The European Commission still doesn’t appear to have any written approval of the NAMA mortgage scheme on its website, but regardless, NAMA has this morning announced that it is now open for business with its negative equity mortgage product, or as NAMA calls it the “80:20 Deferred Payment Initiative”.
Here are its features
(1) It’s open to most buyers of residential property, both first time buyers and movers but NOT investors/Buy to Let
(2) It’s initially available on 115 houses in 12 developments in Dublin, Meath and Cork
(3) It’s available from AIB, Bank of Ireland and Permanent TSB
(4) You’ll be protected against declines in the value of your property of up to 20% over a fixed five year period
(5) You’ll need a 10% deposit for your home
Separately Permanent TSB has this morning confirmed that it will be offering its 80:20 mortgages at 3.69%. So how will it work? Here’s NAMA’s illustration and NAMA advises that you consult the FAQs on its website as well.
Although this will be widely known as the NAMA 80:20 mortgage, NAMA is keen to point out (1) NAMA doesn’t own the houses, the developers do (some may eventually be controlled by receivers, but the point stands, it’s not NAMA that you’re buying the property from) and (2) NAMA doesn’t provide the mortgage, PTSB, BofI and AIB do.
According to the NAMA press release, the NAMA CEO Brendan McDonagh said this morning “Based on market research which we have carried out, concern about potential decreases in house prices in the future is a significant factor for house buyers in the current market. We are piloting this initiative to allow some buyers, who are putting off their purchase in the expectation that prices may fall further, to buy now with the knowledge that they may not lose out even if the value of their home falls by up to 20% over the next five years. Together with initiatives introduced in the recent budget, we believe that this measure will help encourage greater activity in the housing market”
There is a similar product on offer from IFG in Ireland which was reviewed here last year, but please don’t take it as read that the products are identical.
UPDATE: 8th May, 2012. More detail is emerging about the scheme.
(1) It is initially applying to 115 homes with asking prices of €30m or an average of €260,870 which is considerably north of what average homes cost in the State at present (less than €190,000 in Dublin, and less than €160,000 nationally)
(2) The asking price is not negotiable. NAMA chairman Frank Daly is reported as saying there will be no haggling “Chief executive of Nama Brendan McDonagh said the State agency would not haggle with buyers as the 115 houses were already priced at a “fair value”.” reports the Irish Times
(3) The asking prices in two locations represent 61-80% declines from peak asking prices reports the Irish Times.
(4) The scheme may be rolled out to 750 homes worth an average of €200,000 apiece or €150m in total.
(5) According to NAMA chairman Frank Daly, the European Commission is okay with the scheme – “The commission was “very comfortable” with the plan” – there is still no decision available from the commission on their decisions webpage.
UPDATE: 11th May, 2012. With respect to the IFG product which was announced last September 2011, it is understood that this product has not in fact entered the market yet and IFG will be formally launching it next month. The company says that the product is “virtually identical to the NAMA product, except that it applies to all properties, new and second hand, and to all banks, whereas the Nama product is restricted to their own properties” Why hasn’t the company sold any product before now? It says “IFG has been educating developers, estate agents and other industry players by presentations and road shows in anticipation of the NAMA product been launched”
NAMA Wine Lake 
As NWL has previously pointed out this is back to the same old failed policy of trying to create an artificial bottom to the market. Ruling out investors is a further artificial constraint.
We still love the property pyramid scheme that benefits auctioneers, farmers, developers, lawyers, print media, builders and of course the banksters.
We are still not prepared to see the real cost of the property bubble
To use that horrible phrase this is kicking the can down the road.
Until we face up the real extent of the problem we will have a slow festering depression exporting our children.
Let Allsop manage it, then we will find out the real cost of the property lunacy.
Every property has a value to someone as we saw with the recent sale of a ghost estate. We are just not prepared to change our ways.
The faster we get those real values out he quicker we will start a recovery.
Watching NAMA get involved in building the same old pyramid scheme is sad to watch.
The outright stroking and manipulation of the market is outrageous.So Developer A has his loan in NAMA,is now getting a 20% subsidiary to shift his houses.Up the street Joe Public or Developer B,not in NAMA with similar type house just got hosed by NAMA.Basically,you are rewarded for being in NAMA and penalized if you not.
@JG
And guess who carries the loss if house prices continue to fall? Yes, you got it in one – the taxpayer.
Implicit in the scheme is recognition that prospective purchasers expect prices to fall.
@Brian, I must say that I think NAMA is on reasonably safe ground. Unlike the IFG product, the NAMA mortgage is for a fixed five years, so buy today and the insurance is against values in May 2017. Who has a crystal ball but with inflation of say 2% per annum, a consensus that we will bottom out 2012-2014, will NAMA be mightily exposed?
By the way looking at the property on offer in the named estates doesn’t fill you with confidence that the asking prices haven’t been inflated. That is subjective of course, but the asking price today and how it compares with similar properties may become an issue.
@NWL
Sure, who knows what prices will be in 2017 when we don’t even have an exact fix on trends right now (hurry up CSO with the new index).
To state the obvious, if between now and 2017 prices fall 20%. they will need to rise 25% to return to today’s prices.
@Brian the accounting will also be interesting,NAMA has no direct lending exposure,but their must be some costs or contingent liabilities.
You would really think and expect that a 70 Billion RE company would have better and more productive things to do,than micro manage houses.
“The original buyer may sell the property during the protection period but will be liable for the full amount of the deferred payment, unless prior written consent to the sale has been obtained from NAMA. NAMA will not unreasonably withhold its consent to a sale but will seek to ensure that any such sale is undertaken on an open-market basis to an unrelated party. Such consent will be subject to a final valuation of the property, based on which the deferred payment liability will be determined.”
How much do these guys get paid,it’s an administrative position,will this take up time and energy,resources of senior executives,completly ridiculous.
So where is the Good for the purchaser. Grand, they get a house but there is still the supposition of TWO incomes. And two dadrn good incomes at that.
Where’s the EU Competition clearance on this? Answer: It’s not going to be forthcoming. So this is being launched in the face of a breach of Competition policy.
@WSTT, NAMA was asked about this over the weekend but hasn’t produced a response, and the EC competition commissioner was asked for it today so there should be a response of some description shortly. IFG already provide a product, but the NAMA product is different because NAMA exercises oversight and control and potentially final approval over any sale. So NAMA is on two sides of the transaction, behind the developer/receiver and the funder of any shortfall. I would have expected the Commission to have had reservations about the scheme, but let’s see what it says.
Hi NWL,
The only way this is not in contravention of EC Competition Policy is if the loans were also being offered to properties whose loans were not in NAMA. Limiting the incentive loans to just properties under NAM’s aegis breaches Competition Policy. Full Stop.
@WSTT, let’s see what the Competition Commissioner has to say, there has certainly been interest in this initiative for some time, and someone submitted a formal information request to the Commissioner earlier this year.
IFG provide a similar product so if you are Seller B on the street where NAMA/NAMA developer is Seller A, then Seller B and the buyer can buy a similar product from IFG. NAMA might say that this places Seller B on a level playing field with Seller A.
Initial examination of the estates on DAFT indicates that asking prices are at the high end in some cases, and in the case of Crosshaven considerably above what might be considered the going rate.
The NAMA FAQs seem contradictory eg
“interest is charged only on 70% of the principal”
but “the monthly payment amount will be similar to a standard mortgage but will repay the mortgage at a faster rate than a standard mortgage as interest will not be charged on the amount of the second instalment unless it has been drawn in the fifth year”
and this is confusing “Where monthly payments are calculated on the basis that the total mortgage amount is drawn at the outset, the borrower benefits from an overall reduction in the cost of the mortgage, thus increasing the long term benefit of the Initiative. This will also assist in avoiding a considerable increase in loan repayments if the deferred amount becomes payable (leaving aside the impact of interest rates over time).”
By the way with a valuer’s hat on and remembering the valuer in 5 years time will be on NAMA’s panel where there is an obvious conflict of interest with the possibility that low ball valuations might result in little repeat work, but speaking as a valuer it is generally easy-peasy to come up with a range of values that could be 30% apart.
On the other hand NAMA is slightly exposed if it sells a spanking new home for €200,000. After a year, even if prices had remained flat, the property should lose value through normal wear and tear, add a few pets and children the wear and tear can be considerable. And after a year, you can sell the property with NAMA’s agreement – such agreement not to be unreasonably withheld – and NAMA is left with a €200,000 property worth possibly €15,000 less with wear and tear. The buyer gets 100% of their outlay back (less €2,000 of stamp duty and possibly estate agent selling fees which might be another €4,000) but still you have home for €500 per month with NAMA picking up the bill for wear and tear. Of course inertia etc would militate against this sort of behaviour but still, there are holes in the plan.
It is really the banks’ balance sheets that are true beneficiairies. They issue a loan with an LTV of 70% and they are in first position to recover any loss (before the homeowner and government) if there is another leg down in the market.
Please let it be different this time! http://tinyurl.com/cw3akg9
I am a lawyer and in the course of my career I have been involved in dozens of cases in which the main issue was determining the “open market value” of property. The range of opinion from experts on any particular case can be astonishingly wide. And both sides will usually have comparators that back up their arguments.
This is a major weakness in the Nama proposal. There will be endless disputes about the value of the houses 5 years after purchase.
It would have been much better to give the purchaser a “put” option against Nama exercisable at the expiry of five years from purchase and at the original purchase price.
Of course that proposal exposes Nama if prices drop by more than 20% but, presumably, that won’t worry them given the recent Central Bank report that houses represent a good buy right now?
It’s tax season in CA and the shortfall of a short sale by a distressed homeowner if forgiven by the Bank, can be taxed as if it was income, or even better, if the homeowner in CA can prove insolvency on the date of short sale (usually the case due to negative equity), there is no tax implication of the short-sale. All (or most) of the debt is forgiven.
This seems fair, and helps a lot of people, but only works when helping people is actually a priority.
So you have to be on the ‘panel’ now are approved valuers really going to go against NAMA,risk getting kicked off this panel.This has to have been dreamed up by the RICS/MIAVI,its the most idiotic ill conceived idea in awful long time.This is a make work scheme for the same shower that contributed to this mess,use an index get rid of these valuations and ‘valuers’.
At this point, Irish property specifically NAMA’s must have had more valuations,done than any other property ever.
Hold on I own 80% of the gaff but the minority partner with 20% exposed is in the driving seat,NAMA will end up in court,correctly so.
What,one could and will do is ‘agree’ on a price that kicks in the ‘insurance’,separably agree another price for the furniture/fittings the ability to game this scheme/dream are endless.
“In the event of any dispute on the valuation by either NAMA or the buyer, each must notify the other of such dispute within 5 days of receipt of the initial valuation. A further valuation will then be made by another valuer from the panel of independent valuers, as agreed between NAMA and the buyer (or failing agreement, by NAMA) within a further 5 day period. That valuation will be final and binding on all parties and if any or all of the deferred consideration is payable following on from that valuation, NAMA will then require the mortgage provider to make the further drawdown under the purchaser’s loan and to pay it directly to NAMA”
This product wouldn’t tempt me if I was in the market for a mortgage unless I really, really wanted one of the properties in the scheme.
On the one hand a buyer is hoping the price doesn’t fall but he then owes an additional €40k at the end of the 5 years (based on the example above). So it makes sense to hope that the price continues to fall and you don’t owe the additional €40k at the end of the 5 years. It seems to me that the product will attract those who expect and are confident prices will fall but, if they expect this, why would they buy now and why would they buy these particular properties?
I can’t get my head around the psychology of a buyer in this case. Also, are the calculations of your eligibility for a mortgage based on a mortgage value of €140k or the €180k mortgage in 5 years if prices don’t fall?
‘IFG provide a similar product so if you are Seller B on the street where NAMA/NAMA developer is Seller A, then Seller B and the buyer can buy a similar product from IFG. NAMA might say that this places Seller B on a level playing field with Seller A.’
@NWL so seller a pays NAMA ?
@John, seller A is NAMA/NAMA developer, so yes seller A pays NAMA or more simply the NAMA developer hands over the proceeds to NAMA from the sale of the home which was subject to a NAMA loan.
Inbuilt or implicit in this ‘price’ is the market cost of downside
protection,comparable to IFG pricing ?
Will NAMA,break out the costs and premiums collected here !!!
@John, I don’t believe so, but if you look at some of the asking prices, they look on the high side so there might be a premium built in.
Eg this is from the Crosshaven estate in Cork – 4-bed semi-detached with an asking price of €400,000
http://www.daft.ie/searchsale.daft?id=442038
It was suggested today that this home would rent for €1,000 per month, indicating a €175-225,000 price in an okay market, maybe €125,000 in a cash fire sale depressed market.
If that analysis were true then the asking price is double what the property is actually worth anyway, so NAMA could happily sacrifice €80,000 and it would still be €100,000 up on the deal.
NAMA was asked about this perception but sadly for it, there hasn’t been a reply because if the first impression perception that NAMA is sticking a premium on the market value, then that first impression may persist.
@John, looking again at DAFT there are two properties for sale at Carrickmines Manor in Dublin
This a 750 sq ft apartment for €250,000 – http://www.daft.ie/searchsale.daft?id=623066
and this
A 3-bedroom terraced house for €495,000 – http://www.daft.ie/searchsale.daft?id=432086
How is NAMA going to treat the original loan,can they come after original developer in 5 years for any shortfall.
What is the actual ‘sale’ price as NAMA is not receiving all the proceeds nor is the seller/developer,20% are held by basically BK financial institutions.Its also,a gimme to the banks,is their any interest earned over the 5 years,who gets it.Whats happens to mortgage interest relief on entire amount or draw down,you are responsible for it all.
How will NAMA ‘hedge’ this additional exposure,costs associated,if this is NAMA’s best foot forward,be afraid very afraid!
@NWL thanks as always,its simply ridiculous why they would even want to get involved on such a small scale is beyond me.Ducking and diving from real decisions,Noonan sitting on what are sure to be horrendous accounts,they drag this hair brained small time scheme out.Its media manipulation in advance of the results,it will be dropped shortly and never heard off again.
@John, I think NAMA has become a bit of a hostage to fortune on this. It probably didn’t anticipate resistance to the plan from the Department of Finance, and it only submitted the scheme to the EC in December 2011, seven months after it was first mooted. Apparently it has been back and forth between the EC and Ireland’s Competition Authority. NAMA has set up an internal project team for the scheme. And I’m not sure the scheme has been fully fleshed out. NAMA might well be wishing this would just go away, and at least it can justifiably say that it went the extra mile to provide a product to help a market which still fears further price declines. You’d almost feel sorry for NAMA that so much effort was needed for a product which seems to be greeted with a fair degree of cynicism though in fairness the SCSI has given it a tentative welcome.
http://www.gordonmrm.ie/statement-society-of-chartered-surveyors-on-new-nama-scheme/
Though as Gordon MRM is the PR company for NAMA, Permanent TSB and the SCSI, perhaps we shouldn’t be surprised there has been some degree of positive coordination amongst the three organisations today.
@John, I don’t think NAMA is going to be providing any further detail or clarification at this stage, but re-reading this from the FAQs, it almost beckons malfeasance
“The original buyer may sell the property during the protection period but will be liable for the full amount of the deferred payment, unless prior written consent to the sale has been obtained from NAMA. NAMA will not unreasonably withhold its consent to a sale but will seek to ensure that any such sale is undertaken on an open-market basis to an unrelated party. Such consent will be subject to a final valuation of the property, based on which the deferred payment liability will be determined.”
If you buy a property today for say €200,000 – paying a deposit of €20,000 and getting a mortgage in two parts €140,000 and €40,000 – and prices continue to drop as is generally expected despite the flatness of prices in March as recorded by the CSO, then if prices are drop say 10% wouldn’t you be an idiot not to sell the property at that point. You get the use of the property for free, you get all your money back and NAMA/the NAMA developer is left with a less valuable property with wear and tear.
@NWL following your example,will this protection plan run with the RE.
Can the ‘new’ buyer during the five years,at reduced basis also get a bite at it,or is it a once only deal,if so why and is that ‘fair’.Its most likely all moot,based on the links you provided,this scheme is a complete red herring,agree with your earlier post NAMA wants this to go away.
The red tape,valuers,administrative issues,why does NAMA want to be involved with ‘homeowners’.Its in most cases their largest most important financial decision,an emotional one too,stay away from it.If a “NAMA” borrower falls behind will they repossess?
This is an “Irish” (think NAMA) solution to a wider problem. Once again the Americans are showing the way. Bank of America has just written down the principal on 200,000 underwater loans, and it is inevitable here – no matter what the Irish banks say.
http://www.npr.org/2012/05/08/152239715/mortgage-update
According to the Irish Times: Brendan McDonagh is quoted thus: “He said that the agency offered the initiative to foreign-owned Irish lenders that had no involvement in selling loans to Nama but they declined. Mr Daly said that they could still participate.” If true, that’s an “out” from a charge of breach of EC Competition Policy.
It would also seem that NAMA has been fudging the figures and is now calculating 14,000 residential units, not 10,000 as given by Frank Daly last year. Again from the Irish Times report:
“Based on average prices of €200,000, Mr McDonagh estimated that Nama could defer a total of €30 million of €150 million worth of residential property purchases under the initiative.
The agency had 10,000 residential properties that could be lived in immediately and a further 4,000 properties which still had to be built or completed, he said. Nama has valued the agency’s residential properties at €3.3 billion, Mr McDonagh said, and that 75 per cent of these properties were apartments for which there was little demand among buyers.”
it would be interesting to know who are the developers? Why are there so many in the pilot scheme in Cork? Are the Killeen Castle ones on the K club type development
Cork: Michael O’Flynn
Carrickmines: Pierse and Paddy Kelly (and possibly the McCormack family)
Naul: Brian O’Farrell
Killeen Castle: Joe O’Reilly (Dundrum Shopping Centre)
Thats total rubbish by McDonagh,so say we buy the Ulster resi portfolio.
Can US based opportunistic/vulture funds with lower basis than NAMA get into this scheme !
If Ulster wants sell its Resi loan book they would have signed up here.
The EC likely don’t consider it to be an aid.
It’s not aid because it’s individuals, not companies, who will benefit from this initiative (if there is any advantage for buyers to be had). This is also probably why buy-to-let investors are excluded, they could be considered as businesses, not individuals.
The scheme may well give banks in general some extra and more attractive lending possibilities, but as long as NAMA isn’t specifically selecting certain banks (the scheme is potentially open to all banks) and the funding comes from the banks themselves (no NAMA discount) they can argue that they are not granting a specific aid. Debatable but plausible.
In terms of distorting competition, NAMA probably convinced the EC that it was acting as a market player would (and so presumably is not in breach of its original approval). Given that it, or its developers, has a pile of houses to sell in an environment where house prices have fallen for 5 years, they probably argued that they needed to offer some sweetener to potential buyers, as another seller with thousands of houses to offload might. Again debatable but plausible.
The real fun however will start when the market price of the house has to be assessed in 5 years time.
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