It is understood New Beginning’s proposals focus on offering the homeowners, who currently face repossession, the option to rent their homes instead. The distressed borrowers would then have the option to repurchase their homes if their circumstances improve in the next seven years. …
New Beginning plans to pay for the mortgages by using a Maltese-registered company, which would pay the banks with a bond and an annual coupon or interest rate repayment. After seven years, New Beginning would plan to sell the homes to the tenants or sell the properties to an investment vehicle, which would continue to let them to the tenants.
Sheer genius. Investment vehicle moves to chuck tenants out on their ear … NB is back in the “free” legal aid business and the cycle begins anew. Maybe “New Beginnings” was an inspired choice of name from the start.
So just to be sure I have this right, because when I first read that I felt I’d been slapped upside the head with a kipper.
Bob, the unemployed welder in Bandon can’t pay his mortgage. NB tell him not to pay anything towards it and arrange for some professional crusties to sit on his front wall and stop the house being repossessed. They promise Bob that with enough political pressure there will be debt write downs. Bob lives a few years mortgage and rent free and leans on NB and reads about land leagues and maritime law whenever he feels an attack of the willies coming on.
Mass debt forgiveness doesn’t happen, property prices begin to creep up, the other houses in his ghost estate are being finished off.
Then NB buys his mortgage to help him out. The bank is happy to offload the bad debt and claw back what they can. The bank is happy. The financial consultants who help to set this up get paid. NB tell Bob the good news that he doesn’t have to move out, he can rent back his house from them at the market rate. Bob is confused, paying rent instead of mortgage isn’t going to get him anywhere, and wasn’t he promised something for nothing? If he pays his rent promptly he will be given an option to buy the house in seven years or continue renting but of course by then NB will be gone. The guy who advised him all along has changed job so he can’t ask him what happened. The arrears for all the years that Bob paid nothing are still hanging around like a cloud of flies. He won’t be able to save and pay rent at the same time to buy the house back. Bob has been shafted.
Is he worse off then someone who was evicted and spent a year being moved around B and Bs? Nope, but he is still sorry he ever made a cup of tea for those evil geniuses in New Beginnings.
This hair brained scheme can’t work. The “asset” that is this new bond to be created would surely require considerable provisions to be taken against it and therefore defeats the whole purpose of the exercise. It is just another pixie paddy gamble on house prices increasing
Absolutely, as Caesar says, this looks like a one-way bet on prices.
HTF would the banks price the bonds they receive? What would they be rated as, given they are backed essentially by distressed borrowers. Or would they be structured? Anyone want to buy some mezzanine?
Banks have to take provisions against impaired loans, but bonds are tradable securities so there’d be no requirement to take a provision per se. However the only assets of the SPV or whatever entity is issuing the bond would be the mortgages and/or rental streams. Given the mortgages are already distressed I doubt they can be packaged into some sort of asset-backed security or covered bond, so presumably the “bond” is some kind of high-yield instrument only of interest to hard core speculators
So the most likely scenario is the bank initially provides soft financing, then does a private placement of the bond to a load of aggressive hedge/vulture funds. Who will expect to be paid and, if house prices don’t appreciate or the mortgagees don’t cure their arrears, won’t be interested in a lot of talk about forbearance and the sanctity of the family home and maritime law…
I can’t decide whether the scheme is madcap or impressively cynical, but either way it doesn’t bode well for Bob in Bandon
whatever the hell it is, there is real appetite for RMBS issued on Celtic Tiger era mortgages, right?
I mean that’s what PTSB, and springboard etc. have, and nobody is interested in their garbage, so why does new begging think they can just rebrand and make the problems all go away? Just another wheeze to avoid facing up to reality.
whatever it is the Central Bank would need to endorse this, and when the chickens come home to roost the latest Patrick Neary figure can see his civil service career crash live in prime time circa 2019.