€7.85m loan for golf resort homes was a big handicap
Top: The chalet in Switzerland purchased by Sarah Newman. Left: the couple's home in Alma Road, Monkstown, Co Dublin. Above: The Inch property at Mount Juliet, Co Kilkenny. Mark Condren
VIEWED through the prism of crisis-riddled 2011, AIB's decision to advance a €7.85m mortgage on two golf resort properties looks like absolute madness.
In this day and age, those two houses would probably fetch €1m apiece, maybe even less, so how could anyone have ever thought they could back up a mortgage for almost €8m?
But, in reality, the curious thing about the €7.85m mortgage wasn't how it tallied with the value of the houses -- back in 2007, similar houses had changed hands for more than €4m apiece.
The really curious thing about the deal was how Sarah Newman and DJ Carey convinced the banks that they were going to be able to pay back such a staggering loan.
Even on a 3pc interest rate -- the lowest rate the duo are likely to have gotten -- the monthly repayments on the 20-year mortgage would have come to about €43,000.
"As far as the banks went, AIB's process was pretty rigorous," said one investor, who has had extensive dealings with AIB. "They wouldn't let you mess around too much by over-borrowing on a property.
"And you'd have to produce documents showing your ability to repay, evidence of income or documents showing the profits of your companies."
The idea was that the bank had two lines of defence. First, that you had an income stream sufficient to cover repayments. And second, that if you didn't, then the property would be worth enough to sell off and repay the loan.
In the Carey/Newman case, AIB put in what looked like a third protection -- a personal guarantee from both Mr Carey and Ms Newman for the sums owed, so the duo would be personally liable.
In reality, all three lines of defence were felled by the same cause. When the recession hit, some of Mr Carey and Ms Newman's business interests and investments came under pressure, constraining the duo's ability to repay the loans and the value of their personal guarantees.
The value of the properties involved was hit by the same economic collapse, leaving the bank without all three of the protections designed to ensure the very large loan was ultimately repaid.
The Carey/Newman case is far from an isolated incident, and it's far from the most stunning example of crazy lending in the boom.
In the first three months of 2011, AIB, Bank of Ireland and Anglo Irish Bank have registered judgments compelling borrowers to repay some €200m of loans where all the usual defences have failed.
Since the collapse began, the tally of all bank action is well over €1bn.