State supports banks’ spin on troubled loans

State supports banks’ spin on troubled loans

This article was originally published by The Business Post.

There has been some commentary around banks and vulture funds repossessing family homes, but exceptionally relevant information has been left out of the commentary. Vultures will swoop aggressively with family homes in the same way they did with commercial property.

Vultures were welcomed here with open arms when, in 2013, under then Minister for Finance Michael Noonan, IBRC mortgages were sold to Oaktree Capital under their vehicle Mars Capital. Since then, funds have focused on the commercial property market, and billions of euro worth of properties and sites have been bought and sold.

Vultures have been busy appointing receivers and looking at those who used to own the property and sites and then selling the properties and making millions from these transactions.

When vultures bought here they did so without offices, staff, lawyers but many, miraculously, had charitable status. Vultures are self-confessed predators that take advantage of a financial crisis. They don’t care about any housing or homeless crisis.

Vultures establish various layers of intermediaries. First with lawyers, so they can bid on portfolios. If successful, then they set up an office or seek to appoint a servicing agent to manage the loans on a day to day basis. Many mortgage holders who have had their loans sold to a vulture fund will only ever speak to a servicing agent. This takes time. Then there are staff. Given the competition among financial institutions for staff this also takes time (Start which bought PTSB loans two weeks ago is currently frantically trying to hire staff). Then they appoint receivers and lawyers.

There are very few areas in the world where a vulture fund has bought commercial and residential property where the prices have increased to the levels seen in Ireland. Honest vultures will ask me why would they would spend €3,500 or more to repossess a family home when the house is increasing in value by 8-10 per cent per annum. Honest vultures will tell you they will have exceeded their return without having to repossess many houses when they sell on. Who will they sell to next I wonder? A super vulture?

Between 2013 and 2016 court data shows that 3,163 families had a repossession order issued against them. Those who understand the complexities and the activities of funds will understand they have not really started seeking to repossess homes. It’s more than just issuing proceedings. Banks have been involved in repossessions since 2009. Vultures are late-comers and, therefore, comparing banks’ activity in repossessing statistics with vultures is incompetent.

Banks held significantly more loans than vultures and therefore there was always going to be more activity from banks in repossessing homes. This won’t stop, but they have solutions they can offer as people engage whereas vultures only want the asset.

For these reasons, and the vultures’ focus on commercial property over the past few years, they are only now turning to address the family homes they have purchased or are in the process of purchasing.

The Central Bank does not require regulated entities including vultures to state the number of types of restructures they do. So a fund can list, say a split mortgage on their website as a solution, but don’t mention they have only done two, and those as part of a court-mandated personal insolvency arrangement.

There is no transparency. In any event the Code of Conduct for Mortgage Arrears does not require any solution to be provided by banks, vulture funds or their agents. The code leaves these entities free to choose. This needs to be urgently changed by the Central Bank.

The Ulster Bank sale to Cerberus last week started the process of the wheels coming off the spin machine. The data the bank provided clearly showed that the 2,300 families involved had engaged and provided all necessary financial information for the bank to have given an average of three mortgage restructures. This beyond doubt shows engagement and also shows the issue is affordability.

No vulture can help these people. The state has failed to plan for the tsunami of home repossessions that’s ahead. Banks are simply outsourcing home repossessions .

Those who understand how a bank considers restructuring solutions will know they circulate around open market value. What is not clear is the number of people who could pay if the same discounts given to vultures were given to them. Banks have solutions for people who engage even after receiving repossession proceedings that can halt those proceedings. But vultures don’t have these solutions and are more likely to continue repossessing the home.

Ulster Bank’s data is beginning to show the cracks in the bank and vulture-lovers’ spin. The majority of those in long term arrears are not non-engagers or uncooperative. They simply can’t pay.

Vultures will (and some could reasonably argue it’s not their fault) repossess these homes and evict thousands of families. There has been a clear avoidance of the truth relating to the numbers of people engaged with banks who can see they can’t pay.

Rather than addressing this, they have been supported by the state which has, like cowards, allowed the loans be sold to vultures rather than come up with radical solutions to help keep people in their homes.

The loan sales were announced by PTSB and Ulster Bank after the Dáil closed for the summer, and while many politicians were on holidays for the announcements of the loan sales, they will all be around when they start evicting families.

David Hall is chief executive of the Irish Mortgage Holders Association