We need another NAMA (baby nama)

Cody Pomeray

I can't understand why there hasn't been more of a demand for this.

Mortgage arrears and over exposure to property are a massive downer on the Irish banking system, on SME lending, on lending to households, consumer demand and expectations of future incomes. Indeed, banks' troubled mortgage books seem to pose a substantial threat not only to confidence in the banking system, but the viability of Irish economic recovery.

Is it time we created a baby nama which can remove the worst performing mortgages from the banks? Baby nama would buy these mortgages at a discount on their book value just like its larger forebear. These mortgage assets could then be managed or disinvested over time. One major consequence would be that the banks could then re-focus their priorities back onto the smooth running of the financial system, which should result in recovery of the SME sector, employment, and ultimately economic recovery.

This would also lead to a more transparent, uniform and focused way of dealing with mortgage arrears.

It would further prevent a further cascade in residential property prices following on from the introduction of personal insolvency legislation, since baby nama could choose when and at what rate to dispose of its real estate assets over time.

Opinions?

Godge

Cody Pomeray wrote: »

I can't understand why there hasn't been more of a demand for this.

Mortgage arrears and over exposure to property are a massive downer on the Irish banking system, on SME lending, on lending to households, consumer demand and expectations of future incomes. Indeed, banks' troubled mortgage books seem to pose a substantial threat not only to confidence in the banking system, but the viability of Irish economic recovery.

Is it time we created a baby nama which can remove the worst performing mortgages from the banks? Baby nama would buy these mortgages at a discount on their book value just like its larger forebear. These mortgage assets could then be managed or disinvested over time. One major consequence would be that the banks could then re-focus their priorities back onto the smooth running of the financial system, which should result in recovery of the SME sector, employment, and ultimately economic recovery.

This would also lead to a more transparent, uniform and focused way of dealing with mortgage arrears.

It would further prevent a further cascade in residential property prices following on from the introduction of personal insolvency legislation, since baby nama could choose when and at what rate to dispose of its real estate assets over time.

Opinions?

Right, baby nama takes over the debts and tells the mortgage-holders if you can't pay up, we will the house from under you and take what we can get from the market. That is the way big nama has worked.

And this is a better way of doing things?

Cody Pomeray

Godge wrote: »

Right, baby nama takes over the debts and tells the mortgage-holders if you can't pay up, we will the house from under you and take what we can get from the market.

Well that is how asset-backed lending is supposed to work. I'm not proposing that should change as a principle.

However, it is more nuanced than that.

Baby nama would have no incentive to disinvest its portfolio in an uncontrolled, disorganised manner, such as might happen if that stock of residential properties were held by the various banks. The more gradual, organised disposal of these assets would place a reassuring floor in property values for consumers and banks.

A proportion of unsold residential properties in baby nama could be temporarily used for social housing, with a long term aim of occupiers 'buying out' their tenancy. The provisioning that baby nama would already have done on the book value of these mortgages would be reflected in the discount which the tenant (who in many cases would have been the original mortgage holder) would be offered in buying out his or her tenancy.

In short, it offers a much more flexible alternative without damaging the banks' profitability or capacity to lend.

Icepick

Cody Pomeray wrote: »

It would further prevent a further cascade in residential property prices

:rolleyes:

Cody Pomeray

Icepick wrote: »

:rolleyes:

I understand why people roll their eyes at that.

But to prevent baby nama from running a massive loss, to promote consumer confidence, and to ensure the ongoing viability of the pillar banks, a well managed floor in property prices is actually important.

gaius c

Cody Pomeray wrote: »

I understand why people roll their eyes at that.

But to prevent baby nama from running a massive loss, to promote consumer confidence, and to ensure the ongoing viability of the pillar banks, a well managed floor in property prices is actually important.

That well managed floor will impact our cost base and drive high wage expectations and thus lose more jobs. I rather take my chances with less market interference thanks.

Cookie_Monster

Cody Pomeray wrote: »

A proportion of unsold residential properties in baby nama could be temporarily used for social housing, with a long term aim of occupiers 'buying out' their tenancy. The provisioning that baby nama would already have done on the book value of these mortgages would be reflected in the discount which the tenant (who in many cases would have been the original mortgage holder) would be offered in buying out his or her tenancy.

So you want to take people who are struggling with their mortgage but maybe still paying a little and boot them out, take the house and give it to someone else under "social housing" for next to nothing in rent?

And if it's the original tenant we're just socialing their debts while letting them keep the property at vastly reduced payments... Where's the incentive for anyone to bother paying their mortgage in that case, just let the taxpayers take the hit again.

Cody Pomeray

gaius c wrote: »

That well managed floor will impact our cost base and drive high wage expectations and thus lose more jobs. I rather take my chances with less market interference thanks.

When I talk about a floor in the market, the floor in the market would hover around current house prices, so wage restraint should continue unaffected. Actually real wages might even continue to fall.

If current real estate values became further eroded by a messy or rapid disinvestment of properties by the banking system, the banks would be in even more serious trouble (remember, the individual banking groups are only responsible for their own books. They cannot streamline a nationwide, controlled disposal of assets like baby NAMA would.)

Cookie_Monster wrote: »

So you want to take people who are struggling with their mortgage but maybe still paying a little and boot them out, take the house and give it to someone else under "social housing" for next to nothing in rent?

that scenario would mainly apply to buy-to-lets. I would envisage many owner occupiers in arrears would remain on as tenants while the property awaited sale, or subject to their buying out the property at a discount at some future date.

if it's the original tenant we're just socialing their debts

Yeah, that's true. But how can you be opposed to both this scenarios and the scenario where they are booted out, above? On the one hand, you indicate above that you want families to stay in their houses paying a portion of the mortgage (over time, that amounts to a socialisation of their debt). On the other hand, you're opposed to their debts being socialised?

We have to get real lads. There's no point in ignoring depreciated values when you're kicking out a tenant, because the next guy in the door will only pay the depreciated market value anyway, and the taxpayer is left with an extra social housing bill.

The problem of moral hazard is going to be the same in the baby nama scenario as it already is in the current provisioning and insolvency process that is weighing on the banks, so that's not really an extra issue to confront since it is an inevitable feature of any solution.

Cookie_Monster

Cody Pomeray wrote: »

Yeah, that's true. But how can you be opposed to both this scenarios and the scenario where they are booted out, above? On the one hand, you indicate above that you want families to stay in their houses paying a portion of the mortgage (over time, that amounts to a socialisation of their debt). On the other hand, you're opposed to their debts being socialised?

I've no problem with the bank eventually deciding enough is enough and booting out non payers and them dealing with the property themselves. But for a taxpayer funded Nama to do it is just further bailing out of mortgage payers.
Let the bank and the individual take the hit, the taxpayer has already taken enough.
No point bailing out the banks to the point they can operate again and then bailing them out further for the hell of it to socialise mortgage debt.

Cody Pomeray

Cookie_Monster wrote: »

I've no problem with the bank eventually deciding enough is enough and booting out non payers and them dealing with the property themselves. But for a taxpayer funded Nama to do it is just further bailing out of mortgage payers. Let the bank and the individual take the hit, the taxpayer has already taken enough.

But the taxpayer has already paid for the provisioning on the banks' residential mortgage books. That's what all that recapitalisation money was for. The asset transfer value would be determined similar to how it was determined in grownup NAMA, and similarly the net cost to the taxpayer could be €0, plus or minus a marginal amount.

On the other hand, the benefits of this scheme would fall on the economy and on society in a way that would be unrealistic if these troubled assets remain on the banks' books.