Developers are to be given new incentives by bad bank agency Nama to encourage them to stay in business and continue building houses.
The incentives, agreed by the National Asset Management Agency (Nama) with indebted developers, will give them a share of profits, and will see guarantees given by them on their family homes dropped.
Nama has done deals with 34 developers and is in negotiations with 20 others for profit-shares and debt writeoffs in return for their co-operation to “maximise the return to Nama”.
Minister for Finance Paschal Donohoe said such agreed arrangements were important for Nama to ensure co-operation where otherwise "debtors would refuse to co-operate and would opt instead for an insolvency process which would ultimately yield a lower net return to Nama, particularly when enforcement costs are taken into account".
The Minister was advised by the agency that “many debtors would not have maintained their co-operation unless they had clarity as to the long-term benefit to them of that co-operation”.
When Nama was established in the wake of the economic collapse it took responsibility for bad bank loans with a face value of €74 billion, for which it paid €32 billion. It is now projected to make a final profit of about €3 billion. When developers entered Nama many used their family homes or other personal assets as a guarantee or security against their loans. In a large number of loans there were legal issues such as the loan being linked or mortgaged to other debtors.
Commercial entity
In a written parliamentary reply to Fianna Fáil housing spokesman Barry Cowen, the Minister said Nama had to operate as a commercial entity, and in the absence of arrangements with indebted developers the return achieved on the Nama assets would "fall short of the best achievable financial return".
Mr Donohoe said when Nama took over loans there were problems with some legal documentation, including “items of security not actually taken, guarantees not confirmed on the granting of new facilities and development loans with no security over work-in progress or step-in rights”.
In return for concessions which improve Nama’s returns are “compromises of personal guarantees, debt compromise, potential profit-share arrangements and debt restructuring”.
Mr Donohoe added: “These vary according to the particular circumstances of each debtor connection, and are conditional on the achievement of agreed milestones.” When that happens “the debtor may share a small proportion of surplus proceeds”.
Mr Donohoe declined to answer questions from Mr Cowen about either the total amount developers were allowed to retain or the individual sums.
Negotiations
The Minister said “disclosure of this information would compromise Nama’s negotiating position, and thereby place it at a commercial disadvantage in its ongoing negotiations with debtors”.
Mr Cowen said: “We’re analysing it before we make a formal response.”
The agency had more than met its profit targets and while he acknowledged that there might be a backlash against the move, he said Nama had a remit and was within its rights to exercise that remit as it sees fit in terms of the return to the public.
Mr Cowen added that while there were question marks about how Nama disposed of properties, it had the expertise and should be considered as a potential housing agency rather than the creation of a whole new authority.
