. This same principle might again apply for those who wait and see again. They might not get the benefit of the cushion against future falls if terms and conditions change, and again they might not be able to reduce the repayments if rates were to change in the mean time.

 My experience talking at work is that there is fear of the unknown, however a scheme such as this might well bring some degree of certainty to those people. It is basically an insurance policy for potential buyers against future falls taken out and paid for by us the public, should anything more go wrong.

Something has to be done to fix the broken engine that drove this economy (into the ground), but its still required to help get us out of the mess too.


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## queenlex (20 May 2011)

amh said:


> Not wanting to talk about prices, just what are the practicalities of this type of idea, is it good bad or indifferent. Could it work? Can NAMA get involved in mortgages directly themselves?



I think this is a bad thing...no lessons seemed to have been learned or maybe its just purely populist?  Prices should be allowed sort themselves out imo.  I cant understand the reasoning for this at all why do they want to mess with the market artificially you would have to ask yourself.

I hope its not going to send people rushing back out agian like the last time and we all know what happened then....


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## Society (20 May 2011)

The type of properties on offer by NAMA are most likely apartments.  People aren't interested in apartments anymore.  This plan is going to be no use to people looking to buy a nice second house in a nice area.  Unless of course the people that bought between 2002-2008 start to get repossessed and then their homes go into NAMA.


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## mrblues (20 May 2011)

Society said:


> The type of properties on offer by NAMA are most likely apartments.  People aren't interested in apartments anymore.  This plan is going to be no use to people looking to buy a nice second house in a nice area.



Plenty of new 'house' stock in NAMA aswell as apartments though! Very good case in North County Dub at the moment - Large 4 bed three story near the sea were over €1m now at €495k and 3/4 bed terraces at €295k so this could bring them within reach where they never could have been before. 
God help those who paid the €1m+ though....


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## Complainer (21 May 2011)

mrblues said:


> Large 4 bed three story near the sea were over €1m now at €495k and 3/4 bed terraces at €295k so this could bring them within reach where they never could have been before.


What do you mean by 'within reach'? Will it bring the prices down lower?


mrblues said:


> God help those who paid the €1m+ though....


THey still have the same mortgage repayment that they originally signed up for.


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## mrblues (21 May 2011)

Complainer said:


> What do you mean by 'within reach'? Will it bring the prices down lower?



Within reach of many more people who would have loved the location and home but couldn't possibly have afforded them in the €1m+ days.



Complainer said:


> THey still have the same mortgage repayment that they originally signed up for.



Correct, however with this level of pricing in this particular development, on top of increasing interest rates means they have little or no chance of ever moving or even downsizing should needs be as the gap in borrowing vs achievable sale price is now going to be enormous.


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## ajapale (21 May 2011)

amh said:


> Today on News-talk I heard talk that Nama is discussing the idea of transferring physical assets into financial assets through the process of providing houses to the public.



Has NAMA outlined their thinking in this regard through proposals or discussion documents? Do we have any links to such proposals/thinking by Nama?


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## Complainer (21 May 2011)

mrblues said:


> Within reach of many more people who would have loved the location and home but couldn't possibly have afforded them in the €1m+ days.


OK, but just for a minute, forget about the €1m price and concentrate on the current (pre-NAMA intervention) price of (lets say) €450k. How is this NAMA intervention likely to affect the current price? 

My fear would be that it would artificially support or increase this price by bringing more buyers into the market. Next bubble, here we come.


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## mrblues (21 May 2011)

Complainer said:


> OK, but just for a minute, forget about the €1m price and concentrate on the current (pre-NAMA intervention) price of (lets say) €450k. How is this NAMA intervention likely to affect the current price?
> 
> My fear would be that it would artificially support or increase this price by bringing more buyers into the market. Next bubble, here we come.



I completely agree, isolating the situation to look only at the new purchasers and market direction it could end up being the exact thing that creates the next bubble but I think taking the whole scenario into account its likely that this will stagnate and decrease prices even further.

We can't ignore all those thirty somethings living with massive mortgages and other personal debt in a world where income is only going to go down (increased tax, salary, more levy introductions) and expenditure going up. This will create alot more repossessions and bank repo sales at whatever they can get for the units.


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## Stylus (23 May 2011)

Does anyone know if (as somebody says earlier) if more family type homes in 
good locations (rather than apartments) will become part of this scheme ?

Is there any chance NAMA will buy up a few hundred/thousand family homes on the marker as we speak on myhome.ie and re-sell them through this scheme ?

I'm a forty something "wait-and-see-er", with family, in good position to trade up to a better family house - such a scheme might get us moving (finally) after 3 years waiting (thank god we did).


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## Complainer (23 May 2011)

Stylus said:


> Is there any chance NAMA will buy up a few hundred/thousand family homes on the marker as we speak on myhome.ie and re-sell them through this scheme ?


NAMA has more than enough property on its books. It won't be buying up more.


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## JoeB (23 May 2011)

How does this work?

A property is valued at 200,00 at the peak, and 100,000 today. So they sell it for 80,000 (100K - 20%), .. i.e below market value?

The extra 20% is only payable if the property rises in value? But it's already worth more than the 80K paid for it, as it was worth 100 at time of sale. So people have got a discount if the price stays at 100K (i.e no rise, so no extra payment needed).

That doesn't work, as why give a 20% discount if the price was fair to begin with? (i.e why give 20% on fair market value?). If the 20% is an incentive then it clearly is unfair on those who want to sell at market rates and not give further discounts... i.e everyone except NAMA.




What might work (and is horrible to comtemplate), is that the NAMA may seek to sell property at 20% MORE than their current market value, but defer the extra 20% payment until the market rises. This would be clearly market intervention, as properties are selling for more than on the open market, distorting the market, and giving the impression that properties are cheaper than they actually are.
(Example, 200k at peak, 100k today, sold by NAMA for (120K -20% discount = 100K) today, ... and the buyer has to pay the additional 20% if the price rises to 120K over the stated period.


So can someone explain this, with examples of the money side.. i.e exactly what does the 20% relate to?, (20% of what?, current market value?), .. and what is the sale price? (i.e the market value?, or something else?)


edited to add.
Maybe it's this.
property worth 200K at peak, 100K today. So NAMA sell for 80K, .. and retain the right to ask for the other 20K if the price improves, ABOVE 80K.. not above 100k market value. Why would anyone pay 100K in that situation.. i.e for houses down the road not being sold by NAMA? So if this is it it's a massive intervention in the market. (If a private bank did this I wouldn't call it market intervention, I'd call it business suicide)
How does the clawback work? Who decides if a house is worth more than the 80K paid? If the house is sold then no problem, as long as legislation exists to force people to reveal the price paid. If the house isn't sold then you'd be relying on our government to price houses fairly. I'd be skeptical of that. 


If the government is failing to explain itself properly that probably means they have something to hide, and that their intention is to intervene in complex ways in the market.


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## Firefly (24 May 2011)

NorfBank said:


> Article in the IT
> 
> [broken link removed]
> 
> ...



What if the buyer's situation changes...say he/she loses their job - who will want to give them the last 20%..the bank? 

This all sounds "nice" but it reminds me of the Common Agricultural Policy in that it almost seems like an artificial floor price in being introduced (given the amount of property owned by Nama). This is government intervention and even though I am a home owner, I feel the sooner we get to the bottom of this property cycle the better....there are many people waiting on the sidelines only too eager to buy once they know/are sure we've reached the bottom.


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## Chris (24 May 2011)

Firefly said:


> What if the buyer's situation changes...say he/she loses their job - who will want to give them the last 20%..the bank?
> 
> This all sounds "nice" but it reminds me of the Common Agricultural Policy in that it almost seems like an artificial floor price in being introduced (given the amount of property owned by Nama). This is government intervention and even though I am a home owner, I feel the sooner we get to the bottom of this property cycle the better....there are many people waiting on the sidelines only too eager to buy once they know/are sure we've reached the bottom.



I also agree. What is most worrisome is that during the housing boom everybody called for help for the "poor" first time buyers that were being priced out of the market. The government of the day answered with huge subsidies to home buyers in the form of mortgage interest relief, stamp duty relief, affordable housing and shared ownership schemes. The result was fuel on the fire.
Now we are in a situation where more and more people, especially first time buyers, are actually able to afford to buy a house because of lower prices and people are calling for an artificial floor in the market. 40 continuous months of declining house prices and people still think that prices are too high. Any government introduced artificial floor will only exacerbate the problem, just like it did on the way up.


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## Firefly (24 May 2011)

Chris said:


> What is most worrisome is that during the housing boom everybody called for help for the "poor" first time buyers that were being priced out of the market.




I always had a massive problem with this. It's not like prices have a life of their own and act like a hot air ballon...First time buyers are a core market for house builders...guess what happens if they become priced out of the market...the price falls!


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## Jim2007 (24 May 2011)

JoeBallantin said:


> A property is valued at 200,00 at the peak, and 100,000 today. So they sell it for 80,000 (100K - 20%), .. i.e below market value?
> 
> The extra 20% is only payable if the property rises in value? But it's already worth more than the 80K paid for it, as it was worth 100 at time of sale. So people have got a discount if the price stays at 100K (i.e no rise, so no extra payment needed).
> 
> That doesn't work, as why give a 20% discount if the price was fair to begin with? (i.e why give 20% on fair market value?). If the 20% is an incentive then it clearly is unfair on those who want to sell at market rates and not give further discounts... i.e everyone except NAMA.



Here's the thing, if you compare Irish salary levels, Irish personal debt and home ownership to the rest of the Euro zone, it is very hard to see how it can continue even at the current levels, never mind pushing prices up!  So I'd say it is anything but a sure deal - you are being asked to sign up to a price set in anything but normal market conditions, sink all you cash in a single asset class - property, in a country that is a wash with property and declining rent levels!  

Jim.


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## Brendan Burgess (17 Jun 2011)

[broken link removed] 19 May



> 1. Provision of finance for Residential and Commercial property transactions
> 
> • The agency has identified a “key impediment” to residential sales in the current market as “a concern on the part of many debtors that prices could fall further and that, after purchasing, they could therefore find themselves in a position of negative equity for a long time to come.”
> 
> ...


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## Brendan Burgess (17 Jun 2011)

Let's leave NAMA out of this for the moment and consider if Ulster Bank should be doing something like this. 

They have a developer who has 100 houses worth €200k each and they have given a loan of €20m to that developer. The developer can't pay it because he can't sell the houses. Ulster Bank currently carries all the risk of a future house price fall. If the houses fall by 20%, their security falls by 20%. 

There are people who want to buy houses but can't get the finance. So let's say UB restricts its new mortgage lending to people who buy houses in this development. Let's say that they give 100 borrowers 90% mortgages at standard variable rates - but no guarantees or anything like that. 

Ulster Bank will now have reduced their risk considerably. Most of the borrowers will be able to repay their mortgages even if house prices fall further. 

So Ulster Bank should be doing something like this. They have limited funds available for mortgage lending and should be providing them only to people who are buying houses from their development clients. 

Should they go further and take some of the risk themselves? For example, should they offer 100% non-recourse loans. They would still be carrying the property price risk, but they would now have 100 performing loans instead of 1 non-performing loan.  They might offer a 90% non-recourse loan. So the borrower takes on the first 10% of any price fall.

Update: Ulster Bank were actually doing this last year. 

http://namawinelake.wordpress.com/2...l-safeguard-against-future-property-declines/


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## Brendan Burgess (17 Jun 2011)

It would be ok for Ulster Bank to do this as it would not really interfere with the market too much. 

If it's ok for Ulster Bank to do it, does that mean that it's ok for NAMA to do it? It would be in NAMA's interest to do something like this. Many of its non-performing loans to property developers would be replaced by loans to individuals who have salaries out of which to service their loans. 

But I think it would destroy the market for everyone else. 

If I am a first time buyer and I have a choice of buying a new home with a non-recourse loan from NAMA or buying a second hand home with a full recourse loan from Bank of Ireland, I will be willing to pay a lot less for the second hand home. 

The non-NAMA banks would have to do something similar for their developer clients as their houses would be more unsellable.

If AIB and Bank of Ireland limit their mortgage lending to first time buyers of NAMA properties, their existing struggling mortgage holders who are trying to sell will be unable to sell and so will get into further difficulty. 

Say that I have an unsustainable mortgage with AIB. I have AIB's agreement to sell my home. Should they give me a certificate to say that they will look favourably on giving a mortgage to someone who wants to buy my home? In other words, they should try to  convert my non-performing loan to a performing loan to some other borrower.


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## Purple (17 Jun 2011)

Brendan Burgess said:


> But I think it would destroy the market for everyone else.



The market is destroyed anyway. We need to find the bottom as fast as we can, even if that's based on a fire sale.


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## JoeB (17 Jun 2011)

Well, the banks are not property developers.

My pouint is that if Ulster bank were to happily take the hits on the losses then why ever lend to developers? If development makes a profit then the developer makes it.. if the development makes a loss then the bank takes the hit.

If that was the choice for the bank I'd either start building the houses directly as a bank, and cut out the middleman developer, OR.. I'd stop lending to developers if the bank only makes its money if the development is sucessful.


So for the banks, or NAMA to do somwthing like the above would be an acknowledgement that they give 'non recourse' loans to developers... developers can simply walk away from failed developments.


The problem is the bank not having sufficient security for the failed developer loans. Did banks lend 100% for new developments? or 110%?

If so they can hardly complain now. They should only have lent 70%, or whatever, and also ensured that the developer had available saved cash, and wasn't simply borrowing to the hilt elsewhere.


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## amh (9 May 2012)

And so it came to pass


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