Do NAMA Critics Know About LTVs?
This post was written by Karl Whelan
The single strangest turn that the NAMA debate has taken is the sudden emergence of the claim that those who are critical of NAMA don’t know that it is purchasing loans rather than property assets. Take this quote from Damien Kiberd in the Sunday Times:
Are the agency’s critics aware that if we allow the European Central Bank (ECB) to fund the €60 billion or so that NAMA will pay for loans, we will be getting control of properties originally valued at €120 billion and not the €90 billion that is continuously cited?
Leaving aside the incorrect claim that the ECB are “funding NAMA” (the bonds issued will be debts that the Irish taxpayer will have to pay back), the answer to the question is, Yes, we are perfectly aware that not all loans have 100% loan-to-value ratios (though whether €120 billion is indeed the correct figure is uncertain).
I suppose it is possible there are many regular folk out there who don’t understand the distinction between loans and collateral but that can’t be who Kiberd is taking about. All I can say is that no economist that I have communicated with on this issue has failed to understand this distinction.
And here’s the Minister for Finance, quoted in the Irish Times:
The crucial point about the €90 billion, which has not been reported, is that when you take into account average loan-to-value ratios, the property secured had a peak book value of about €120 billion. When people talk about reductions, they are ignoring that issue completely.
Really, who is this “they”?
One explanation for the sudden focus on loan-to-value ratios is that perhaps the government are confused by the fact that NAMA critics have focused extensively on property valuations. There is, of course, a very good reason for this focus. If a developer cannot pay his loan back, then the bank will have to end up seizing the collateral and the value of this collateral will be all the bank has to show for the money lent out. So, in most cases, the value of collateral will be the value of the loans.
Another explanation for this new talking point is that, rather than engage in a substantive argument, the government has decided that it may be an effective debating tactic to claim that forty six professional economists are unware of even the most elementary aspect of banking. Decide for yourself.