# Why are mortgages sold to Vulture Funds not regulated by the Central Bank?



## Brendan Burgess (11 Feb 2014)

*[FONT=&quot]Why would mortgages sold by IBRC to a vulture fund not be covered by the Central Bank [/FONT]*

[FONT=&quot]Because of a clause in the MIFID Act  2007 which amended the Central Bank Act 1997. See below. [/FONT]

[FONT=&quot]The objective of this amendment was to exempt securitised loans from Central Bank supervision. But the side effect is that any loans – mortgages or otherwise – sold by authorised lenders are not covered by the Central Bank’s Codes. They are covered by the Consumer Credit Act. [/FONT]

[FONT=&quot]This does not only apply to mortgages.  GE Capital has sold  ordinary loans and there are reports that the buyer is claiming that it is not covered by the Consumer Protection Code in its dealings with its customers. [/FONT]

[FONT=&quot]This could be fixed easily by removal of the exemption “c” highlighted below. [/FONT]






> [FONT=&quot;]MARKETS IN FINANCIAL INSTRUMENTS AND MISCELLANEOUS PROVISIONS ACT 2007[/FONT]
> 
> [FONT=&quot;]19.—The Central Bank Act 1997 is amended—[/FONT]
> 
> ...



So, Section 19 of the MIFID Act 2007 
amended the definition of "retail credit firm" in the Central Bank Act 1997
to specifically exclude "*[FONT=&quot;]a person to whom all or any[/FONT]* *[FONT=&quot;]part of that other person’s interest in the credit is directly or indirectly assigned or otherwise[/FONT]*
*[FONT=&quot;]disposed of"  [/FONT]*[FONT=&quot;]in other words a vulture fund which buys a mortgage created by some other organisation.[/FONT]*[FONT=&quot;]
[/FONT]*


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## Sunny (12 Feb 2014)

No so sure it could be 'easily' fixed as you say. Deleting that section would have huge implications for international financial services in Ireland. By all means try and protect mortgage holders but this law was drafted in this way for a reason. It's not easy to amend it with a stroke of a pen and not have consequences.


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## WizardDr (6 Mar 2014)

As it turns out all the securitisation vehicles involving residential mortgages from the like of UB, PTSB, BoI, ICS - are all serviced by the originators.  As part of the rules surrounding securitised mortgages, originators were told by the CBI that there must be no difference in treatment of customers.

The Rating Agencies referred to this a number of times.

The CBI may claim that they do not write the legislation and all that nonsense - its easy enough to fix - put in the Contract For the Sale of the Mortgages. Period - end of - no legislation needed.

Making it a contractual condition is all it takes.


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## Brendan Burgess (24 Jun 2014)

Niall Brady of the Sunday Times has won a merit award in the Justice Media Awards for his coverage of this issue. 

A SECOND MERIT AWARD WENT TO: 

(2) Niall Brady of The Sunday Times for his article: ‘Fight for your
consumer rights’.

What the judges said: 
“This article took to task a number of glaring gaps in customer protection legislation that could cost the consumer dearly. Niall Brady and The Sunday
Times are to be commended for their campaign to win a fairer deal for homeowners in relation to unregulated so-called ‘vulture funds’, which see
banks selling off mortgage books without involving homeowners in those decisions. 

“Due to this newspaper’s efforts to highlight such a bad deal for consumers, the Government has promised legislation that will force investors in vulture funds to respect consumer rights when they buy mortgages from banks that are being wound up, or which have decided to leave the country. Niall Brady is being recognised for raising this, and other significant issues, relating to consumer law, which might otherwise have evaded his readers.”


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## Brendan Burgess (24 Jun 2014)

Here are the articles which won the award 

[FONT=arial, sans-serif]_ *Prey to the vulture funds*
As banks close down, they can dump you and your loans into the hands of unregulated new owners
Niall Brady Published: 1 December 2013
T  housands of mortgage holders and other borrowers are at risk of losing  valuable consumer protections, as banks prepare to offload loans as
  part of their exit strategies from Ireland.
Many  loans could end up owned by so-called vulture funds: private equity and  hedge funds. They make money buying loans from distressed
  banks for a fraction of the amount owed by the borrowers.
The  deals can be hugely profitable for the loans’ new owners, especially if  they secure them at a deep discount. But borrowers have nothing to
  gain. They will be expected to repay the debt in full, even though the new owners will have paid far less than face value.
Vulture  funds are typically not regulated by the Central Bank, and so cannot  lend to borrowers who may want to top up their mortgages. Funds
  do not need to be regulated to buy existing loans — only to offer new ones.
Crucially,  borrowers lose the safeguard of the consumer protection code and the  code of conduct on mortgage arrears when their loans are
  bought by unregulated entities.
Borrowers  treated unfairly by the new loan owner cannot go to the financial  ombudsman service because it is precluded from hearing
complaints against unregulated lenders.
  The National Consumer Agency (NCA) has been receiving  requests for help from borrowers who accuse unregulated lenders of using  aggressive
payment collection tactics.
Karen  O’Leary, the chief executive of the NCA, said: “We’re concerned  borrowers are not being told how their rights will change after loans  are
  sold.”
When the loans were taken out,  the terms of business would have given borrowers the right to go to the  ombudsman when disputes arose.
“Nobody tells them,  however, that they lose this free, statutory dispute resolution service  when their loans are sold,” said O’Leary. “How can it be
  fair to consumers to change the terms of contracts in this way?”
Financial services ombudsman Bill Prasifka said he was concerned by the increasing sales of loan books to unregulated entities.
  “At the very least, financial providers that are leaving  the market should exit in such a way that provisions are made for  continued customer
protection,” he said.
At  least nine lenders have disappeared or are preparing to leave Ireland  since the financial crisis erupted in 2008, although not all have sold  their
  loan books.
Friends First Finance  closed in 2009, followed by Bank of Scotland (Ireland), Halifax and  Postbank in 2010. GE Money left in 2012, selling its
Irish mortgage business to Pepper Home Loans, an Australian lender that is regulated in Ireland by the Central Bank.
  Irish Bank Resolution Corporation (IBRC), set up by the  state in 2011 to take over the remains of Anglo Irish Bank and Irish  Nationwide, is
being wound up. ACC Bank and Danske  Bank will shut their doors in 2014. Lloyds is offloading the Bank of  Scotland (Ireland) loanbook bit by
  bit.
Among the first to go were hire  purchase loans sold in 2012 to VHP Ireland, an unregulated entity owned  by Varde Partners, an American
private equity group.  VHP has filed lawsuits against more than 70 former customers of Bank of  Scotland (Ireland) this year over payment
  disputes.
The wind-up of IBRC will be  much quicker. Its special liquidators are looking for a single buyer for  all of the €1.8bn of mortgages owed by
13,250 former members of Irish Nationwide in a deal known as “Project Sand”.
  If a buyer cannot be found by the end of the year, the  mortgages will be transferred to the National Asset Management Agency  (Nama), which is
specifically excluded from oversight  by the Central Bank. Borrowers will lose the protection of the consumer  protection code and the code of
  conduct on mortgage arrears if their loans go to Nama — despite Nama being owned by the state.
ACC  Bank plans to outsource some of its loans when it shuts down next year,  although it insists it will retain ownership of all of the debts.
  Danske Bank has yet to tell customers what will become of  their loans.Catherine Murphy, an independent TD for Kildare North,  accused the government of reneging on assurances given last February  when it decided
  to liquidate IBRC. Michael Noonan, the finance minister,  told the Dail at the time it was “critically important that ... mortgage  account holders
understand that their situation following the liquidation should generally remain unchanged”.
  Murphy said: “I don’t see how consumer protections can  continue to apply if the mortgages are sold to third parties not  regulated in the state.
There’s a conflict between the assurances given in February and what’s happening now.”
  Brendan Burgess of personal finance site askaboutmoney.  com, which campaigns on behalf of IBRC borrowers, said he expects their  loans will
go to Nama. “Nama is a professional  organisation and I would call on it to comply voluntarily with the code  of conduct on mortgage arrears or
  an equivalent standard,” he said.
IBRC  borrowers with arrears might be better off if the loans went to a  vulture fund. “It might suit hopeless cases who need debt forgiveness,”
 said Burgess. “Vulture funds are more likely to do deals because they  would buy the loans at big discounts. Nama is precluded by law from  doing
 deals with borrowers.”
Many banks are  outsourcing the management of loans to specialist management companies,  leaving some borrowers confused about who owns
their  loans. In these cases, however, ownership remains with the banks, which  means borrowers retain the protections given to customers of
  regulated entities.
The outsourcing  specialists look after day-to-day management of the loans, but the banks  remain responsible for setting interest rates and
handling  arrears. All of Bank of Scotland’s remaining mortgages and loans are  administered by a company called Certus, set up by some of the
  bank’s former management.
Allied Irish  Banks has also outsourced some mortgages to Certus. ACC Bank plans to  transfer some of its loans to Capita, another outsourcing
specialist,  next year. The loans sold by Bank of Scotland to VHP are managed by  Bluestone Asset Management (Ireland), in which Bank of
  Scotland in the UK is a shareholder. GE Money’s personal  and car loans are managed by Pepper, which has acquired only the  mortgages that
were owned by GE Money.
We explain the consumer protections that are in jeopardy.
  THE CONSUMER CREDIT ACT 1995
All loan  agreements, including those with unregulated vulture funds, must comply  with this law, which provides basic protections for borrowers.
It  requires lenders to use a common benchmark — the annual percentage rate  — to make it easier for you to compare interest costs between
  different credit providers. You also have a 10-day cooling-off period during which you can back out of a loan agreement.
The  act gives important protections if you buy a car or other equipment on  hire purchase. It allows you to back out of the deal at any time and
  limits your liability to half of the payments due under  the contract. Once half the payments are made, you can hand back the car  and walk
away. If you have paid less, you can still  end the agreement early, although you will be liable for the shortfall  between half of the payment and
  the amount you have paid.
A key  weakness, according to O’Leary, is that the act applies only to loan  agreements — not to lenders. “Consumers’ ability to exercise their  rights
under the act is limited, especially if they  are in arrears, because there’s no oversight of lenders that are not  regulated by the Central Bank,” she
  said. “Nobody’s watching to make sure they behave properly.”
THE CONSUMER PROTECTION CODE
This  applies only to lenders regulated by the Central Bank, excluding credit  unions and hire purchase firms, giving valuable protection especially
  to borrowers in arrears.
To guard  against harassment, the code restricts lenders to making no more than  three unsolicited phone calls a month in arrears cases. The
consequences  of falling into arrears must be explained by lenders, including a  reminder that borrowers might want to contact the state-run Money Advice  and Budgeting Service.
  The code also regulates how banks sell loans. They cannot  make unsolicited offers of credit, increase credit limits without a  request from
borrowers, or make loan approval  conditional on buying another financial product such as insurance. When  loans are refused, the code gives
  borrowers the right to a written explanation.
Lenders  must warn mortgage applicants about the consequences of interest rate  swings by showing them how payments would rise following a
  hike of two percentage points. Lenders must also give 30 days’ notice of  interest rate changes. If borrowers want to switch from a tracker
mortgage, lenders must warn them of the consequences, including a reminder that another tracker deal would not be an option.
  CODE OF CONDUCT ON MORTGAGE
ARREARS
It  forbids regulated lenders from seeking repossession until at least  eight months after a mortgage falls into arrears — provided the borrower  is
  co-operating.
The code requires banks  and borrowers to go through a mortgage arrears resolution process, aimed  at establishing how much borrowers can
afford to pay and restructuring the loan based on that amount.
  The new deal cannot force borrowers to give up a tracker mortgage unless the alternative being offered is more affordable.
Mortgage move is a worry
DENISE  McCORMACK fears for the future of the mortgage she borrowed from Irish  Nationwide in 2006 to buy her home in Co Wexford. It
  was transferred to Irish Bank Resolution Corporation  (IBRC) in 2011 when it took over a chunk of the disgraced building  society. The mortgage
is now on the move again as a state-appointed liquidator breaks up IBRC, selling it off in parts to the highest bidder.
  “I could lose my home if the mortgage ends up with an  anonymous vulture fund, even though I’m not in arrears and have equity  in the
property,” she said. “I’m afraid it would  increase the interest rate to a level I couldn’t afford. I’m also afraid  of how I would be treated if I lost my
  job and couldn’t pay.” McCormack is angry that the special  liquidators, Kieran Wallace and Eamonn Richardson of accountants KPMG,  areoffering IBRC’s 13,250 mortgages at a discount to institutional  investors — but not to the individual borrowers. “I’ve asked them for  first refusal
  before they sell my mortgage,” she said. “I also want to  know who’s going to buy it and for how much. They haven’t answered my  questions.”
McCormack and others in the same predicament have set up the IBRC Mortgage Holders pages on Facebook and askaboutmoney.com to
  campaign for a say in what happens to their loans.
“We’re  hoping the government will ask Allied Irish Banks or Permanent TSB [two  state-controlled lenders] to refinance our mortgages so that we
  could buy them from IBRC at any price it’s prepared to sell to a third party,” she said.
IBRC  mortgages will end up in Nama if no buyers are found. “I don’t want to  end up in a dead bank and be in this position in 2020, when Nama
  is supposed to be wound down,” McCormack said.
_[/FONT]
[FONT=arial, sans-serif]_HOME LOAN PROTECTION TRADE-OFF IS A  NO-NO     19 Jan 2014

There is a lot more to Ireland’s  shrinking banking industry than branch closures, new fees and interest  rates that are falling for savers but
remaining  unchanged for borrowers. Up to a dozen lenders, ranging from specialist  hire-purchase firms to household names such as Bank of
  Scotland (Ireland), MBNA, ACC Bank and Danske Bank  (formerly National Irish Bank) have decided to cut their losses by  leaving the country.
Liquidators are breaking up what  remains of Anglo Irish Bank and Irish Nationwide, selling off the parts  to the highest bidders. The shake-up
  within Irish banking is continuing, and more institutions seem destined for the rubbish bin of history.
Dumping  customers who have money is no problem — Ireland’s state-owned banks  are only too eager for a chance to shake them down. A
  tougher breed of predator is needed, though, to take on  the customers who owe money to the departing banks, especially when  nobody knows
how many of these borrowers will resort  to new insolvency and bankruptcy arrangements to rid themselves of debts  they cannot or will not
  repay.
This is the sort of high-stakes  gamble that should pay off handsomely for the hedge funds and private  equity funds (they reject the term “vulture
funds”)  currently picking over the entrails of Ireland’s credit boom. The trick  lies in picking up Ireland’s risky debts at discounts that will be
  greater than the inevitable bad debts coming down the  line. There are opportunities, as well as threats, for the borrowers  concerned. A hedge
fund that bought your mortgage at a  knock-down price has a lot less to lose from writing off part of the  debt than the bank that gave you the
  original loan.
The downside is that  hedge funds and similar entities are not regulated by the Central Bank  of Ireland. This means that homeowners lose a string
of  protections when their mortgages are sold. These include the code of  conduct on mortgage arrears, and access to the Financial  ServicesOmbudsman. Unregulated entities are also excluded from the  targets set by government to force banks to face up to the mortgage  crisis.
  The Department of Finance says it is looking at the  problem, but warns that the rights of consumers must be balanced against  the need to allow
banks to manage their affairs as  they see fit. If past experience is any guide, this is another trade-off  that consumers are destined to lose. This is
  not good enough, especially as many of the mortgages up  for grabs are in deep arrears. The vulnerable borrowers caught in the  middle need all
the consumer protection they can get.  This is why The Sunday Times is launching a campaign in our  Business+Money section today seeking to
  end the scandal of homeowners losing out when their mortgages are sold.


[FONT=arial, sans-serif] *Fight for your consumer rights*
Three glaring gaps in customer protection legislation could cost you dear
*Niall Brady Published: 23 February 2014*
T  HE SUNDAY TIMES has scored a victory in its campaign for a fairer deal  for homeowners, with the government promising legislation to force
  unregulated vulture funds to respect consumer rights when  they buy mortgages from banks that are being wound up or leaving the  country.
The proposed Sale of Loan Books to  Unregulated Third Parties Bill will force vulture funds to honour the  Central Bank’s code of conduct on
  mortgage arrears and decisions made by the Financial Services Ombudsman.
It  will come too late for some homeowners, including former customers of  Irish Nationwide Building Society and Bank of Scotland (Ireland),
  because their mortgages have already been sold or will change hands in the coming weeks.
Michael  Noonan, the finance minister, said last week the proposed legislation  would not be enacted until 2015. “The matter is legally complex as
  it could affect contracts already entered into,” Noonan  said. “My officials are currently examining the issue with their  colleagues in the Central
Bank and the Attorney General’s office.”
  The delay could spark a rush to dispose of mortgages before the bill  becomes law, with banks fearing the loans would be worth less if  prospective
buyers had to comply with consumer protections.
  Customers of bust or extinct banks are not the only ones at risk of  losing their rights. We explain how many of the protections that  consumers
take for granted hang by a thread.
MORTGAGES The government claims homeowners
  will not lose out by its delay in enforcing their rights  when vulture funds buy their mortgages. Some unregulated funds have  promised to comply
voluntarily with the code of  conduct on mortgage arrears and other protections. It is also unlikely  the courts would allow lenders to repossess
  homes if they had failed to respect the code.
These  reassurances are not good enough, according to Michael McGrath, Fianna  Fail’s finance spokesman, who introduced a private member’s
  bill in the Dail last week that would give immediate protection to  homeowners whose mortgages are sold to unregulated third parties.
“Unregulated  entities may comply with the code for as long as it suits them but,  when they decide not to comply with it any longer, there is sweet
  damn all any mortgage holder can do about it,” he said.
Gambling  on court decisions, according to McGrath, is not an acceptable way of  dealing with mortgage arrears. “Are we really suggesting this is
  the fate we want people to be left with — that the  unregulated entity can take one as far as court, where one hopes the  judge will not grant a
repossession order because it did not comply with the code?” he said.
  The government is delaying the legislation because it  fears imposing consumer rights would damage the value of the Irish  Nationwide
mortgages, which will be sold next month by the liquidators of the state-owned Irish Bank Resolution Corporation (IBRC).
  Brendan Burgess of Askaboutmoney.com, a personal finance  site, campaigned on behalf of IBRC’s 13,000 mortgage borrowers. He said:  “It’s
scandalous the Irish government won’t change  the law immediately simply because it’s in the market trying to sell  mortgages. It’s hypocritical of
  the taoiseach and his government to criticise banks for  taking too long to deal with mortgage arrears while throwing IBRC  borrowers to the
wolves.”
Burgess  said IBRC borrowers should be worried if vulture funds are prepared to  pay more for their mortgages if they do not have to respect
  consumer rights. “It shows potential buyers have no intention of adhering to the code if they are not forced to.”
COMPLAINTS Consumers are being denied justice
because they have only six years from the time a
  financial product is mis-sold to seek redress through the  courts or from the Financial Services Ombudsman. This time limit is  unsuitable for
long-term products such as pensions,  mortgages and investments as it often takes much longer than six years  for problems to come to light.
  Among those hardest hit are homeowners facing big  shortfalls at the end of endowment mortgages sold 20 years ago. The  risks were not
explained at the time but access to the ombudsman has been denied because of the six-year rule.
  Bryan Fox of Bryan F Fox & Co solicitors in Dublin  believes homeowners could have more success in the courts if the  six-year statute of
limitations is challenged successfully.
  He is preparing a court case for a client left with a shortfall of  €12,000 at the age of 70 on an endowment mortgage sold by First Active,  now
owned by Ulster Bank. Fox believes the courts  will hear the case if they can be persuaded that the statute of  limitations should start from the
  time that First Active first warned that the value of the  endowment policy could go down as well as up — not from the time the  mortgage wastaken out.
Access to the ombudsman is  likely to be reformed when the office is merged with the Pensions  Ombudsman, as planned by government. Dermott
  Jewell, who chairs the council overseeing the Financial  Services Ombudsman, said: “We have flagged to the Department of Finance  that [the
merger] would present an opportunity to review the legislation pertaining to the period of limitation.”
  The merged office could adopt the more flexible rules  applied by the Pensions Ombudsman, Paul Kenny. His time limit for  complaints is not
triggered until after pension  problems have emerged, giving complainants three years to act from the  time they become aware of an issue or
  ought to have been aware of it. Kenny also has discretion to bend the rules if he sees fit.
Some  people still fall between the cracks, however, including Pearse  Heffernan from Cork, whose pension dispute with a former employer was
  rejected by the Pensions Ombudsman because it dates from the 1980s, before the office was established.
“The  rules are weighted in favour of corporate entities because disputes  about events that happened before 1996 are off limits to the
  ombudsman,” Heffernan said.
[/FONT]

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