Banks have reportedly signed up to the government's leaky homes assistance package, in a move that would see the government guaranteeing 15-25% of losses stemming from bad loans made for repair or replacement of affected homes.
The Dominion Post this morning reported unamed sources saying the banks had signed up to the package, which would see the government cover 25% of replacement or repair costs, and in certain circumstances another 25% would be covered by respective local authorities that signed off building consents for affected buildings.
Leaky home owners would then be required to source the remaining 50% or 75% of costs themselves, which would generally have to be provided via a bank loan.
The package falls under the title of the Weathertight Homes Resolution Service (Financial Assistance Package) Amendment Bill, which is due to be passed after its third and final reading in Parliament next month.
Banks had been reluctant to agree to the package without some sort of government guarantee for losses due to the liklihood of some loans turning sour. Many leaky home owners currently owe more on their mortgage than their property is worth, often leaving them unable to access funds for repairs and unable to sell the properties.
Negotiations began last year looking at a 100% government guarantee for bank losses, meaning taxpayers would have picked up the full tab for bad loans made by the banks for replacement or repair of leaky homes.
However, in March this year the New Zealand Bankers' Association, which is negotiating with the government on behalf of the banks, said in an oral submission to Parliament's Local Government and Environment Select Committee that it understood the government would only cover between 15% and 25% of any shortfalls from defaulted bank loans given under the scheme.
Interest.co.nz understands 15-25% of losses is still the ballpark figure for a guarantee from the government for any bank losses.
The New Zealand Bankers Association would not comment on today's report, other than repeating its comment given to the Dom that it was bound by confidentiality agreements:
"Negotiations between banks and government are ongoing., and we are confident the will be concluded before the package is rolled out to leaky home owners. As the content of the negotiations is confidential, we cannot comment on the details," a spokesman for the NZBA said.
A spokeswoman for Building and Construction Minister Maurice Williamson refused to comment on the Dom article.
15-25% of losses covered by taxpayers
In March, the Bankers' Association raised the prospect of the government covering 15-15% of any bank losses for loans given under the package.
"What the Government is offering is to enter into a loss sharing agreement with the Banks in relation to any amounts which are lent to fund the approved cost of leaky home repairs. This means that, in the event of a default, Government should contribute a proportion of any shortfall," NZBA CEO Sarah Mehrtens said in March.
"We note here that the credit support is provided in relation to the repair loan amount and not the total amount a customer has borrowed. While we cannot give the Committee exact figures, we expect the credit support extended by the Crown might cover 15 to 25 per cent of any shortfall on the repair loan. The remaining 75 to 85 per cent would therefore represent the Bank’s risk," Mehrtens said.
Banks have signed up
The Dominion Post reported unamed bank sources saying the banks had agreed to participate in the package.
"For the banks the key is the lending criteria and conditions. And they [the banks] are positive towards what the Government has done," one source told the Dominion Post.
The government assistance would "go a long way to help people meet the criteria". "An announcement is not too far away, we are just working on the fine print," the source said.
A further source said the banks had signed up because "it was political to do so".
Govt provision may not be big enough
In its Budget documents released on May 19 the government provisioned NZ$1.055 billion for payments made under the leaky homes scheme for its 25% contributions for costs, as well as the bank guarantee.
"There is a risk that the costs of the package will exceed the NZ$1.055 billion provided in the fiscal forecasts, as uncertainty remains regarding the extent of damage to eligible homes and the level of uptake," Treasury said in Budget documents.
An estimated 23,500 eligible leaky homes to fix as of January
A Department of Building and Housing report dated January this year estimated there were 23,500 eligible leaky dwellings to be fixed. This figure was based on a consensus forecast from a PricewaterhouseCoopers (PwC) report commissioned by the Government in 2009 suggesting 42,000 dwellings were likely to be leaky homes and only about 3,500, or 8%, had been repaired.
At the time of the PwC report it was estimated about 9,000 homes had fallen outside a 10-year liability limit, with another 6,000 homes estimated to have fallen outside this limit since the report was issued.
"It is estimated (therefore) there are 23,500 eligible households, so if as officials predict 70% of them take up this financial assistance package that equates to 16,450 leaky homes," the Department of Building and Housing said in January.
The PwC report estimated between 22,000 and 89,000 homes were leaky with the consensus forecast of 42,000. PwC estimated the total cost of fixing 42,000 leaky homes, including repair and transaction costs, at NZ$11.3 billion in 2008 dollar terms. The Government is currently incurring costs of about NZ$19 million a year running dispute resolution and related services. See the Government's Regulatory Impact Statement on the leaky home financial assistance package here.
The Government estimates the average cost of repair at NZ$27,500 to NZ$410,000 for stand alone houses depending on the level of repair needed from minor to full reclad, and NZ$16,250 to NZ$156,250 per unit for multi unit dwellings.
'Loss-sharing terms haven't changed in a while'
In Parliament on the way into Question Time this afternoon, Finance Minster Bill English said there had been a negotiations going on between the Crown and the banks in terms of the loss-sharing arrangement, "and as I understand it that’s progressing pretty well.”
Asked whether the government would guarantee somewhere between 15-25% of banks’ losses, English replied:
“The terms the government laid out quite some time ago now haven’t significantly changed. There’s been a lot of negotiation, but the key idea is that there’s some loss sharing and I gather we’re making very good progress on it.”
Asked if he was aware whether the loss-sharing agreement set out the government covering 15-25% of the losses, English replied:
“We’ve provisioned a pretty substantial contribution from the government into the scheme. That was in Budget 2010, so we think we’re pretty well covered.
"The idea of giving home-owners this option was to help a lot of them get on and solve their problem rather than sitting and waiting and hoping that something would happen,” he said.
“You’d be best to talk to Maurice Williamson about the detail of it, because he’s been handling the detail. The Crown’s been interested in working with the banks, of course who have their own risks – that they have security on a home that may not have the value that they think it has, backing the mortgage," English said.
“So we’ve been looking at loss-sharing arrangements and you’re better to talk to Maurice about just exactly how that will work.”
Asked whether the provision included costs for any losses under the loss-sharing agreement, English replied:
“I’d have to go back and look at exactly the terms that we laid down, but the government’s been keen to help with the problem, but share with the banks the job of making sure that the money is well spent.”
(Updates with English comments, govt provision, estimated number of homes affected)