A vulture fund that bought a portfolio of distressed mortgages has pushed up the interest rate it charges homeowners, despite being told this could push many into default.
Many of the mortgages are understood to be in default as they were originated by a subprime lender. The move by largest vulture in the State, Promontoria, is seen as a test case, and reflects the fact that vultures now realise that they overpaid for loan portfolios.
Vulture funds have made big returns in commercial property here but the messy mortgage arrears sector is proving a minefield even for Wall Street financiers. Courts are very reluctant to grant repossession orders, and large numbers of homeowners are not engaging.
This is leading to pressure on vultures to make a return on distressed loan books they bought, prompting a number of portfolios to change hands lately. But this is the first time a rate rise has been imposed. This is at a time when mortgage rates in this country are falling.
Homeowners were shocked this week to get letters from credit servicer Link Asset Management telling them their variable rate was rising from 4.98pc to 5.01pc from the start of this month.
This will mean an extra €144 a year in payments for a family with a €300,000 mortgage. Although the percentage increase in the variable rate is not big, the move is seen as testing the water to see if homeowners whose mortgages were sold will accept rate rises.
The mortgages impacted were bought by Promontoria Land from Stepstone, a subprime lender during the boom that was owned by KBC Bank and Lehman Brothers.
Promontoria is the Irish arm of US vulture fund Cerberus. There are close to 1,000 loans affected. The letters about the rate rise were sent out by the Dublin offices of Link Asset Management, which manages the portfolio.
Mortgage campaigner David Hall claimed the vulture fund business case was now a busted flush. He said the narrative that there will no large volume of repossessions and the reluctance of courts to allow repossessions had meant people were not engaging with vultures that bought distressed loan books.
Mr Hall has been claiming for a while that there will be a “tsunami of repossessions”. But he said those who countered him on this had convinced people there will be no repossessions.
This has led to a situation where some of those whose loans were sold to vultures were not engaging. Vultures were unable to make a return on their portfolios, he claimed. This was prompting a number of funds to “flip” loan books, making a loss. It was also why Promontoria was testing the water, he said.
“The vultures bought too expensively. Their model requires getting cash in quickly, but you can’t get blood out of a stone. People just don’t have the money, and they can’t get repossessions. The game is up for vultures,” he said.
Asked why it was increasing the variable rate neither Link Asset Services nor Promontoria commented. They also declined to reply when asked if the move was an attempt to push people into default in a bid to force a repossession.