NAMA scored a stunning success with the launch of its negative equity mortgage a month ago, though possibly more for the publicity than for the mortgage product – dubbed the “deferred payment initiative” by NAMA – itself, as reporting suggests that most of the sales thus far have not been financed by the mortgage product.
There was always scepticism on here with respect to NAMA’s chances of securing approval from the European Commission for the scheme because of its potential negative impact on sellers who compete with NAMA, who are not able to offer a comparable mortgage product, which results in these sellers being placed at a disadvantage. It is true that Irish financial services group, IFG announced its own negative equity mortgage product last year but it has yet to reach the market, with not a single product being sold up to mid-May 2012. So as things stand today, if NAMA is selling one home at €200,000 with its negative equity mortgage product and you are selling an identical home next door, then you will need to reduce your price to compete on a level playing field. By how much? By up to 20%, or €40,000. And yet by having this product, NAMA may eventually get paid the full €200,000 if prices stay the same or increase over the next five years. The NAMA pilot of the scheme applied to 115 homes but there is an intention of extending the scheme to 750 homes.
NAMA wasn’t providing much information on its mortgage product, so a formal request was made to the European Commission for a copy of the decision to approve the negative equity mortgage, and documentation considered in arriving at the decision. The deadline for providing the information was set to 6th June 2012, but today the European Commission has written back – see letter reproduced above – to advise that “in view of the assessment of the objections raised with respect to the disclosure of documents ..applied for”, the prescribed period for providing a reply has been extended by three weeks. The application and response can be viewed here. It is not clear what objections have been made to prevent the release of what documents, but the matter will be pursued in the interests of transparency.