Prime Time will be covering the vulture fund interest rate story tonight

Well done Brendan.

I liked your line about about being forced to shop in a supermarket that charges 50% more than all the others.

But the SF idea of re-introducing mortgage interest relief to deal with this issue?

Why is the taxpayer expected to come to the rescue yet again? There are other ways of preventing lenders from charging usurious rates.
 
It will takes months if not years before any legislation is passed to protect people like John Crosbie the taxi driver in Louth featured on the show.

The lenders may well be based outside the state so central bank unable to limit the interest rate they charge.
 
So the answer is that the taxpayer should subsidise interest payments to vulture funds?

How does that make sense?

I’ve long been of the view that “captive borrowers” that realistically cannot switch provider, like John Crosbie, deserve a degree of statutory protection.

My suggestion was along the French model where mortgage rates on outstanding mortgages over properties in the State cannot exceed a certain percentage (perhaps 30%) above the average rates charged by all lenders on all outstanding mortgages in the previous quarter.

I could draft a Bill to that effect in an afternoon.
 
I agree that tax relief is not the solution. Many people getting rental tax relief don't need it as they are paying low rent.

My solution for the Vulture prisoners is that they should be offered the same rates offered by the lender who sold the mortgages. And I would argue that the CCMA requires this. These people are being penalised for having had their mortgages restructured. The CCMA does not allow this.

Brendan
 
Sarenco said:
So the answer is that the taxpayer should subsidise interest payments to vulture funds?

How does that make sense?

I’ve long been of the view that “captive borrowers” that realistically cannot switch provider, like John Crosbie, deserve a degree of statutory protection.
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I fully agree. It's a quite specific problem that demands quite a specific solution.

Sarenco said:
My suggestion was along the French model where mortgage rates on outstanding mortgages over properties in the State cannot exceed a certain percentage (perhaps 30%) above the average rates charged by all lenders on all outstanding mortgages in the previous quarter.
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The Central Bank collects very good statistics on rates at all terms and it would be pretty simple to calculate a reference rate for use in any legislation.
 
Sarenco said:
My suggestion was along the French model where mortgage rates on outstanding mortgages over properties in the State cannot exceed a certain percentage (perhaps 30%) above the average rates charged by all lenders on all outstanding mortgages in the previous quarter.
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But this would have limited effect in a dysfunctional market like Ireland. All the lenders except AIB had and have artificially high variable rates. For example, the BoI SVR is 4.5%. Ulster Bank was similar.

So the average itself is way too high.

Much better to require the vultures to offer the rates on offer from the sellers of the funds.

A small group of BoSI and Danske customers would not be protected, but most of these were on trackers. They could be protected by setting a maximum rate of, say , 3 months Euribor +2% - that would still be 4.5% today. And if the lenders had some issue with this, they could apply to the Central Bank for an exception.

Or maybe the lower of 3 months Euribor +2% and 30% above the average. (Sarenco - could you still draft that in an afternoon?)

Brendan
 
Brendan Burgess said:
Much better to require the vultures to offer the rates on offer from the sellers of the funds.
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What if the seller of the loan exits the market or no longer offers a comparable rate? Who would be a buyer of a loan portfolio if the vendor could influence pricing policy indefinitely via its rates? There would be far too much risk.

A statutory protection for all borrowers is much more straightforward than something elaborate. There is a cap to stop moneylenders exploiting their borrowers. It is perfectly possible to have the same thing for all mortgage borrowers.
 
Brendan Burgess said:
So the average itself is way too high.
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Our new business rates are some of the lowest in the eurozone!

The Central Bank already collects and publishes this data so it would be straightforward to use this as the reference rate.

I don’t think it makes sense to use euribor as the reference rate - vulture funds are not banks.
 
NoRegretsCoyote said:
What if the seller of the loan exits the market or no longer offers a comparable rate? Who would be a buyer of a loan portfolio if the vendor could influence pricing policy indefinitely via its rates? There would be far too much risk.
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Are you talking about Ulster bank ?
I thought they sold all their performing loans to AIB, it was the non performing loans that were being sold to a fund ?
Surely you are not suggesting that non performing loans should be treated the same as performing ones?
 
NoRegretsCoyote said:
What if the seller of the loan exits the market or no longer offers a comparable rate? Who would be a buyer of a loan portfolio if the vendor could influence pricing policy indefinitely via its rates? There would be far too much risk.

A statutory protection for all borrowers is much more straightforward than something elaborate. There is a cap to stop moneylenders exploiting their borrowers. It is perfectly possible to have the same thing for all mortgage borrowers.
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Hi Coyote

There are different cohorts here and there may be different solutions

1) Active bank selling to a vulture fund i.e. ptsb to Pepper

Those customers took out their mortgage with ptsb expecting to have the ptsb rates available to them.
The CCMA prohibits lenders from charging customers higher rates because they are in arrears.

So Pepper should base their acquisition price knowing that this protection applies to the potential acquisition.

The Central Bank could direct this in the morning if they were minded to do so.
If I can't persuade them to do this, then I will lobby for legislation to do it.

2) Dead bank selling to a vulture fund i.e. BoSI to Pepper

My solution does not fix this problem. But that does not mean you get rid of my solution because it does not fix all problems.
You look for a separate solution to this problem.

Sarenco's solution would have some impact here. If the average variable rate charged to existing customers is 4%, then the vultures can't charge more than 5.2%. It's better than nothing, but it's potentially still too high as all Irish banks , apart from AIB, had very high fixed rates, but even higher variable rates. 4.5% SVR - just not responding to ECB.

Linking to Euribor might not be perfect but its' better. It makes no sense to link to Euribor? But if so, then it makes no sense to link to the rate charged by banks.

3) The mortgage market generally
We had no competition for years and Irish banks exploited their customers. Then we had a bit of competition and BoI and ptsb distorted the market by charging the back book higher rates than new customers. This can be addressed by prohibiting this behaviour and requiring banks to adhere to the CPC and to treat customers fairly.

Brendan
 
But they are as different as mortgages and the price of groceries, so you would need different solutions.

Brendan
 
Brendan Burgess said:
But they are as different as mortgages and the price of groceries, so you would need different solutions.
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It's not very hard to legislate so that "no interest rate on a mortgage secured on Irish residential property shall be more than 200bps above a published reference rate".

No harder than to legislate to ensure that "no tomato shall be sold at more than €10 per kilo".

Both conditions are extremely simple to monitor.
 
NoRegretsCoyote said:
"no interest rate on a mortgage secured on Irish residential property shall be more than 200bps above a published reference rate".
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Maybe so, but it does not achieve what is needed for these borrowers.

Doing something because it's easy is no reason for doing it.

If it turns out that ptsb charges the "published reference rate " why should the former ptsb customers have to pay 2% more?

Brendan
 
Brendan Burgess said:
Maybe so, but it does not achieve what is needed for these borrowers.
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Well, it depends what you are trying to achieve.

If a borrower can’t switch to another provider, then it follows that he is a high-risk borrower. You would expect a high-risk borrower to pay a premium on the average market rate.

But I personally think that captive borrower is deserving of a degree of statutory protection. I think there should be some limit on the extent of the premium over the average market rate that can be charged.

Any solution should be as simple as possible to achieve the desired level of protection, with the minimum impact on the broader market.
 
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