NAMA to Provide Finance

Agreed something along the lines you suggest should have been done at least 12 months ago – it looks like the new administraton have ‘encouraged’ Mr. daly and NAMA to think afresh………….

@ Eureka

“But if NAMA are going to start lending what do we need banks for?”

Mortgages, small business loans, deposit-taking, financial intermediation, maturity transformation … they’re quite useful when they work.

@ Karl

the pillar banks would i assume offer some type of servicing, eh, services to manage the NAMA ‘mortgages’. I assume that the pillar banks would, over time (ie a few years down the line) look to novate them over onto their books (NAMA cannot exist in the long long term offering this finance).

@ Karl

Btw, this was mentioned by Stephen Steelig (NAMA board, ex-IMF) last month in the Irish Times (5th March), so its not just a new-govt idea.

“By SIMON CARSWELL

THE NATIONAL Asset Management Agency (Nama) may have to consider
lending to property buyers to kick-start the flagging market,
according to Steven Seelig, one of its board members.

Mr Seelig, a former senior official at the IMF, said Nama might have
to offer loans to property buyers, including residential homes, to
stimulate sales as the banks are not lending on property.

“It will need to do it just to kick-start the market. It is from a
public policy point of view. You want to get the market going again,”
he said in his first interview with an Irish newspaper since joining
the Nama board in May 2010.

“Unless there is somebody else willing to do the financing, Nama will
have to do some of it just to get some sales going in the market.

“Once the market sort of stabilises, lenders and more buyers will come
in. There is always this fear of buying too high and watching a market
continue to fall.”

Q: Mr. Daly – do you have a coherent plan for the future of NAMA?

A: Short answer yes with an if, long answer no with a but…

Might be better to post this here

McKillen just won in the supreme court on the fair procedures point – lost on the constitutional challenge

SC finds that NAMA interferes with his property rights because they take greater rights than a private purchaser of his loans would – therefore the act must be interpreted as providing for fair procedures – therefore entitled to make representations to NAMA before they take his loans into NAMA

definition of eligible assets upheld as constitutional

@ Karl
But it’s illogical. You take distressed assets away from the proper banks. Then you set up a quasi bank with the aim of linking it back in with the original banks. In essence you are reversing NAMA by setting up a mishmash state bank incorporating all the assets of the two original banks.
It’s the long way around to nationalizing all the banks and in the meantime forced a crystallization of their losses.
I’m not sure if Im making sense it just seems that the net result we have here is what would have been achieved if the banks had been nationalized in the first place (only with no loss crysalization)

The reason NAMA does not want to sell its holdings is that they are scared to death of what the market will pay.

@ Tull

NAMA doesnt need to borrow any money. It already owns the properties, financed via the bonds issued to the banks, which are being repo-ed at the ECB. So it doesn’t actually require any additional liquidity, and it would actually give NAMA fresh liqudity with which to repay the bonds via the initial deposit provided by the homebuyer.

I don’t see why NAMA needs to borrow more money.

I think its just like Ford having too much stock, so offering loans to purchasers of cars. NAMA would exchange one asset (property) for another (the loan agreement).

It seems a fairly logical proposal.

But can NAMA guarantee the credit worthiness of the borrower, or will it recklessly lend? What percentage financing would it offer (I would hope less than what’s offered by the banks).

Also NAMA has its own interests. Its good for the country to abolish upward only rent review, but NAMA is anti-abolitionist because its interested in the value of its assets, not the good of the country.

But I think this is a decent way to get some cash-flow from NAMA.

@ Eoin

“well, would you take on a mortgage with only 5-10 years financing?”

The truth is there would be no need to artificially limit the length of the financing. If someone wants to wind NAMA up at some point, NAMA could then sell the loans.

A number of times in the past I’ve asked the question who would finance the acquisition of assets from NAMA. It seems the answer is nobody. So NAMA is now (once again) the only show in town. To my initial questions:

1. Is the ECB willing to offer cheap finance to new (Irish) borrowers for an extended period (via banks’ repo’d namabonds)?
2. Does this remove NAMA’s risk or if it merely reduces it, by how much?

The provision of credit should only be offered if there is a significant reduction of risk. This would mean that NAMA would only offer part finance and/or seek additional pledged collateral. Otherwise, Daly’s proposal doesn’t make sense. For example, would it make sense to offer 100% finance @5% on a commercial property yielding 9%? If this was the case, you’re offering the borrower a free option. You could make a similar case on development projects.

I suppose I should write a paragraph on cronyism and transparency, bit I’m a little lazy today.

“to kick-start the flagging market”

or flogging the decreased quadruped

@Christy.

Maybe we could get nama to lend loads of money to like bankers and stuff and make a killing, and then turn it into a sovereign wealth fund.

Makes a three card trick look simple. Who do these people think they are trying to kid!!

They have a ****lead of property that nobody wants or those that want it, want it for nothing. So like all desperate salesmen, they want to loan (sorry arrange) the finance for the would be buyer.

They need to stop and to stop now. Stop. Stop.

Why provide liquidity?

(1) Avoid fire sales
(2) Jump-start the market
(3) Get cash deposits from buyers without needing to spend cash
(4) Encourage more property funds that aren’t vultures to consider Irish property

Why team up with a bank to provide liquidity?

(1) NAMA lifespan of 7-10 years – lifespan of loan might be greater
(2) Banks should be better able to service loans, particularly lower value loans (eg single residences)

In answer to Karl’s question, since no money is needed from banks for the loans, there is no impact on deleveraging eg NAMA sale price €45m, cash received €15m, loan from NAMA €30m. Banks don’t get involved in the financing at all, they simply provide loan management. Though hopefully after 2013 banks might be healthy enough to consider buying loans from NAMA.

One big problem I see is distinguising between NAMA avoiding fire sales and NAMA artificially distorting the market by providing credit.

If Nama gets into the auction of developer loans of crony €20 ml plus, or even less) to make a market when none exists…..this defeats the whole purpose of NAMA, which as I understood it, was to liquidate toxic loans, not to create a whole new batch of them out of taxpayers money providing the lending for same.

@ Colm

“Karl, are you proposing every Tom, Dick and Harry can now go along to an auction, place the highest bid, then go to Nama as ‘anonymous noname’. “I WON”. Nama replies, “no, in fact you are bankrupt and neither we nor anyone else can lend to you”.”

Clearly, as with all types of credit provision, NAMA would need to run a credit check in relation to whether the person was likely to pay back. But these would presumably be collateralised loans, so if the person stopped paying back, NAMA could seize the property. Of course, one could just restrict yourself to cash buyers but then you’d almost certainly get a far lower price.

@ Karl

“The truth is there would be no need to artificially limit the length of the financing. If someone wants to wind NAMA up at some point, NAMA could then sell the loans.”

Would this cause complications towards the end in that NAMA might be required to have core capital relative to its loans, as the banks do? And if it didn’t might there be a problem as NAMA would end up having only loans, which could go bad again, and no capital to absorb the bad ones.

@ Joseph Ryan

Any chance you could go through your useful sequence again from the property developers’ POV?

I can start:

(1) Borrows money from a bank to buy land to develop a block of flats.
(2) Buys land.
(3) Market crashes, can’t afford to pay back loan.

What then?

Ye’re obviously having fun. NAMA raises its ugly, hoary head momentarily and ye’re all at it hammer and tongs. Enjoy.

While this does have an outward sniff of the potential for cronyism about it, as long as NAMA makes these vendor-financed loans at reasonable (i.e. non Tiger) loan-to-value rates of say 70-80% this shouldn’t be a problem. If it turns out the buyers can’t pay then it’s still a positive for the tax payer – we get: (i) 20-30% deposit up front; (ii) interest/principal on the loan up to default; and (iii) the property back at default. The alternative, not selling the property would just have resulted in rental payments to NAMA (if there were any).

@ Karl:
re “liquidation leads to sale of assets to outsiders at lower prices, and markets are said to be illiquid.”

That sums up everything. The whole Nama thing is a ‘castle in the air’ effort to prevent loss of assets by the financial insider class in Ireland.

But that ‘financial insider class’ is the big gorse fire on the mountain that needs to be burned. Because without burning them we have Nama holding to ransom the Irish economy and paying for the insiders wait or Long term Economic Value to recover, at everyone’s expense.

The Nordic countries knew this in the 90’s. Get the stuff off the books, liquidate asap, in 3 years they had their whole bubble portfolio burned and liquidated. We’ve the NAMA dredger full of toxic mess ready to pour over everyone.

A gorse fire doesn’t burn the seeds underneath. They grow in the spring giving new grass. Give the stuff to outsiders, the Chinese might buy some, or whoever, Ireland has undergone insider/outsider changes in the past, from the Normans down. Time we took everything out of the hands of the Nama messers:) All that Nama toxic stuff needs to be liquidated fast.

Actually, we are at an advantage, because we now know the Nama project doesn’t work, we need to come up with something better, so good to see Nama I suppose attempting to recreate itself into a new and improved purpose.

Best for all though if Nama gives the stuff back to the banks and let them get on with liquidating it. Might save a lot of those AIB jobs. Billions saved in fees to the army of professionals working for Nama:)

Anyhow we will have firesales whether we choose to have them or not. Surprised the IMF are not insisting NAMA drop its loaded portfolio asap to fix our mortgage market which is broken.

It would fit NAMA much better if it held onto assets and allowed downward rent reviews.
The financial whizzkids in thus country never miss an opportunity to mess things up!!!

The cash that might be used as downpayment is all of that expected to come from abroad or might this reduce the liquidity in Ireland? Or maybe it is better to see it as: if NAMA funds property then Irish banks have no choice but to fund business? 🙂

What I guess will happen now is either this will be implemented asap or a firm denial that it will ever happen has to happen asap: Who’d borrow money from a commercial bank now when better rates/terms might be available soon from NAMA?

@ All

Why do something simple to relaunch the property market when there are still plenty of disastrous bureaucratic solutions – in the matter of which Ireland is the undisputed world leader – to avail of cf.

http://www.irishtimes.com/letters/index.html#1224294482992

NAMA is a bailout fund for the Irish Property Owning classes. That is all.

It now intends to play the most expensive three card trick in world history, transferring assets from the banks to itself, back to the banks, and ultimately back to developers, with the public exchequer footing the bill at every step.

This will artificially drive up property prices and ultimately rents, not to mention the state debt. Everyone will suffer, except the developers, the bankers and the managers at NAMA paying themselves handsome bonuses on the back of this con job.

It’s time for a general default. On everything. State, banks, NAMA. Everything. No-one should pay for anything while financial privateering like this is tolerated.

@Bond,

Re “the money paid to NAMA (the deposit) goes back into the banks via repayment of bonds, so should be liquidity-neutral, and helps to deleverage too.”

Meanwhile 80% of the finance gets marked as a debt against the new NAMA Anglo bank, what you describe is only B&B money hiding more debt, and a method to launder previous debt while creating massive new debt.

Of course way in the future the New NAMA Anglo Bank Mark11 would get wound down by taxpayers, use the same method to launder its portfolio, then fail again, so we create New NAMA Anglo Bank Mark111 to launder Mark11’s commercial and residential mess.

In Q1, 2 commercial deals were completed and one was the Feb purchase by Google in D4. Total value was €124m.

In Europe, the value of deals was €26.7bn – up 26% on Q1 2010.

CB: “Nama is now stuck in a similar position with deteriorating property that should have been sold two years ago, but doesn’t know what to do about it!”

Exactly. They needed to start moving stuff quickly and at whatever price was available, take the loss and get it moving. You have to be able to take the loss, to stomach it.
This latest scheme, like each before it (including NAMA itself) is *ultimately* based on the idea that a “bottom” is in or near. They were wrong two years ago and they’re likely to be wrong now. Generally burst bubbles exhibit a “dead cat bounce” prior to diving to their “bottom” – this scheme may, at best, fuel the required dead cat.

The developers who ended up with his/her property loans and related real assets in NAMA is no way any better off through this process.

No so. They ultimately get to keep their properties, and any assets they are generating, instead of losing them all in an orderly liquidation process. In some cases, they will actually be paid hard cash–by NAMA–from the sale of these properties.

We shouldn’t put up with this any more. Just call in the loans, and if the developers can’t pay, force them into bankruptcy and sell the properties. Take the loss directly instead of the slow drawn out process of NAMA.

Nama need to one thing only.

Start selling partly finished properties for nothing. For nothing.
On one condition.
Finish the property within two years and deposit the agreed amount of cash to finish out the property, to be drawn down during completion.

My apologies for all the posts re this particular issue but I really feel as if
some people are simply making donkeys out of ordinary Irish people to enrich themselves. The tragedy is that they are succeeding.

An observation and a question:

Even the IMF are suspicious of NAMA, and put Ireland in the company of some unsavoury characters with this (from the latest Fiscal Monitor)

Fiscal transparency seems to be increasingly at risk in some countries. With fiscal results facing heightened scrutiny, there is a growing tendency for governments to enter into transactions that sacrifice fiscal transparency (and, in some cases, long-term fiscal health) to make shortrun budget outturns appear more positive. Moves by Argentina and Hungary to renationalize previously privatized second-pillar pension schemes are one example of this phenomenon. Likewise, Ireland’s bank crisis resolution entity has been designated as a private sector organization, even though nearly all of its expenses will be financed with government-guaranteed debt.

While I understand that NAMA bonds pay a relatively low interest rate (based on ECB rate), what’s the deal with principal repayment? If all the NAMA staff sat around and played solitaire all day, would it matter? More specifically who would pay and when if the NAMA recovery exercise produces less than expected? Are the banks assuming some repayment schedule that if not met would need to be filled by more tax-payer funded recap costs, or is it the ECB that would get upset in some manner when they see their collateral becoming even junkier? I’d like to understand better how any losses (or indeed better than expected recovery revenue) bubble through the system and become “real” losses (or gains).

@Jagdip Singh

Thanks for that – Is there a requirement that approx €3bn be paid off every year or can/will repayment of principal be back-end loaded? I’m wondering when any further losses would be crystallized – i.e. only at the end in 2020 to make up any shortfall, or at intermediate points along the way also.

@ Eoin
thanks for the reply. Your answer to Jesper covered my query.
There are indeed some merits to the proposal. Though you would have to wonder about the legalities.
NAMA would be a bank operating outside all the normal rules of banking. It would also be 100% state subsidisedas a bank and might have a competitive advantage.
Still full marks to all for ingenuity.
What properties can it actually sell?
What price will it get?
How will it deal with default since it owns the property anyway?
Isn’t there a risk that the developers who once owned the property can now buy it back at discount?

My suspicions on NAMA are here: http://www.thepropertypin.com/viewtopic.php?f=50&t=27290

Basically that it is designed to bail out most of the small-medium borrowers – the backbone of political gladhanding. Initially, I supposed that the banks would provide the financing for those borrowers to buy back their own loans at a discount. Given that the banks are even more wretched than was supposed, it now appears that NAMA will provide borrowers with credit to buy back their own discounted loans. Cui bono? Not the taxpayer anyway…

@Jagdip Singh,

Yes I was wondering if the NAMA bonds would be treated in the same way as the promissory notes with an annual repayment of 10% of the principal, however it seems not. It is a coincidence that the NAMA and promissory note totals are both about €31bn.

I guess we’ll have to wait and see when redemptions are made and whether there are any haircuts applied due to declines in property values since the valuation date. However with “vendor-supplied financing” as now proposed, the potential for balance sheet manipulation seems significant. I am reminded of the 2001 telecom equipment vendor bust where all the vendors looked really great right up till the point that they didn’t, since most of their ‘sales’ were to highly leveraged telecom providers that didn’t have any real money or any chance of making real money.

@ John Corcoran
But we know NAMA is a turkey. Now we’re just waiting to see if it can do something intelligent!

Have to agree with Joseph Ryan on this one.
This is a bad idea in a desperate effort to to prevent the market finding a floor. One does exist it is just a lot lower than Nama paid for the property.
I know that the losses will have to be covered by tax payers but this is still preferable than dragging out this sorry mess longer and longer while paying lots of professionals (bankers, lawyers, auditors etc.) in the meantime. Besides at this stage I am coming to the opinion that being honest about the size of the losses will hasten default which would allow us to start again and avoid continually paying these professionals at ridiculous rates.

Is it a coincidence that this proposal is gaining traction days before we have a large auction that will show the actual value of property in this country quite clearly.
Nama need people to pay more for these properties than those auctions will show as the market price.
They are suggesting that if they offer finance then people will be willing to do this. Yes but what type of people? I would suggest only people who very little to loose. High risk people. Low risk people will pay market price at auction because they will either have the money or will be able to get financing themselves.
The current residential market freeze is not due to a lack of credit it is due to peoples expectations that prices will fall further.
Nama’s efforts to stop this are counter productive.

Some great discussion in this thread – very interesting.

This seems like an idea worth exploring. I had reservations about Nama’s lifespan etc but they have been somewhat alleviated reading this thread.

The only problem I can see with my limited foresight is that the scheme would only apply to Nama properties and therefore the rest of the property market would arguably get worse as people who were going to buy non-Nama house X but couldn’t get finance decide to buy Nama house Y where finance is available.

Over ten years? We end up “disposing” of the propertires and hopefully helping to make back the 30bn odd but the money would simply be transferred from developers oweing Nama to banks oweing Nama. Maybe this (depending on scale) would be contrary to the deleveraging plans.

@OMF

No – not correct the original NAMA process takes the loans and the assets from the developers your point above suggests that this proposal changes that fact in some manner. From my reading it doesn’t.

The liquidation process your are describing is exactly what Frank Daly is proposing but the house or property would be paid for by way of a finance arrangement with NAMA not with the banks.

‘Just call in the loans and sell the properties and force the developers into bankruptcy’ – I’m all for it but sadly with no buyers and more importantly no banks to finance would be buyers the market becomes stuck just as it is today so selling properties in fine in theory but not so easy in practice even at 80% discount to original asking prices.

@all

Not sure how – but if we get a handle on ‘deficit’ – then NAMA may provide a ‘tactical trigger’ with which to ‘manufacture’ the ‘restructuring/vichy_bank-sovereign default’ that is required, following Minsky’s (b) for insolvent entities, to ensure a reasonable possibility of economic recovery.

Have some ideas, but prob best to keep mum – Hello Michael! Hello Frank! A little conference call (Enda, get back onside *&%^() – five yards out …. but this time, keep the ball, and drop_kick johnnie and his ilk! End game: and we still have the ball.

@Rob S
Ne’er-do-well!

Jagdip Singh says,

Why provide liquidity?

(1) Avoid fire sales
(2) Jump-start the market
(3) Get cash deposits from buyers without needing to spend cash
(4) Encourage more property funds that aren’t vultures to consider Irish property

[break]

One big problem I see is distinguising between NAMA avoiding fire sales and NAMA artificially distorting the market by providing credit.

What is a distorted property market? The only definition of a distorted property market, I am comfortable with, is a property market that causes too much problems in other more important markets, such as those for labour and productivity. Our property market in Ireland has done enough damage in those markets already. Irish journalists never talk about firesales of human capital. But if a house is burning, it instantly gets miles of paragraphs. The defintion of a property market we have been using in Ireland was invented by journalists to sell newsprint. Fire Sale is a journalistic word all, like burning the bond holders. It is about sales of opinions and column inches, and human interest side bars. Those terms have nothing to do with the operation or functionality of markets, of any shade or colour. Imagine a component of an automobile engine for a second. Say it is a piston, a crankshaft, a flywheel or a belt. I don’t know. We could never talk about that component in isolation. The debate about Irish property markets should not be about Joe Soap’s emotios as he sits in slippers reading Sunday newsprint. It should not be about whether property markets start, stop, or go up in flames. The coverage should be about if the rest of the Irish economic engine can run at all, without an isolated part of the mechanism causing a lot more trouble than it is worth. In Ireland, we cannot integrate components such as property market(s) into the greater whole. That is the sad truth of the matter. Fears of distortion of property market(s) are misplaced. The debate should be about property markets distorting everything else. BOH.

Reason to create NAMA according to Brian Lenihan….was to prevent banks being nationalised and to “get the banks lending again”. That plan really banjaksed the banks who, in any event, thought they could let someone else bear the pain for their stupid mistakes while they remained private. This logic, to the point where they did not even lift a pen to try and sort out toxic loans even allowing interest to be rolled up over a two year period. Now, NAMA morphs and decides it will have to get involved on both sides of transactions. You see, it has all that cash hanging about and must do something with it other than paying down its own gigantic tracker mortgage of 34bn. Nice to see NAMA adopting the same policies of the looney developers who’s assets it has acquired. NAMA decides to sell and use the money that comes in to invest in property! You could not make this up and presumably as NAMA is to only last for 10 years the loans will be of short duration or of course they always have the option of selling them back to the “pillar banks” at some stage in the future. In short, It is a Ponzi scheme!

NAMA will also supply the money to developers to finish apartments etc so it can offer them for sale to purchasers whom it will extend credit. NAMA borrows money at 1.25% and rising and competes against private sellers who’s potential purchasers must borrow at 4 or 4.5% I guess these sellers will have to wait for NAMA to “sell” its book first, so you might as well stop servicing your loan now if you are involved in commercial property.