For Sabrina: NAMA in Crayon

What happens with NAMA: They buy loans (secured on properties) from the banks in order to remove doubt about the safety of the bank to its depositors and investors. Banks work on what’s called ‘fractional reserve’ so they never have the full money they need to cover themselves and that is why they fold when you get a ‘bank run’ (everybody looks for their money at once).

The idea of NAMA is to buy the loans [by issuing government backed bonds] at a discount because there are going to be likely defaults and non-payments in lots of the individual loans that make up the tranche (or group of loans bought). The bank then have Government bonds which they can use as collateral to obtain finance. The entire thing is basically a rip off but that’s the rough idea of how it’ll work.

Comments

  1. Karl

    What happens before NAMA:

    Mortgage brokers arrange hundreds of thousands of mortgages, in later years often at over 100% of the value of the property…

  2. @Karl: hundreds of thousands might be a bit of an exaggeration! (given that at the height of the boom there was 100,000 mortgages done in the entire year by the entire market and we only came into existence in early 2004. But I’ll take your point that we are (as brokers) part of the problem of the nation.

    On the NAMA front specifically, it deals with commercial loans only, not residential, while some loans may be for residential units, the units being taken are either not sold or let out to renters.

    We do care about people in negative equity and arrears, so we took it upon ourselves to write a 20 page guide (google: ‘a repossession guide for irish home owners’ and you’ll find it), nobody had collated all of the information together for consumers up to that point, in fact, MABS and citizens info thought it was so good they distributed it amongst their members.

    meanwhile we wrote 0000’s of mortgages and got rich on the backs of others, but the best is yet to come, we are about to take over the world too! lol.
    xo
    thanks for dropping by!
    karl

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