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Dan White: NAMA for the little man? Not a chance

The Mortgage Arrears and Personal Debt Expert Group, which was established by the Government in February, has published its first report.

For those of us who were hoping for some original thinking on the problems of mortgage arrears and other personal debt, a NAMA for the little man, the report came as a severe disappointment.

Instead of bold plans to help those mired in mortgage arrears and other forms of personal debt, all we got was a series of minimalist proposals, which will make next to no difference to the plight of those trapped with debts that they can't possibly repay in full. This is at the same time as NAMA has revealed that a mere 25pc of all the bad loans it has bought from the banks are producing any income.

Consider the facts. There are just over 790,000 homeowners with mortgages. According to the official figures published recently by the Financial Regulator, 4pc are in arrears.

Unfortunately, the figures published by the Financial Regulator don't come even close to reflecting the true gravity of the situation. Its figures don't include those who have come to a temporary arrangement, such as a repayment holiday or interest-only payments, with their lender. However, as these loans are by any realistic yardstick also impaired, the true level of mortgage arrears is at least twice that indicated by the Financial Regulator's statistics.

In other words, at least 8pc, that's one in 12, of all home loans are now in arrears.

And it's going to get worse, a lot worse. Recent research by the ESRI indicates that by the end of this year more than 340,000 homeowners will be stuck in negative equity, where the amount outstanding on the mortgage exceeds the value of "their" home. That's more than four out of every 10 homeowners with mortgages.

Since property values peaked in early 2007, house prices have fallen by at least 50pc. This has grave implications, not just for the 790,000 homeowners with mortgages on their homes, but also for the banks, who have mortgages with a book value of almost €150bn on their balance sheets.

What are those mortgages worth now? If valued on a mark-to-market basis, ie what an outside investor would be prepared to pay for them, they are probably worth no more than €75bn and possibly less.

Even if these mortgages were valued on the more conservative assumption that the banks would hold them until they were repaid in full, it is difficult to see these mortgages being worth much more than €120bn. This is a reflection of the fact that, with property prices having collapsed and tens, perhaps hundreds, of thousands of homeowners having lost their jobs, the banks are going to have to make huge write-downs on their mortgages.

This isn't some sort of charity on the banks' part but a reflection of the economic reality that many of these mortgages are never going to be repaid in full.

Faced with this blindingly obvious fact, then, what did yesterday's interim report recommend? Its main recommendation was that the banks should not apply penalty interest or arrears charges to borrowers who are taking part in the mortgage arrears resolution process. The report goes on to recommend that lenders don't encourage borrowers in trouble to switch out of low-cost products such as tracker mortgages.

And that is about it.

Not a word about the need to write down excessive mortgages on over-valued properties, which is exactly the approach the Government has taken with NAMA buying bad loans to builders and property developers at an average discount of almost 50pc. Even worse, the report recommends that the current 12-month moratorium on the banks taking legal action against borrowers in arrears not be extended. What planet are the members of the expert group living on?

The key to solving any problem is to first recognise the nature of the problem. Yesterday's report failed this basic test and is, not to put too fine a point a complete waste of time and money.

When it comes to mortgage arrears and personal debt there is still one law for billionaire property developers and another for the rest of us.


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