“I can give you this guarantee – arising from the expert report which Government has and will make decisions on in the next couple of weeks, there will be additional facilities for people who have distressed mortgage situations to help ease that problem; all the solutions are going to be slightly different in each individual case.” An Taoiseach Enda Kenny speaking alongside former US president Bill Clinton at the Global Irish Network event at Dublin Castle in October 2011
Last October 2011, there was a gathering of that strange beast called the Global Irish Network. Held in Dublin Castle over two days, the gathering dubbed the “Global Irish Economic Forum” saw the mingling of, and heard from, the great and the good of Irish business – resident, diaspora and hybrid like Denis O’Brien. The Network came about under the last administration which showed initiative in trying to gather together an Irish brain trust which might help the country recover from the collapse of the banking sector and the property bubble in 2008. It’s a funny old gathering which hasn’t been an unqualified success to date, and in fact looks a little uncomfortable in its own shoes. The forum gave rise to the worldirish.com website which has only recently started to provide any real content and for a long period simply allowed people register their names, which wasn’t very rewarding.
The star attraction at last October’s gathering was former US president and very good friend to this nation, Bill Clinton. I don’t know how Bill reached the venue but if he came in on the M50 motorway and paid a toll, then he might have contributed more economically to this country in the past year than U2’s Bono who also had a guest-of-honour status. That’s a bit of an exaggeration, but it captures one of the many paradoxes and ironies on parade last October. As I say, a bit uncomfortable and we might need get over that before truly embracing the enormous potential of some 70m Irish-connected people around the world.
Now Bill addressed the forum on Saturday 8th October having just had a 30-minute confab with An Taoiseach Enda Kenny. And it surprised me to hear Bill say that the biggest financial obstacle facing the country was the burgeoning mortgage crisis – remember, of the 800,000 mortgage accounts in the country, over 8% are in arrears for more than 90 days and some 70,000 mortgage accounts have been restructured in some way, for example, placed on interest-only repayments or offered payment holidays. Last week the Central Bank estimated that at the end of 2010, as much as 47% of the mortgage balances held at banks were on mortgages which were in negative equity, and remember house prices continued to decline by nearly 20% in 2011 so that 47% will inevitably have grown. You can view the video of Bill’s speech at the forum here.
Immediately after Bill’s keynote address to the forum there was a discussion session hosted by Fionnuala Sweeney from CNN where Bill said “that’s why I told you, you know, I can’t- the last big decision you have is what you’re going to do about the mortgage deal, where you can flush debt, the more you can generate small business demand, domestic stuff and growth. Everything else is stuff you know more about than I do” Fionnuala then asked Enda “and President Clinton also highlighted the mortgage situation here, he said that’s like a top priority, I mean do you have anything to say about that in terms of how you’re going to handle that?” And Enda replied “the Government appointed a specialist commission to look at what other options that government might consider for distressed mortgages and that’s reported and it will be decided by government in the next fortnight or three weeks..what we want to do is put together another range of options for everybody that is in that is in that position, the best opportunity of getting out of it” and gave the following commitment “I can give you this guarantee – arising from the expert report which Government has and will make decisions on in the next couple of weeks, there will be additional facilities for people who have distressed mortgage situations to help ease that problem; all the solutions are going to be slightly different in each individual case”
That was 8th October. We are now at 8th February and in New York tomorrow, Enda is set to share the stage again with Bill, with the launch of the “Invest in Ireland” conference. This will be, I believe, the first contact between the two men since that cold and wet October afternoon, last year. There will presumably be a private meeting again, but what will Enda tell Bill about the commitment given in October?
He might say that an expert group on mortgage arrears published its report on 12th October, but he will then have to admit that none of the recommendations in the report has yet been enacted. He might say that after nearly a year in office, his government has only now published the heads of an insolvency bill which will be finalised in April 2012 and may be enacted some time later, perhaps even by the end of 2012. He might say that there is now a scheme whereby distressed mortgage borrowers can have their property sold to a local authority or housing association and they can rent it back, but if he does he will perhaps mention that to date only one such household has benefited and that was only last week. And if Bill mentions householders who need help now, today, what will Enda say?
If you feel like reminding President Clinton of Enda’s commitment, then you can contact Bill through his foundation here.
Excellent stuff (as usual). I contacted the Clinton Foundation about this entry and would urge others to do likewise via http://clintonfoundation.org/contactus/
To date, the main Government response to the debt crisis has been to create Nama which effectively is a “debt forgiveness” mechanism for the megaborrowers who fuelled the crisis. Meantime, personal borrowers are meant to soldier on, suffer “moral hazard” and stew in their debt
So where is the moral hazard for the politicians, administrators, bankers, developers and related professionals who created the financial crisis, but continue to hold positions of power, draw huge pensions or fees, operate insolvent businesses and get massive bailouts, courtesy of taxpayers?
Evidently, moral hazard is for the “little people” while debt forgiveness is for the “big boys”. Time for Bill Clinton to ask some pointed questions of our Taoiseach.
@Brian, I have seen little evidence of “debt forgiveness” for the mega-borrowers. That comes with bankruptcy as far as I can see. I have not seen one instance yet where NAMA has written off debt. Perhaps, you could give an example?
Having said that, I would like to see debt resolution including the writing off (or down) of debt by the banks for all borrowers who are underwater. Without it, there will be no recovery – and the banks are being recapitalised to facilitate it. If the banks used the spread that they are making (4% plus) on the new 3 year ECB credit facility they could easily cover the cost – rather than hoarding the profit to further rebuild their own balance sheets. It’s time the banks assumed a social conscience and gave something back to those who rescued them.
@WSTT
It is written large in the global numbers – Nama acquires loans with face values amounting to €71 billion and hopes to retrive about €30 billion. What is the balance other than a huge write off.
A different case:
Bank acquires a mortgage with face value of €300k and sells the underlying property for €200k. Haven’t seen any evidence that a bank would readily write off the outstanding €100k as easily as Nama is in the process of doing for the megaborrowers.
To a large extent that comment is “populist Rhetoric”. neither Banks nor NAMA are in the business of debt forgiveness. Any write down/write off of debts is done on he basis of recovery potential. I.e. If the underlying assets securing the debt have dropped by >50% there is little point in pursuing debtors for an unrecoverable balance. That applies to both developers and mortgage holders. It is both untrue and unfair to create a perception that NAMA is not pursuing debtors where a recovery is possible!
@44Brendan
I’m not meaning to suggest that Nama might not be pursuing debtors to the greatest possible extent. But the end result will appear as “debt forgiveness” especially if some of debtors manage to retain substantial assets in spite of Nama incurring massive losses on their loans.
@Brian, Perception (how things appear) and reality are two different things. Unless debtors “retain” substantial assets in legally independent and separate vehicles it cannot be done. And if the vehicle is legally separate then the assets do not belong to the borrower.
Before you wipe that tear from the corner of your eye, just remember that Wild Bill is about as sentimental as those guys that beat the baby seals over the head. As you can see, he is a world class supporter of the next humongous DEBT bubble to burst, one trillion and climbing, and no way out even in bankruptcy. And, you can bet he gets a healthy fee from our friends in the “education business”.
http://www.huffingtonpost.com/2010/04/27/bill-clinton-honorary-cha_n_553138.html
http://www.usatoday.com/money/perfi/college/story/2011-10-19/student-loan-debt/50818676/1
The point made that the banks are rebuilding there balance sheets with cheap monies rather than lending it or recognising losses is moot. It is quite clear the banks are skill caught in the headlights of an oncoming car and paralysis ed with fear.
They are contributing to the downward spiral and undermining of asset values. With all due respect I do not believe that any bank is adequately provisioned and really cannot fathom anyone saying they are.
There are plenty of examples of this the easiest one is if they were why is there not more product on the market we cannot believe it vanished. If they are as they say adequately provisioned they would get their book value back without further losses being incurred also it would demonstrate banks are lending. Hate to be a naysayer but this is just another ponzi scheme and the little guy gets it in the pocket as usual.
Regardless of NAMA in this case banks are hiring large amounts of consultants to manage assets outside of NAMA rather than making a call on them. They really need to grow up and make decisions as opposed to avoiding them.
Or are they waiting for a mythical upturn to profit on the provisioned values while drip feeding out the bad cases gradually. Either way the banks are not being honest or transparent in there dealings, somethings never change.
Re: “distressed mortgage borrowers can have their property sold to a local authority”
Oh FFS Cluid again- they’re the crowd that bought apartments in Beacon South.
This model is very questionable. My interpretation from their annual report is that the Irish taxpayer is currently lending Cluid 545 million. As some are aware, the state is broke so we’re borrowing this money at x%. And then we’re lending this money at y% to Cluid. Only it turns out that Cluid don’t pay us interest; so y% = 0%. Cluid is costing us the interest on 545 million per annum.
Cluid charge tenants some kind of rent (it seems low c.10m on 550m of property) and use this income to cover the costs of running the operation. At a glance their expenses seem reasonable (though ‘Professional and consultancy fees’ seem relatively high). I’d wonder how things will look as the housing stock ages.
As there’s bugger all capital in Cluid, using Cluid to buy up distressed properties is really a front for the Government buying up distressed properties. So the government is exposing the Irish citizen to even more property risk.
@Ahura M,
The question that should be asked here is “Who received the professional and consultancy fees?” The answer, if there is a response, would be interesting,
@Brian, Yes – the value of the loans were written down and they were acquired by NAMA from the banks at a reduced value, but that does not mean that the loans was written off for the debtors. Anything but!
What NAMA can recover from its debtors is a factor of the market and the value of the remaining assets of the debtors. In reality, that will not allow full recovery of the loans as NAMA is in debt collection mode, and not maximising the asset value.
NAMA will not even recover the amount that it paid for the loans, but that does not mean that it will take a commercial view of the debtors positions. The only debt write off for the debtors will come through bankruptcy.