€3.5bn loans are worthless as security was defective

Roughly €3.5bn of development loans were acquired by Nama for a nominal amount because the legal security backing the loans was defective, according to Minister for Finance Michael Noonan.

The figures emerged through a parliamentary question asked by Reform Alliance TD Lucinda Creighton.

“Nama paying €0 for over €3.5bn in original lending is another staggering revelation of the depths of negligence and ineptitude that plagued our Irish Banking system,” said Ms Creighton.

Nama paid €32bn for €72bn in development loans in 2009. “€3.5 billion represents 5% of the entire €72bn NAMA loan book. The idea that Bank of Ireland, AIB or Anglo Irish Bank could have lent out €3.5bn that according to Nama was completely worthless is an extraordinary revelation.

“What’s worse, however, is that no single manager in any of these banks or chiefs executives at the time has been brought to account for this negligence.”

Mr Noonan said that in all cases where defective security was identified as a problem, it was Nama’s practice to allow the participating institutions sufficient time to perfect security. This extended to a period of 12-to-18 months in some instances. A zero or low acquisition value was only applied where protracted efforts by the original financial institutions to perfect security proved to be unsuccessful, he added.

Nama announced yesterday that it is ending its initiative to kick-start the housing market. The 80:20 deferred payment initiative was launched in May 2012 in conjunction with a number of banks.

A participating buyer made an up-front payment of 80% of the asking price of the house. The mortgage provider paid the balance five years later, depending on the value of the house.

A total of 224 houses included in the initiative have been sold since its launch.

“The 80:20 Deferred Payment Initiative has achieved its objectives. €44m has been generated from the sale of houses included in the 80:20 Initiative. The initiative was only ever intended as a short-term measure to remove the fear of negative equity for buyers at a time when there were few residential property transactions in the Irish market,” said Nama chief executive Brendan McDonagh.

“Feedback from buyers suggests fears of price falls have abated considerably in recent months. Many buyers cite evidence from the CSO and the market that house prices are rising in Dublin and stabilising in other parts of the country.”

The scheme will be closed to entrants from the end of May.