Central Bank Paper on Mortgage Arrears and Negative Equity

The Central Bank have been publishing data on mortgage arrears for some time now.  On Friday, the Bank released some very useful additional analysis in the form of a paper by Anne McGuinness (press release here.) The paper provides new information on the extent of negative equity and also on buy-to-let mortgages, which are not covered in the Bank’s usual quarterly arrears figures.

42 thoughts on “Central Bank Paper on Mortgage Arrears and Negative Equity”

  1. So only 32,000 properties (2.4%) with the 4 Irish banks are in arrears + in negative equity. No figures for the other banks but I’m not sure there is much we can do about them anyway.

    Compare this to the 98,000 people on social housing waiting lists. Homeless people, people sleeping on their friends’ couches, people who can’t afford the rent, old & disabled people who can no longer look after themselves safely, people living in unfit and crowded rented accommodation. Only 3,000 or so of these are owner-occupiers.

    http://www.environ.ie/en/Publications/StatisticsandRegularPublications/HousingStatistics/FileDownLoad,27864,en.pdf

    We have to choose where we spend our very scarce resources. New Beginnings? No thanks.

  2. “Notwithstanding the improved affordability for new purchaser s, the number of existing mortgage holders experiencing difficulty
    repaying their mortgages increased between 2008
    and 2011.”

    Is this not self evident? If prices fall and it is easier for new buyers to buy aren’t those who bought at inflated prices previously more likely to get into difficulty?

  3. @seafóid
    Yes indeed. The problem for lobby groups like New Beginnings is their whole narrative depends on the idea of a violent and enormous break from normality causing systemic risk. These stats show that the number of properties in genuine need of help (ie negative equity AND in arrears) is not enormous as a proportion of the whole market. We tolerate a ‘normal’ level of distress in social housing need in this country. We’ve tolerated it for a long time and we tolerated it throughout the Celtic bubble years. So my question is why we can’t tolerate a relatively small proportion of distress in the owner-occupier realm?

  4. Johnny F
    This is the number now ; look at the transition matrices in the mortgage conference to see how these will grow.

  5. @Philip II
    And the numbers on the social housing lists will grow as well – but it won’t make the Sindo. The New Beginnings crowd threaten a mass mortgage strike. What threats can a someone in a bedsit make? If they don’t pay the rent then their local friendly landlord will have them on the street faster than you can say ‘where’s my bailout?’

  6. Very interesting analysis. Approximately 150,000 private dwelling properties in negative equity (probably more) and 16% of trackers in arrears, and 22% of variable rate borrowers. It would be useful to correlate this data with age and occupations of borrowers.

    All the gimmickry around payment holidays, interest only and reduced payments all rest on hope, viz. that the big dollops of accruing debt will be paid off in the future. It would take a miracle in growth and employment greater than the bubble years for that to occur. Moreover, as more young people (try to) enter the workforce, jobs for the aging over forties, over fifties will be eroded.

    I am may be a bit wooden headed but i don’t get any sense that government policy is factoring in the impact of long term, more or less permanent, unemployment on mortgage distress. The likelihood of the trend in Fig. 1 continuing for a few more years surely should have the gentry taking notice of another impending disaster on several fronts.

  7. How many empty houses does NAMA have ? They are like the last remnants of a dead class system. Why can’t they be used for social housing ?

  8. @Seafoid

    Because NAMA and its employees were tasked with underwriting the losses of the rich. They are not programmed, paid or prompted to consider the problems of the poor.

  9. @ JR

    The houses are all going to rot if nothing is done with them. That is not even in the interest of the NIMBYs who bought the occupied houses in the estates concerned. Everything is connected innit.

  10. @The Alchemist

    Why focus on the number in negative equity? What matters is the number in negative equity AND arrears. Negative equity is the consequence you pay for buying an overpriced asset. If I buy a car on the tick it goes straight into negative equity but I still pay off the loan. Why? Because I get to drive around in a car. People in negative equity get to live in their own homes and they don’t deserve a bailout just because they got mugged at the sales. If they go into genuine arrears (not the ‘won’t pay’ version) then they go into the Social Housing list and join the 98,000 other people on it. As a society we should be discussing how we deal with that problem first.

  11. The more one looks at all this the easier it seems to resolve the problem in favour of mortgage holders and society in general.
    There are approx 63,000 mortgages in trouble with 12 billion owed.
    A State offer to buy the relevant properties for 50% of the mortgage balance or approx 6 billion would solve the problem. Thereafter the property owners pay rent to the State on an earnings related scale.
    The ELG banks have already received the money so no further payment is required to them. They already have reserves to cover the loss on disposal to the State.
    The balance (Approx €3 billion) could be used to forcibly ‘buy-out’ the properties from the other banks.

    This is now a major social problem rather than a financial one.
    The State should get on with sorting it out.
    Regretably the present government seems more preoccupied with protecting the salaries and pensions of departing Secretary Generals rather than devoting its time and energy and Dail mumblings to defending the poor.

  12. @seafoid

    I could not agree more with you on the issue of using NAMA houses to sort out the social housing list. In fact I have been banging on about the fact that NAMA should be forced to finish out all partly completed estates and houses as part of its remit.
    There would be an estimated 45,000 jobs each year for the next three years in doing that. NAMA has the funds but prefers to hand the funds backs to the ECB so that they get gold stars, but more to the point so NAMA remains a must keep institution.

    Must keep institutions make nice little earners for the staff of those institutions. Proposing ideas which may not find favout with the ECB or the DOF might jeopardise the ‘must keep’ label. Such actions however necessary from the point of view of the country would not be career or income enhancing.

  13. @ All

    This comment by Gavyn Davies could hardly be improved upon.

    http://blogs.ft.com/gavyndavies/2011/11/20/when-should-the-ecb-buy-sovereign-debt/#axzz1eICseuWz

    There is, unfortunately, for the moment at least, no real sign that deflation has kicked in the two economies that matter that would justify a move by the ECB. And does the threat really exist in the UK?

    The FT also is leading this morning on the issue of the Commission’s Green Paper on stability bonds.

    http://media.ft.com/cms/9a4e8590-13c4-11e1-9562-00144feabdc0.doc

    The situation at this stage might be summed up in the phrase; for God’s sake, don’t just stand there, do something! But what?

    That the pressure is becoming inexorable is reflected in Handlesblatt quoting Schroeder as saying that the ECB should intervene.

  14. @Joseph Ryan
    This is a great idea if in the long run there is no net cost to the State and it generates income for more pressing social housing needs.
    It would also weed out the Bull McCabes whose love of ownership outweighs their economic distress. If these people refuse the assistance of the State then so be it.

  15. @ All

    The exact quotation from Schroeder (Saturday last) is;

    “In letzter Konsequenz, wenn die Situation in Italien, Spanien und möglicherweise auch in Frankreich sich verschärft, wird die EZB deutlich machen, dass sie zur Verteidigung des Euros unbegrenzt intervenieren wird”.

    “In the last analysis, the ECB should make clear that it will intervene in an unlimited way in order to defend the euro, if the situation in Italy, Spain and possibly France should worsen.”

    Why he, and other poilticians and business leaders in Germany, might be coming to this view, is possibly explained by this piece by Simon Johnson in Bloomberg.

    http://www.bloomberg.com/news/2011-11-21/johnson-deutsche-bank-could-transfer-contagion.html

  16. According to IT…

    “In one section of the document, obtained by Reuters, officials flag the possibility that EU authorities could get powers to put a failing state into administration if it repeatedly fails to meet its commitments.”

    Now how do you put Greece into administration?

    I think the generals might have something to say about that. Borosso, thankfully, has no standing army.

  17. Breaking News
    Fitch warns of US bank downgrades.

    And

    Credit Suisse in a note today warns of “last days of Euro”

    Both on WSJ, can’t link

  18. “Credit Suisse in a note today warns of “last days of Euro”

    Who are the main drivers of this ? Is it just German/ECB intransigence or are there people who actually want it to fall apart ? What is the Hedge Fund involvement ?

  19. @ DoD

    From

    http://www.irishtimes.com/newspaper/breaking/2011/1121/breaking8.html

    “The Government has also weakened its own credit profile through supporting the banks, the agency said, and warned the banks would have to deal with the implications of this as the Government tries to cut the debt burden.
    The reduction in Government spending could put “considerable pressure” on the country’s recovery prospects, Moody’s said, weakening asset quality and putting pressure on the bank’s profitability.”

    The vicious debt – deflation – austerity circle

  20. @JF

    The state is already the owner of the biggest property development company in Europe and possibly the world, i.e. NAMA. if it were to buy up the houses of those in arrears, it might become overnight the state with the largest stock of local authority housing. In Ireland, the state has too big a role in the economy. People are either heavily incentivised to work in the state sector (salaries, pensions, etc.) or else to feed from it (tribunals, legal aid, compensation, roving posses of consultants, etc). The state is a large part of the problem.

    In the cases of arrears, where people really want to hold onto their house, it seems to me mortgages are either extended intergenerationally with or without an equity stake by the lender depending on the outstanding amount. The second step, is that for those in arrears and out of work, they would be offered public works employment or private work in return for both their welfare and mortgage credits, the latter sufficient to cover the interest in the mortgage until a point in time when it can passed on or else sold or their employer’s business picks up. It would be utterly ridiculous to write off debt or stall it without getting labour in return. Anyone not accepting the offer would lose their house and obviously whatever equity in it. Obviously, some safeguards, time limits, etc., would be necessary.

    The advantage of this approach is that it would allow employers access to a pool of labour at costs that make commercial sense.

    If people receive reassurances that they can remain in their house, being creative with the welfare budget and job development should follow. Nothing is certain but having tens of thousands of people sitting on their hands and worrying about repossession doesn’t add up to a healthy society.

  21. @all

    IMHO number in arrears is more important than the amount of houses in negative equity. Numbers in negative equity is only useful as a headline grabber.

    If someone is able to pay their home mortgage and amortise it over X years that is more important than whether they feel “richer” or not. A home has several forms of “value” not all of which are monetary.

    The arrears problem is a serious social isssue but is not actually a very difficult problem to solve if both parties come clean with their objectives.

    Most owner occupiers want to stay in their home and the lender (i.e banks) need cash flow.

    The third party (ie the state via the courts) can provide a valuable service here while saving the state legal costs and time.

    A judge can simply just refuse to hear a case until the lender has demonstrated proof that every attempt has been made to reach a solution which does not include intimidating homeowners, damaging their credibility or wasting time (and tax payers money since we own most of the banks) writing “frightening “letters.

    The relevant judge can refer the issue to the the citizens information bureau which is employeing (out of bank funds) 100 specialists.

    As a last resort (in order to hold on to the family home) borroweres in arrears can be offered the option to lease the home for five years paying rent which reflects market rates, currently 45% of peak.

    After five years the leasee ,formerlty known as the “borrower in arrears”, can exercise “the option” to purchase ( ie take out a mortgage) to purchase the property at the original loan rate or extend the period for another 3-5 years paying a lease” which reflects the market rate of property.

    The amount in arrears can be “locked away” in a separate 20 year loan which amotises at the basic central bank interest (currently 1.25%) rate plus principle which, if necessary, the principle can be postponed up to ten years until the borrower gets on their feet.

    For people in arrears over 55 a “thirty five year lease”scheme can be formulated based on 3% current market value ( the 24BN stress test already factored in default rates) which can be sold by the leasee or passed on to heirs who will have the right to purchase the property at original mortgage amount plus “compounded” accumualted arrears.

    The original loan and arrears were “borrowed” by banks at more favourable rates so current saving interest rates are not relevant here.

    The banks need cash flow, working people need to be freed from anxiety so they can concentrate on contributing to the economy, our heritage simply prevents evictions and the elderly deserve the right to be freed from anxiety.

    Obviously many case need to be judged on a case by case basis (i.e how long does a home need to be occupied to be considered a home, does somebody really need (or is able to maintain) a “trophy house”, has the “family” dissolved, or perhaps people simply want to walk away from the property.

    For the small time investor who has a second or third house (in lieu of a pension) schemes can be copied from NAMA whereby they become unpaid part-time”managers” with a bonus if the house is eventually sold at a price which amortises most of the loan over a period of time.

    Others may have six , seven or more houses and are effectively business pople who do not qualify for NAMA. Once again they can become “managers” with a small income who maintain the houses, collect rent and gain a bonus (ie debt write down) when the properties are sold or exercise the option to purchase the poperties sometime in the future.

    When it comes to investment properties we do not want to have abandoned houses (generating no income) all over the place while indebted “investors” contemplate the pros and cons of bankruptcy and devoting most of their energies to debt management when we still have one hundred thousand people on the hosing waiting list.

    We also do not want to be subsidising bankers to spend most of their time dealing with credit issues and negoitating with government. These issues can be dealt with by middle level management because everytime we witness a “meeting ” between bank executives and Government we should be aware of how much money in pay and salaries are being consumed in salaries in prepartaion for, during and after those meetings which them have to be followed up by the “spin industry”.

    Land investments can simply transferred to state ownership (if they are needed for future public purposes over the next 20 years), switched back to agriculture and rented out to farmers by a state “land commission” brought into NAMA for development purposes, or (in the case of small plots of residential land) “sold” to younger family members in “staggered payment” systems.

  22. @CP

    Thanks. It is all conjecture, innit.

    Austerity isn’t working. Sticking to the Stability and growth pact isn’t working. The bond market isn’t working. Nobody really knows beyond that.

    Maybe some of the angels on that pin will come to the rescue in time.

  23. @ All

    On the subject of the thread, which cannot be divorced from the wider issues, I would make the point that, while everyone is entitled to a home, not everyone can be given the ability to own their own home. The two concepts are hopelessly confused in the general debate in Ireland and in policy decisions. Ludwig Heinrich Edler and Johnny Foreigner have attempted to bring a focus to the discussion but with little success.

    The fact is that government policy is aimed at maintaining the asset value of the investments made by private investors out of concern, ostensibly, for the health of the overall financial system. Whatever the original motivation for various schemes, they have ended up in distorting totally the Irish housing market, both for prices and rents. Nothing could illustrate the distortion more than the payment of Rent Supplement and the Mortgage Assistance Scheme. If someone cannot afford a mortgage, it is not the job of the state to guarantee interest repayments. Neither is it desirable to enable them to rent from private landlords.

    By all means, clear the housing list! But do it in a way which allows the market to find a level at which it should normally clear and not bail out a coterie of investors – mainly small businessmen with strong influence in all three of the main political parties – at the taxpayer’s expense.

  24. @The Alchemist@JF

    As I understand it NAMA has to “deleverage” quater of its stock (7.5BN) by the end of 2014.

    I wonder if the current market value(or outstanding principal) of the the 32000 houses in arrears amounts to much more than 7BN.

    There is also no reason why NAMA could not “offload” some of its properties to local authorities and the office of public woks. Some sort of “agricultural” land commission could be incorporated into one of the Ministries , some commercial properties could be moved into Ministry of Education for school building, and Bord Failte (or its equivalent) could be enticed into “transitioning” hotels which have a viable.

    As some of the NAMA properites are “performing” they could also be transferred to the NRPF which could then release funds for a “stimulus” after the Public Service have agreed not to absorb additional funds (i.e take moderate cuts on incomes over 40000 Euros) when the “Croke Park” agreement ends.

  25. @all

    Previous post should have been :As I understand it NAMA has to “deleverage” quarter of its stock (7.5BN) by the end of 2013.

  26. @ All

    The following is the relevant quotation from the Revenue Commissioners information leaflet (2008, updated 2010) on the infamous Section 23 .

    “Relief for expenditure incurred [in acquiring a rental property] can be set against the rent received from that property and OTHER [emphasis added]Irish rental income so that the amount of a person’s taxable income is reduced”.

    No wonder the scheme was so popular – especially for those that could engineer streams of OTHER rental income – and so difficult to bring to an end.

  27. http://www.irishtimes.com/newspaper/breaking/2011/1121/breaking24.html
    Bloxham economist Alan McQuaid said in a note …
    He predicted an average fall of around 14 per cent for 2011, with a 9 per cent decline next year before prices start to pick up in 2013.
    Chief economist with Goodbody Stockbrokers Dermot O’Leary said home prices were officially back to mid-2000 levels.

    So the housing market is moving in line with the rugby team now that BOD and Rog are retiring. Back to the 90s and getting pasted by France and with similar house price fundamentals.

    I also note that it is the same very respectable couple looking in the auctioneer’s window as last time for the IT . Can’t they make their minds up?

    Meanwhile in other news

    http://www.irishtimes.com/newspaper/breaking/2011/1121/breaking48.html
    Ireland is a “role model” for other countries under the bailout programme, outgoing ECB member Jürgen Stark said today.

    Joan of Arc is a model martyr said the man who put the fire to her stake.

  28. re Simon Johnson link from DOCM

    Deutsche Bank and, if necessary, the German government should be required to inject substantially more capital into Taunus. Allowing business as usual is asking for trouble, particularly as Deutsche wants to remain focused on relatively risky investment banking. Recently it named as chairman Paul Achleitner, the finance director at Allianz SE, the German insurance company, and an ex-Goldman Sachs executive, worrying even some of its shareholders.

    This would be a good time for Congress to dig more deeply into the risks that Deutsche Bank poses to financial stability in the U.S. and around the world.’

    The PLOT Thickens! The MatrixsQuid really does rule the western world. Could the Tanus Mountains outside Frankfurt become Angela’s Tora Bora?

    This is very scary stuff!

    BTW, Johnson regards Irish vichy_banking/sovereign debt as unSustainable – but we don’t really need to go to MIT to figure that one ..

  29. drifting off thread but as we are German now …

    Germany is selling itself during the crisis as a haven of stability – and the financial markets even believe it. But, in truth, it’s hardly better off than the others. And its public role of disciplinarian is arrogant and dangerous, writes Spiegel Online.

    Luxembourg Prime Minister Jean-Claude Juncker is therefore right to get worked up about German domineering. Spain, for example, with a debt ratio of 69.6 percent, is considerably closer to complying with the Stability Pact than Germany is. Even the Dutch (64.2 percent) and the Finns (49.1 percent) have more right to put themselves forward as European disciplinarian than the Germans do.

    http://www.presseurop.eu/en/content/article/1194641-myth-german-economic-discipline

    Pretty Stark alrite … jurgen, jurgen, u there?

  30. @ All

    Discussing the wider issues is not going off thread as the collapse in the Irish housing market is directly related to the wider crisis and it cannot be resolved except in the context of the resolution of the latter. However, as Ludwich Heinrich Edler has noted on the other thread, it is the one problem that we can tackle without getting permission from anybody.

    Under the new Six-Pack arrangements, countries must debate the compatibility of their economic policies. Apart from having no lessons to give in the matter of overall indebtedness, Germany must also address its approach to other issues, notably that of deliberately engineered distortions in its economy that favour exports over domestic consumption. A recent, and really classic example, is now the subject of coverage in the German press viz. the exemption of heavy industry from a large element of the cost of the nuclear energy u-turn agreed between the CDU and the FDP, with the acquiescence of the SPD and the active support of the Greens but with zero consultation with other EU countries.

    http://www.stern.de/wirtschaft/news/strompreis-entlastung-fuer-unternehmen-privathaushalte-zahlen-die-zeche-1753625.html

    The usual argument that “Europe” must stay competitive internationally will be trotted out but it simply a smokescreen. The net result is to depress disposable consumer income in Germany and to add to the trade imbalances within the EZ that are the cause of the current crisis.

    Of course, it must be said that other EU countries have participated in the charade in relation to energy. The new chapter on the subject in the Lisbon Treaty states (Article 194.2) that any measures “shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choices between different energy sources and the general structure of its energy supply”!

  31. @Livonian

    NAMA’s whole approach seems to have been about keeping house prices afloat. With or without the NAMA stock house prices will be down by as much as 20% this year and 15% next. I’d be in favour of releasing as much NAMA stock and the other shadow inventory hidden by the banks onto the open market asap. This would provide a large stimulus for the economy, driving down the cost of accommodation in all sectors.

    Imagine the boost to the domestic economy if a 25-year old in employment could rent a decent 1 bed apartment in Dublin for 500 euros a month? Or if housing in rural Ireland became so cheap that a shop worker could buy a house in a village estate for 40,000 euros? At those prices a huge amount of cash or small loan activity would be possible, totally bypassing the mortgage sector. Suddenly a whole cohort would emerge with discretionary spending and a much greater confidence for their futures. People could start planning families, having holidays, buying cars/TVs/furniture and going out to bars and restaurants. Employment in the domestic economy starts to grow again. And then some day down the road (20 years?) house prices get back to where they were 3 years ago.

  32. @DOD

    Did blind Biddy not tell Barrosso that the lady said NEIN?

    “”We have a choice,” Merkel said on Friday in reference to euro bonds. “We can rush into a hurried European unity. That would lead to a short-term calming of the markets — but it would also lead to a drastic reduction in European competitiveness. I don’t want to have a part of that.”

    The more pressure that is piled on the more resolute the lady gets!!!!!

  33. @JF

    Yes the emphasis should be on creating a “cohort” of people who are not afraid to spend.

    We have the houses, we have the salaries and if more people started spending there would be no problem creating two hundred thousand jobs.

    My idea of “ASAP” would however be spread over a two year time frame as anything faster might allow opportunities for “carpetbagging” while a number of empty houses need to be upgraded and NAMA needs to “hive off” some responsibilities to other agencies and the free market.

    Five hundred euro rent would be the correct price to pay currently in Dublin for a 1 Bed apartment but I think fifty to sixty thousand euro would be a right price for a “house in a village estate.

    Twenty years ago we only had 1.1m people in work, but we could live anywhere we wanted even though only about twenty five thousand houses were built per year.

    Now we have 1.8 miliion in work and if the price of houses reflected the supply there would be enough consumer demand in the country to bring employment up to 2 million which would also reduce the tax wedge and employer social insurance which thus reducing pressure on wage increases without effecting purchasing power.

    People would also not be afraid to start up small business and (now that most of the “golden parachute brigade” are departing) PS members would not be opposed to moderate pay cuts, on incomes over forty thousand, if their purchasing power was not effected.

    With less people unemployed we could then concentrate on universal health care which is a major issue for everyone rich or poor. In fact I would venture to guess most PS workers would gladly trade forty Euro net per week in return for a GP/Consultant card , cheaper medical cards and subsidised childcare.

    We need to concentrarate on other things which add value to our lives, environment, more certainty, a “bit of craic”, somewhere decent to live, basic social services (health, education etc) while allowing oppotunities for ambitious people to suceed without being envious of them.

    If some one wants to work “themselves to the bone”so they can have a (environmentally friendly) top of the range car or a brand name watch let them as long as the rest of society is peaceful and without anxiety.

    This is not “utopic” as we have the means within our society but we need to concentrate our values and not get hung up about whether a family home in Dublin constitutes “wealth” whereas a family home in a rural area contitutes “poverty”.

    Quality of life in a safe environment with ” social safety nets” and equal opportunity determines wealth. There are plenty of countries in Europe where they wish they had “our problems”. Maybe Irish people need to realise that more. 🙂

  34. Ha! Ha! Ha! Ha! Ha! Ha! Ha!

    They couldn’t see the wood for the trees in the bubble and now they can’t see the dead wood!

    Here’s a clip of Nomi Prims, author of “It takes a pillage…” in Danny Schechter’s documentary – “Plunder – The Crime Of Our Time”:

    http://www.youtube.com/watch?v=ThgB5eVgdRg

    Listen to what she says. All the money has been made. The crimes happened years ago. This is just the fallout.

    Sifting through the rubble now is futile.

    The Central Bank should be looking to put structures in place to prevent the next crime.

    Unless…

  35. Those figures show the anchor holding back any growth our economy can generate to get out of its mess.

    Add in personal debt levels and banxter debt levels, it’s the reason as Morgan Kelly correctly analysed, we’re consumed and sunk by the quick sand of debt.

    Unlike the eighties when we went towards the future with a clean slate, we’re sunk even before the race begins.

  36. @Ceterisparibus

    ‘Did Blind Biddy not tell Barrosso that the lady said NEIN?

    Blind Biddy wouldn’t get out of bed to meet The Lady for less than a €60 billion appeasement fee!

  37. Signapore has one of the best housing systems in the world with a much denser population that ireland.
    Basically almost everyone goes through the a social/affordable housing type system, with their loan from the government.
    There is no stigma attached.
    Many of the NAMA homes should be put into the social and affordable system with the incentive for people to own the home eventually after paying back ‘NAMA’ over 30 years.
    Of course the key is the affordability, which means that people would have to realize the actual value of their properties in Ireland, incorrectly referred to as ‘firesale prices’.
    So the NAMA properties would be sold cheaply into this system. So more writedowns for NAMA and the banks.
    In this case the people holding this up is the real estate lobby, the banks, property owners and investors and outside investors wanting their money back such as the ECB and IMF.

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