Docklanders

While there were positive developments for the Authority during 2008, given the challenges faced then,and which still continue, it would be disingenuous to dwell on them. The fact is that 2008 was an exceptionally difficult year for the Authority.
On its own, the collapse of the Irish property market during 2008 – and with it the value of the assets held by the Authority on behalf of the Irish taxpayer – would have posed huge problems. However, the Authority also lost a very significant Court case relating to execution of its statutory planning powers. Together these two
developments will have a profound impact on the Authority and how we conduct our business and fulfil our mandate for years to come.
The financial challenge posed to the Authority by the collapse of property values will require ongoing work as we have to adjust to what will essentially be a new business model. This will result in a delay in completing some of
our projects and a more conservative approach to progressing our mandate.
The impact of the lost Court case will also be significant. As a result of the ruling in that case, and a request from the Minister for the Environment, Heritage and Local Government, the Executive Board has initiated a number of reviews of our practices, policies and procedures to ensure that we are fit for purpose and, most importantly,to ensure that we abide by best practice in respect of corporate governance. I know I speak for the Minister and all my colleagues on the Executive Board when I stress that there is absolutely no room for compromise or ambiguity in this regard. The Executive Board, Council and Executive face into an ongoing, uncertain economic climate. It is a challenging time for all concerned. Tough measures are required to restore the Authority to financial stability, to rebuild
its reputation and to ensure it operates within its available resources without recourse to the Exchequer.The Executive Board is determined to take the necessary corporate restructuring steps, with speed, to return the Authority to its important mission of the physical, social, economic and cultural regeneration of the Dublin
Docklands Area, on a sustainable basis. The Docklands project and the people of Docklands deserve no less.I would like to thank the Minister for his support since my appointment and my colleagues on the Executive Board for their hard work and support.The staff of the Authority have worked tirelessly in difficult circumstances and I want to acknowledge their critical contribution. I look forward to working with local community leaders, our Council, Executive Board, Staff and other
stakeholders to continue delivering on the imperatives of the project ensuring the Docklands is a great place to live, work and visit.

Docklander

Elizabeth Warren on the economy

That Elephant again

But that is to ignore the elephant in the living room:

namely, that the property developers continued to borrow huge sums from banks to buy development sites and build apartments because they believed that consumers could continue to shoulder ever higher property prices.
The main reason consumers were able to pay more each year for houses was because the Financial Regulator failed to stop banks from selling them unsuitable products.
Property developers came to believe that consumers had endlessly deep pockets because bankers continued to refill the consumers’ pockets with buckets of borrowed money.
When the consumer could no longer afford a property by borrowing the traditional, prudent two-and-a-half times his income, the bankers gradually relaxed the criteria to the point where it was considered normal at the peak of the boom for a borrower to take a mortgage of five or six times his income.
When the consumer could no longer afford the mortgage repayments spread over the traditional, prudent 20 years, the bankers devised new products to allow the borrowers spread the payments over first 25 years, then 30 years, then 35 years and, in some cases, 40 years.
When the consumer couldn’t afford to save the traditional, prudent deposit, the bankers came along and offered 100 per cent mortgages.
When the consumer still couldn’t afford the mortgage repayments, the bankers increasingly offered reckless ‘buy now, pay later’ products with low introductory rates leaving the consumer to face higher interest repayments when the introductory offer expired.
The bankers even launched interest-only mortgages under which the borrower paid only interest and no capital for an initial period and in some cases for a full 20 years.
As revealed in The Sunday Business Post last weekend, as many as 53,000 borrowers, many of them buy-to-let investors, took out such interest only mortgages in the last five years of the boom.
It would appear the only way many of those borrowers could ever have repaid those loans was by selling the property, an option which is no longer open to many of them as house prices have fallen to the point where a sale would lock in a massive capital loss, assuming a buyer could be found in the current market.
Finally, in 2006 and 2007, Irish bankers began to copy what was happening in the US and began selling subprime mortgages to consumers who would previously have been considered too risky under traditional bank lending criteria.
The only thing that prevented the sub-prime mortgage problem becoming a bigger problem in Ireland was not the intervention of the Financial Regulator, but the arrival of the international credit crunch which prevented our bankers from raising the funds that they would otherwise have recklessly lent to borrowers.
When consumers on average incomes still couldn’t afford houses, when interest rates rose after all those risky products had been unleashed, when even the banks recognised that the limits of what they could lend to consumers had been reached - or more accurately breached - the developers in early 2007 began to see the writing on the wall as consumers balked at the prices for homes and began to walk away from the property market even before the credit crunch hit hard.
The developers then leaned on the government to fund so-called affordable housing schemes using taxpayers’ money to help prop up prices. But the amount of taxpayers’ money made available was not enough to prevent the dike from bursting and pretty soon the banks found out that the developers couldn’t afford to repay their loans because they couldn’t find buyers for their developments.

Kathleen Barrington

China's empty city

The Wise WAN

The dog ate it

For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.
On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.
In other words, with lenders in the driver’s seat, borrowers were run over, more often than not. Of course, errant borrowers hardly deserve sympathy from bankers or anyone else, and banks are well within their rights to try to protect their financial interests.
But if our current financial crisis has taught us anything, it is that many borrowers entered into mortgage agreements without a clear understanding of the debt they were incurring. And banks often lacked a clear understanding of whether all those borrowers could really repay their loans.
Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms. But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.
The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.

The New York Times

House Trap 2

It’s a debilitating condition that will soon affect one in four Irish households. Thousands of people suffering from the disorder don’t even realise it yet. But by the end of next year, up to 350,000 families could be stricken by the disease if property prices continue to plummet, the Economic and Social Research Institute (ESRI) calculated last week.
It is negative equity, which arises when the mortgage on a property exceeds its value. And it’s contagious: once one house on your street contracts it, the spread is unavoidable. Symptoms include stress and a loss of mobility.But the situation is worse for a couple living in a one-bed apartment who want to start a family, says Derek Brawn, author of Ireland’s House Party. “The social consequences of negative equity will only become apparent over the next few years. There is a huge over-supply of one-bedroom apartments in Dublin and if you bought one to live in during the last four or five years, then get comfortable,” he advised.
Brawn should know. In September 1992, he bought a one-bedroom flat off Tower Bridge Road in London, thinking prices had bottomed out in the then stagnant UK property market. “Three months later, a neighbour in my block of 25 apartments panicked when interest rates started to rise and handed her keys back to the bank,” he said. “They sold the flat quickly, accepting a low bid, and overnight, prices in the development were effectively set at that price. Overnight my home was worth 35% less than I had paid for it three months earlier.”
Brawn estimates that one-in-four Irish households will experience this sinking feeling by the turn of 2011. The ESRI estimates that more than 150,000 households are already in negative equity, while Goodbody stockbrokers estimates that, given the range of property values, the average household owes €43,000 more than their homes are worth.

But as long as you’re happy where you are, so what? Right?


BRAWN finally sold his London flat six years after he bought it, securing the same price he had paid originally as he cashed in on an upswing in the property market. But he had grown to resent his home for “trapping him in limbo”.
“Negative equity has a pernicious psychological effect. At one point, the pump that controlled the water pressure in the shower in my flat broke, but for six months I refused to fix it. I couldn’t bring myself to pay €200 or €300 to a plumber,” he said. “I didn’t see the point of putting money into a property that had been devalued so much.”
This is a common response to the burden of owning a home that is worth less than their mortgage. David Duffy, a researcher with the ESRI, discovered a similar phenomenon in America, where research has shown that “owners with negative equity behave more like renters and re-invest less in their properties”.
The social consequences of negative equity are manifold, he points out. “It affects consumer spending as people feel less wealthy. Those in negative equity tend to increase precautionary saving, taking money out of the economy,” he said.
Negative equity can also adversely affect people’s ability to obtain credit. “In my experience, a lot of people only realise that negative equity is affecting them when they look for a loan to extend their house or for a car, and realise that their credit rating has been affected,” said Brawn.
Those in negative equity, typically first-time buyers in their 20s and 30s, are also unable to move location quickly to take advantage of job offers.
Leo Varadkar, 30, a TD, recently wrote to the National Asset Management Agency (Nama), a bank set up for bad loans, asking it to purchase his apartment. “I was only half-joking,” he said. “I bought it for €350,000 in 2004 and now I estimate that it’s not worth much more than €250,000. I had planned to move in four or five years but I’m going nowhere now.”
Varadkar said that his age group has been deeply affected by the slump because they took out 100% or interest-only mortgages, or stretched them over 35 years.
Brawn said: “On a standard 25-year mortgage, you don’t start paying off any capital until after about five years. On a 100% mortgage, or a 35-year one, it takes longer. If you have one of these, you’re likely to be in deep negative equity.”

The Sunday Times