As reported in The Irish Times on Wednesday and on NAMAWineLake it seems there might have been a fundamental change in the extent to which NAMA will pursue developers for repayment of loans. As Vincent Browne noted, in the NAMA debate in the Dail the then Minister for Finance, Brian Lenihan, stated:
“Let me be clear – Nama is not designed to be and will not be permitted to operate in practice as a bailout mechanism for developers who have operated irresponsibly. The amount a borrower owes will not change because of the transfer of a loan from his bank to Nama. The agency will have a statutory duty to maximise the taxpayers’ return and will therefore be expected to use its entire means to this end. The Bill also provides the agency with the wide range of powers it needs to pursue borrowers and enforce security.”
However, on Saturday Night Show on RTE1 (clip below), the developer Harry Crosbie stated:
HC: “The money we’re going to pay back is what they [Nama] paid. That’s the only money.”
[…]
BOC: So the amount that was taken off on the haircut that we [the taxpayers] paid through recapitalising the banks effectively …
[HC] That’s correct, I will pay that back
[BOC]… that money’s gone?’
[HC] ‘Over above the haircut is gone.’
[…]
[BOC] ‘I paid crazy money for a house, but I have to pay back every penny of that. And I have to face those consequences. Do you get that people might be looking and thinking, so he’s going to pay back, whatever, half the money, what NAMA paid for it, and we pay back the rest of it and Harry is laughing like.’
[HC] ‘I’m not saying it’s going to happen [but] there’s no other way it can be fixed.
[…]
[BOC] ‘So we all just have to accept there is a lot of money gone?’
[HC] ‘Correct, correct.’
In other words, if a developer borrowed €100 million from Anglo for a failing development, and the loan was transferred to NAMA with the average haircut of 58%, then he expects to only pay back €42 million. Now, not only has the developer been saved from going bust, which he would have done without NAMA stepping in to take on the loan, but he’s also had his debt radically reduced, and the €58m loss to the banks is being picked up in part or full by the state. This distinctly sounds like a bailout for developers at the citizens expense. As Vincent Browne notes, however we look at this it is not maximizing the return to the taxpayer.
.
NAMA’s response so far: “The priority of Nama is to recover the amount Nama paid for the loans … Nama would pursue the full amount in many cases, depending on the level of co-operation they had received from the borrower but often there was no point.” That’s it. It seems to me that there is a point in pursuing Harry Crosbie given his confidence as to how his developments will turn out. At least he should fail a whole series of stress tests before the pursuit is abandoned, or the debt repayments restructured over a much longer period, or the asset be transferred either in part or full back to the loan holder as happens when a home owner fails to pay back a mortgage on a house.
NAMA has been critiqued by both the Right and the Left. For those on the Right, NAMA represents state interference in the logic of the free market, disrupting its ‘natural’ recovery by artificially controlling large elements of the property market and protecting failed developers and speculators in the short term who otherwise would have gone bust, thus blocking the growth of more resilient players or new start-ups. For those on the Left it protects those who created the crisis but it does nothing to protect home owners and tenants struggling to pay mortgages and rent and who are also underwriting NAMA’s costs (and do not have access to debt forgiveness). It seems that both of them are correct.
What NAMA is up to on behalf of the nation clearly needs to be more fully explained. These kinds of relevations should not come out through a chat show. Are decisions about debt forgiveness being decided by NAMA alone on behalf of the nation or have the government made this decision? In either case, where is the public debate on the issue? It is after all a state investment on behalf of citizens. A key priority it seems is for NAMA to be opened up to freedom of information and the rationale for their strategy and decision making made much more transparent. There is a lot to learn here from the Resolution Trust Corporation in the US who were much more open and clear about what they were doing and why. They understood that good communications builds understanding and trust. We deserve the same.
Rob Kitchin
Ireland after NAMA 
October 7, 2011 at 10:51 am
Hi Rob,
I think NAMA would probably say that Harry was expressing his own views and that the agency has not changed its approach which is to recover the maximum amount feasible by reference to the original value of the loan, not what NAMA paid for it,
In truth there is what seems like the deliberate adoption of doublespeak by NAMA. On one hand it has procedures in place to recover the maximum, including foreclosing and in all likelihood in the future we might see a bankruptcy.
But on the other hand, the agency pushes the “you can’t get blood out of a stone” argument and the truth is that commercial property has dropped by 60% + from peak, residential is down 33-70%+ depending on which source you consult and development land is down 75-90%+. So the underlying assets securing the loans will never (within NAMA’s lifespan and considering carrying costs) recover. So beyond the security, the question will then come as to what other assets the developer can bring to the table, and between legitimate (mostly) spousal transfers and the use of SPVs, the answer will often be “little” and in the context of debts of several €10s of millions will not be significant.
So Harry is both right and wrong. And NAMA continues with its doublespeak. What will confuse and anger some people is that (1) Harry wasn’t worried about losing his house and (2) Harry keeps his job for which NAMA will pay him between €75-100,000, there are only 2 developers being paid more than €100k and the max of those two is €200k. Harry may also be paid a performance bonus if his assets realise a certain sum over what NAMA paid for them. Many people see this as unfair but (1) the family home laws tend to protect homes where there is a family and (2) if NAMA employs receivers at €180 per hr for a property receiver or €800 per hour for a share receiver it will pay more than €75-100k per annum for people who don’t know developments to the same degree as the developers.
So the above isn’t black-and-white at all,
October 7, 2011 at 11:47 am
NAMA did respond to Harry’s statement as reported in the IT. “The priority of Nama is to recover the amount Nama paid for the loans … Nama would pursue the full amount in many cases, depending on the level of co-operation they had received from the borrower but often there was no point.”
I guess the main point of my post is that NAMA needs to significantly improve its communications. There is a trust issue that they really need to redress by adequately explaining what they are doing and why, even if they don’t discuss individual cases. At the minute they are far too standoffish and secret in how they operate. If they want the public to have confidence in what they do, they need to persuade us that they are competent in what they do and that the strategy will work. The kind of doublespeak you talk about is really not helpful. Their general silence this week makes little sense to me.
October 7, 2011 at 10:02 pm
I asked my daughter to send back the keys of her negative equity apartment to the bank.
It seems that many ordinary people struggle needlessly to try and maintain mortgage payment for a property which is nothing but a millstone around their necks, while debt forgiveness is the norm for the developers.
They are fearful of opting out of their onerous contract, while those who put them in this dilemma have no problems in doing so.
The wolves will always devour the sheep.We have a large flock of sheep in Ireland who would do themselves proud if the changed their clothing.
October 12, 2011 at 11:48 am
Can we stop using the word forgiveness, it biases any discussion before it starts.
To use ‘forgiveness’ is to mistake a presumption of misfortune for a presumption of malfeasance. The vast majority of house buyers always intend to pay their mortgage if they can.
Whether you agree that people in mortgage arrears should be helped or not using the word forgiveness is not appropriate.
Debt reduction is a neutral phrase that does not frame a discussion before it starts.
October 12, 2011 at 12:51 pm
On a similar theme of NAMA not giving value for money to the tax payer, does anyone know why, when the 3 grand London hotels were sold by NAMA the other week, was the main tag line from NAMA – We sold them for what we paid for them? Surly if NAMA had any chance of making money, it’s on selling these types of properties at their full market value and not at the amount NAMA paid for them.