Nama unveils mortgage plan


Nama plans to unveil a product for purchasers of residential properties in the autumn that will help stimulate activity in the market by offering purchasers protection against the risk of negative equity in the future, Nama chairman, Frank Daly revealed today.

According to Mr Daly, Nama has identified concerns among debtors that house prices could continue to fall after they purchase a property as one of the "key impediments" to the sale of houses and apartments in the current market.

Mr Daly said that Nama, conscious that house purchasers could find themselves in "negative equity for a long time to come", has engaged in preliminary discussions with the both AIB and Bank of Ireland to see if they can provide financial support to purchasers.

Nama expects to have "a more detailed engagement" with the two banks on this issue over the coming weeks and the product which it hopes to unveil in the autumn will be designed to generate sales of properties controlled by Nama debtors or by receivers, he said.

Mr Daly said such a move would also seek to provide an incentive to purchasers to invest at current prices "in the knowledge that there will be a mechanism in place which will offer them protection against the risk of negative equity in the future".

Speaking at a Cork Chamber breakfast briefing sponsored by the Irish Examiner, Mr Daly also outlined a proposal from Nama aimed at stimulating activity in the commercial property market through what is known as "vendor/staple financing".

Mr Daly explained the initiative is aimed at "providing debt finance to purchasers of commercial property which is either under the control of Nama debtors or receivers engaged either directly or indirectly by the agency".

Vendor/staple financing would involve the purchaser injecting "equity capital of 25-30 per cent" of the purchase price upfront and then entering a loan agreement with Nama to repay the outstanding balance of the purchase price over five or seven years, he said.

Mr Daly said such financing arrangements are widely used internationally and that Nama would expect that it would typically engage with sovereign wealth funds, pension funds, insurance companies and private equity firms in reaching such arrangements.

The advantage of such a mechanism is that it would encourage purchasers to buy in a distressed market and thereby set a floor for the market with both parties sharing the risk on the purchase over the lifetime of the loan.

Mr Daly told the gathering of around 300 business people that the mechanism is typically used to finance commercial investment type assets that are income producing such as offices and shopping centres rather than land or unfinished building.

Tentative evidence suggests Ireland may be close to the bottom of the cycle in terms of commercial prices that are envisaged to under a slight fall this years before recording slight increases in both 2012 and 2013, he said.

Over much of the past decade, commercial property prices had accelerated well ahead of GDP growth, but they have now corrected to levels where they would have typically expected to be had the property price bubble not taken place, he said.

Mr Daly said that Nama's remit was first and foremost to recover for the taxpayer what it has paid for acquired assets plus any additional project funding, working capital and other costs and while it may be an obvious point, it had far reaching implications.

"What Nama is not, as some commentators seem to think it should be, is some form of national financial freezer into which troubled loans can be deposited in the hope of future cryogenic salvation," he said.

"Nor is Nama a resting home to enable debtors to take time out from the consequences of their borrowing," he said, adding that in a minority of cases, business difficulties have been compounded by a failure by debtors to engage with Nama.

"A number of debtors appear to be trapped in the old mindset whereby it is they and not the lender who sets the terms on which business is done.

It is akin to falling overboard and then complaining to your rescuer about the colour of the lifebuoy that he is about to throw you."

"Some of them have difficulty surrendering the grandiose lifestyles that they seem to regard as their continued entitlement even if the rest of us are expected to pay for it through higher taxes and cuts to services in our schools and hospitals.

"If the taxpayer is being asked to keep a debtor in business, it would seem to be a matter of common sense that that debtor does not seek to maintain a lifestyle that is beyond his means - the taxpayer does not owe the debtor a living and certainly doesn't owe any debtor an unrealistic lifestyle especially if that debtor cannot repay his debts."

However Mr Daly cautioned against "demonising" developers and banks and said that the banks apart from an aberration in recent years had served Ireland well and that developers and banks would be needed to ensure Ireland can continue to grow and develop successfully.