“Another misplaced claim made during the debate is the legislation represents a bailout for developers. This is just not so. Let us 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 taxpayer’s 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. In some cases, this will mean borrowers’ personal assets will have to be assumed by NAMA and, in such circumstances, I cannot understand how the misconception that the agency will bail out developers continues to run other than pure political mischief making” Former Minister for Finance, the late Brian Lenihan during the second stage debate on the NAMA Bill on 14th October, 2009
Last week, the Minister for Finance Michael Noonan told Sinn Fein’s finance spokesperson Pearse Doherty that “debt forgiveness has not formed part of these agreements” – the “these agreements” meaning the agreements NAMA was reaching with its developers for the repayments of loans.
But a week is a long time in politics.
This week, Minister Noonan is saying that NAMA will release developers from “personal guarantees or personal recourse” which to many people will sound a lot like “debt forgiveness”!
Minister Noonan was responding to questions in the Dail yesterday from the Fianna Fail finance spokesperson Michael McGrath and from Pearse Doherty. The full exchange is as follows:
“Deputy Michael McGrath: To ask the Minister for Finance if the National Asset Management Agency has agreed deals with debtors which involve a reduction or dilution in any form of any personal guarantee the debtors may have given in respect of their loans now held by NAMA; if he will provide details of the number and nature of such deals; and if he will make a statement on the matter.
Deputy Pearse Doherty: To ask the Minister for Finance further to Parliamentary Question No. 226 of 12 June 2012 wherein he said that debt forgiveness has not formed part of agreements entered into by the National Asset Management Agency with debtors, if he will confirm if NAMA has entered into agreements where personal financial commitments and obligations by debtors have been reduced or waived as part of any agreement.
Minister for Finance, Michael Noonan: I am advised by NAMA that it did not pay any consideration to participating institutions for personal guarantees attached to acquired loans. This is because it did not consider that such guarantees had any residual value in the vast majority of cases as the amounts potentially recoverable were limited to the value of secured assets.
The policy of the NAMA Board from the outset has been to pursue all personal guarantees to the greatest extent feasible where there is value to be obtained. I am advised by NAMA that, with respect to co-operative debtors who have made full disclosure of assets and liabilities, it may, on a case-by-case basis, consider the release of personal guarantees or personal recourse two years after the value of all assets have been realised. I am also advised that the NAMA Board has recently decided that it will review this issue again in the light of any revised personal insolvency regime that may be introduced following enactment of legislation by the Oireachtas.”
What you are getting above is a reluctant response that has to be draaaaagged out of the Minister, and his response last week may seem to some to be downright misleading. He may well now couch his response in conditionality – NAMA “may” and “consider” and “case by case” – but the bottom line is that NAMA is writing off personal guarantees and personal recourse. NAMA may not have paid anything for these personal guarantees but you and I certainly have with the €42bn losses notched up by the banks when they transferred €74bn worth of loans to NAMA and only received €32bn in return.
What does this mean for NAMA? Not a great deal, it makes commercial sense for the Agency to maximise returns from its loans and if it forms the view that incentivisation – be it profit shares or forgiving personal guarantees or recourse – of specific developers will lead to such a maximisation, then that is in line with the Agency’s remit.
Politically this is dynamite of course. Remember former Minister for Finance, Brian Lenihan and his solemn commitment that developers would not be allowed walk away from their debts? Citizens that have borrowed to buy homes may feel they are being unfairly treated by not being given the same deal as developers – the deal being that they work as best they can with their borrower for a couple of years, then walk away from their mortgage keeping their personal assets.
Minister for Justice, Equality and Defence Alan Shatter has another eight days to publish his Personal Insolvency Bill. Yesterday’s revelations have just upped the ante for him to deliver a system which will be regarded as equitable and fair for the debt-burdened in this country.