Many Irish mortgage holders are at risk from having their mortgages sold onto unregulated ‘vulture funds’ that could hike variable rates mercilessly. For those in negative equity, the results could be catastrophic.

Irish Mortgage

Irish mortgage holders could lose vital protections

As banks are wound up or leave Ireland, their loan books are being sold off to the highest bidder, and it’s now becoming clear that some of these bidders aren’t subject to regulation by the Central Bank or Irish legislation regarding the code of conduct on mortgage arrears.

Michael McGrath, Fianna Fail’s finance spokesperson, says he’s planning to introduce a bill to the Dail what would force unregulated entities to respect consumer rights:

“Under no circumstance should mortgage holders lose these key protections if their financial institute decides to sell on their mortgages. It is scandalous that the government would allow a special liquidator it appointed to consider selling home mortgages to an entity not regulated in Ireland, resulting in the mortgage holders losing vital protections.”

No deals on the table for homeowners

Right now, 13,250 Irish Nationwide mortgages worth €1.8bn are up for grabs. As many as half of these are in arrears. And although the current mortgage holders have received letters asking them to make an offer to buy their loans, KPMG, the special liquidator of the Irish Bank Resolution Corporation has since backtracked, saying it won’t be doing deals with individual borrowers as it would be too time-consuming. Most borrowers behind with their payments or in negative equity won’t be able to find new lenders.

In the absence of any ‘regulated’ bidders, the only real hope for the homeowners is their loans are transferred to the National Asset Management Agency (NAMA). Although this too is an unregulated institution, the government has indicated that NAMA would comply with consumer protections currently in place. The minister for finance, Michael Noonan said:

“NAMA will be mindful of its legal obligations and general market obligations.”

A powerless ombudsman

Complaints made to the ombudsman about the way the sale is being handled have been ineffective. The ombudsman can do nothing due to the terms of the emergency legislation rushed through to liquidate IBRC last year. If a hedge fund or private equity investor emerges as the buyer, the ombudsman will have no control and the new owner of the mortgages will not have to work out a solution for mortgage holders unable to meet their repayments. Financial institutions are only regulated by the Central Bank if they engage in new lending.

While the government promised borrowers that nothing would change when the IBRC was put into liquidation in February 2013, the IBRC refused to give details of restructuring agreed to with the Central Bank, forcing Noonan to say later that the IBRC didn’t have the same obligations as other banks to make such disclosures. He added:

“The continued applicability of the Central Bank code of conduct on mortgage arrears and mortgage arrears targets programme will depend on the regulatory status of the ultimate acquirer of the portfolio, which we will not know until the sales process has concluded.”

Brendan Burgess of askaboutmoney.com, a personal finance site, believes that the IBRC has restructured fewer mortgages than other banks:

“If it won’t provide the information, we can draw our own conclusions. Debt advisers cannot help IBRC’s customers without knowing what sort of restructuring options it is offering.”

Even fund giants may not want these loans

IBRC borrowers might be consoled to know that when Tanger, an affiliate of American private equity company Apollo Global Management LLC (NYSE:APO), bought 2,000 non-performing mortgages from Bank of Scotland (Ireland), it said it would comply with Central Bank consumer protection rules, including those relating to arrears. And just this month, Carval, another American investment fund, pulled out of the bidding, indicating that even big fund houses are anxious about what could happen with these mortgage books.

McGrath remains unconvinced:

“Hedge funds and private equity funds will only sign up to the Irish consumer protection code and the code of conduct on mortgage arrears if it is in their commercial interests to do so.”