The man credited with inventing NAMA has told the banking inquiry it is not doing the job it was designed to do.
Dr Peter Bacon said the agency has focused more on chasing debts than on increasing the value of its investments.
Dr Bacon is giving evidence at the Oireachtas banking inquiry this morning, and claims NAMA hasn’t done enough to increase the value of the assets it’s taken over from banks.
“This is my personal opinion, based on what I’ve seen, no greater than that: it has acted more as a debt collection agency than as a property value maximising agency,” he told the inquiry.
Meanwhile, a former special advisor to the late Minister for Finance Brian Lenihan has told the banking inquiry he was concerned at the number of people who were taking out 100 per cent mortgages at the height of the boom.
Alan Ahearne, a professor at NUI Galway and a recently appointed advisor to the International Monetary Fund, worked with Mr Lenihan from 2009 to 2011.
Mr Ahearne told the inquiry that he “expressed concern” in 2007 about data from the Department of the Environment that showed that one in three new homebuyers in 2006 took out a 100 per cent mortgage.
In addition to his concern regarding mortgage levels, Mr Ahearne said the number of first-time buyers taking out loans with little or no deposit doubled in 2006 from the year before.
“Worryingly, nearly two thirds of all new home mortgages taken out in 2006 were over 31-35 years or longer,” he said. “Such heavy borrowing rendered many households very vulnerable to a downturn.”
Mr Ahearne said his own perspective on the Irish housing market during the bubble years was informed in large part by research on the international experience with housing booms and busts that he conducted while working for the US Federal Reserve.
He said the international experience showed that “periods of prolonged rises followed by protracted falls are a surprisingly common feature of house prices in advanced countries”.
He also said there were indications that certain financial conditions, such as low interest rates and financial deregulation, are usually present in past house price surges, though other factors such as demographics and buoyant income growth also help explain these booms.
At the time, he said, interest rates in Ireland were at “very low levels”, with the European Central Bank’s main policy rate at 2 per cent, having been cut from a peak of 4¾ per cent in 2000.
“It was clear at the time that such low interest rates were not appropriate for Ireland’s rapidly growing economy,” he said.
Mr Ahearne also said that housing bubbles “are intrinsically hard to identify” and that this was “especially while they are occurring”.
“This is because it is very difficult to differentiate between price changes coming from underlying economic fundamentals – some of which are unknown, unobservable, or unquantifiable – and those based on so-called “irrational exuberance,” he added.