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Archive for August 1st, 2012

Here’s a mid-week teaser for you in the form of a multiple choice question:

Q: How many properties has NAMA so far repossessed and sold on foot of defaulting loans?

(1) Thousands, that’s what the monthly NAMA foreclosure lists show.
(2) €6,850,000 worth, because that is what NAMA says in its accounts that it has received on foot of personal guarantees
(3) None whatsoever

Surprisingly perhaps, the correct answer is (3) and that is evidenced by the quarterly “nil” returns in the NAMA reports under the heading “property sold by NAMA in the quarter”. You see NAMA has had receivers appointed who manage assets for the benefit of creditors generally and some developers have handed over an overall total of €6.85m of property that was used to guarantee loans. But NAMA has not itself repossessed any property subject to loans directly.

This oddity might explain the news reported in the Irish Times today that NAMA incorporated a new company, NAMA Asset Residential Property Services Limited on 18th July 2012 with the aim of speeding up the sale of homes for social housing. NAMA hasn’t issued a statement on the development but Olivia Kelly in the Irish Times reports that “the new company will take possession of debtor properties it deems suitable.” So we may at last see NAMA repossessing residential property for the first time.

The development is interesting because it was recently revealed that NAMA has in fact overseen the sale of only 58 properties – understood to be the 58 in the Beacon South Quarter sold to the Cluaid Housing Association in June 2011, 13 months ago – out of a much touted 2,000 being made available for social housing. The Irish Times article hints at problems  “involving a range of stakeholders such as borrowers, lenders, receivers and Nama” It might also be said in fairness to NAMA, that it takes two to tango and whilst NAMA can facilitate sales, there needs to be a proactive purchaser also.

With 98,000 families representing 200,000 people on housing waiting lists in the State, any development to fast-track the provision of housing is to be welcomed.

But let me leave you with a puzzler – if it makes sense for NAMA to take possession of homes to be sold for social housing, then why not do the same for other property?

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NAMA’s terse statement after yesterday’s judgment in the Treasury case reminded me of that old and slightly politically incorrect joke of the recently-widowed Mordechai who found that there was a five-word minimum spend when placing a death notice in the newspapers, and thus the notice appeared as “Esther dead Volvo for sale”. NAMA’s statement merely said “NAMA welcomes today’s decision from the High Court and will continue to work with the NAMA-appointed receivers in this case to maximise the return to the taxpayer”

And in truth, despite nominally winning the judicial review action, NAMA actually lost the judicial review itself with the judge ruling – in the circumstances of the Treasury case – that the decision to foreclose on Treasury’s loans was amenable to judicial review, that Treasury did have a right to be heard before NAMA foreclosed the loans and that NAMA’s procedures as a public body were unfair in the Treasury case. Were it not for Treasury apparently signing away its legal rights as a condition of the so-called “standstill agreement” in January 2012, then Treasury would seemingly have NAMA by the gooleys this morning. The “standstill agreement” meant that the appointment of receivers by NAMA was deferred pending NAMA’s examination of third party investors being brought to the table by Treasury in return for Treasury agreeing not to pursue legal action against NAMA.

What does the ruling mean for other foreclosure action? We learned in a recent Parliamentary Question from the Fianna Fail finance spokesperson Michael McGrath that “to the end of June 2012, 235 Receiver appointments had been made to 176 separate debtor connections” by NAMA and its banks.

Might some of these companies and individuals now consider legal action against NAMA claiming damages because NAMA did not offer them an opportunity to be heard, and that NAMA used unfair procedures in the appointment of receivers? Remember the judge was careful to stress that her judgment pertained to the facts and circumstances of the Treasury case, but it doesn’t seem on here that Treasury will be unique, and I would have said most NAMA debtors who had initially cooperated with the Agency and had evidence of cooperation from the Agency, could claim that their circumstances were practically the same as Treasury’s as set out in the present case. So it seems that there is the potential for a large volume of applications, in the aftermath of the Treasury ruling yesterday.

But would there be any point in such applications. Having the right to be heard and to be subjected to fair procedures doesn’t mean that if you are massively insolvent that NAMA cannot enforce loans – that would be a mockery of both the NAMA scheme and the NAMA Act. So developers may not in fact have incurred any legally assessable damages despite NAMA’s actions. On the other hand, if you were a developer who might have had third party investors or feasible plans to deal with your debt, and NAMA railroaded you into receivership, there may indeed be the potential for damages.

So, you might sympathise with the terseness of the NAMA statement yesterday and wonder if indeed the Agency is panicking at the prospect of floodgates of legal action in the wake of yesterday’s judgment.

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The Nationwide Building Society has this morning published its UK House Price data for July 2012. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £164,389 (compared with GBP £165,738 in June 2012 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 11.6% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of July 2012 being GBP £164,389 (or €210,984 at GBP 1 = EUR 1.2730) is 35% above the €155,916 implied by applying the CSO June 2012 index to the PTSB/ESRI peak prices in Ireland. The average home in Northern Ireland in Q1, 2012 was worth €168,347, according to the University of Ulster/Bank of Ireland survey.

With the latest release from Nationwide, UK house prices have risen 1.0% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 803 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index) meaning that average prices of NAMA property must increase by a weighted average of 24.5% for NAMA to breakeven on a gross basis.

According to the UK’s Office for Budget Responsibility which independently monitors and comments on the UK economy, house prices are projected to fall by 0.4% in 2012 before increasing by 0.1% in 2013, 2.5% in 2014 and 4.5% in 2015 and 4.5% also in 2016.  UK inflation has now come down below 3% per annum despite being elevated since the banking crisis in 2007, overall inflation in 2012 is set to stay close to 3%  – remember that UK inflation has increased by over 15% since their peak whereas in Ireland inflation has been subdued and is one third of that – the UK has pumped GBP0.3tn of “quantitative easing” into its GBP1.5tn economy and another GBP50bn has recently been announced. UK interest rates may increase later this year to combat inflation – the base rate has been 0.5% since February 2009.The UK economy is projected to grow by an anaemic 0.8% in 2012 in real terms, close to our own Department of Finance’s projection for Ireland at 0.7%.

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