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

[Brendan Burgess]

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.

I fully support sub-prime lending.

But I agree with the CCMA prohibition on banks charging customers more because they are in arrears or restructured. So the mortgages sold by ptsb should be on the same rate as existing ptsb customers.

Brendan

 

[Sarenco]

Even though though the fund that bought the book doesn’t have access to the same cheap source of funding as PTSB?

Also, PTSB offers mortgages at a variety of different rates - which particular rate should apply to transferred mortgages?

I really don’t think that your proposal is workable or sensible.

 

[Brendan Burgess]

Even though though the fund that bought the book doesn’t have access to the same cheap source of funding as PTSB?

Why should you penalise the mortgage holder for this?

They took out a mortgage with a bank.
They should get the same rates the bank offers.

It's very workable. ptsb's rates are published. No calculations are needed.

Brendan

 

[Sarenco]

Why should you penalise the mortgage holder for this?

It’s not about punishing anybody - it’s about providing a degree of protection to borrowers that can’t access market rates because they are high-risk candidates.

It's very workable. ptsb's rates are published. No calculations are needed.

Yes, but which rate is applicable? Standard variable? Five-year fixed? Something else?

 

[Brendan Burgess]

Yes, but which rate is applicable? Standard variable? Five-year fixed? Something else?

If they were still customers they could avail of any rate ptsb offers their existing customers, so that would be what should be offered. All of them.

Brendan

 

[Sarenco]

If they were still customers they could avail of any rate ptsb offers their existing customers, so that would be what should be offered. All of them.

That’s not going to work Brendan.

Requiring a loan transferee to offer whatever the transferor lender offers at any given point in time just isn’t realistic.

The vulture fund can’t fund their book as cheaply as a deposit taking bank like PTSB. And we definitely don’t want to make it difficult for lenders to offload or securitise their back books.

 

[onequestiononly]

Did the vultures just increase rates for those in arrears and restructured? Those paying their mortgages as normal were not affected.... is that right?

 

[Brendan Burgess]

The vulture fund can’t fund their book as cheaply as a deposit taking bank like PTSB.

Hi Sarenco

You are looking at this simply from the point of view of the vulture fund and ptsb.

But you must also look at it from the borrowers' point of view.

They took out mortgages with ptsb, a deposit funded bank, and had a reasonable expectation that their mortgage rates would be the rates offered by ptsb.

You can't just say to them - "hard luck - your mortgage has been bought by a vulture who overpaid for them and so must recover the cost by charging you a much higher rate that you would be paying had your mortgage stayed with ptsb."

Brendan

 

[Brendan Burgess]

Did the vultures just increase rates for those in arrears and restructured? Those paying their mortgages as normal were not affected.... is that right?

No, they increased the rates for all their customers.

However, they would have very few "normal" customers. They bought the loans classified as non performing. Anyone whose loan has since become performing would have switched to another lender.

They also bought the performing books of BoSI and Danske but most of these were trackers.

Brendan

 

[Brendan Burgess]

Brian Carey covers it in today's Sunday Times (behind a paywall)

Bad standard set by vulture funds’ variable rates

There is a mild degree of panic in official circles regarding the very serious plight of the 38,000 or so borrowers whose mortgages were sold to investment fund

www.thetimes.co.uk

There is a mild degree of panic in official circles regarding the very serious plight of the 38,000 or so borrowers whose mortgages were sold to investment funds and who now face sky-high interest rates.
...
Up to last summer, there were few signs of trouble. The standard variable rates on loans acquired from the likes of Permanent TSB did not change when transferred to the ownership of funds and under the supervision of service managers such as Pepper.

Yet when the European Central Bank rates moved, a huge divergence rapidly emerged in the standard variable rates of PTSB and Pepper mortgage customers.

PTSB, with its fat deposit base, absorbed the ECB increases for its SVR customers. The non-bank lenders, who are market-funded, passed on increases to protect their margins and the return for their investors.

 

[NoRegretsCoyote]

They took out mortgages with ptsb, a deposit funded bank, and had a reasonable expectation that their mortgage rates would be the rates offered by ptsb.

You can't just say to them - "hard luck - your mortgage has been bought by a vulture who overpaid for them and so must recover the cost by charging you a much higher rate that you would be paying had your mortgage stayed with

Brendan what you're proposing would end the market for NPL sales. No one would buy a loan portfolio if a vendor could set the interest rate forever more.


I think NPL sales are a good thing. Banks that are spending half their time dealing with arrears cases won't have the time and energy to focus on their core purpose: making loans. There is plenty of evidence that a banking sector weighed down by NPLs is bad for economic growth.

There are trade-offs here of course between profitability and consumer protection. I've posted extensively on why and how vulnerable borrowers should be protected from usurious rates. But you don't need to ban NPL sales to protect consumers.

 

[Brendan Burgess]

Hi Coyote

1) I would prioritise consumer protection. I would not allow the sale of NPLs to result in detriment to the borrower.
2) It would not end NPL sales. ptsb would continue to charge market rates, so the vulture fund knows that they would be getting market rates.

The vultures have done very well out of Irish mortgages. They bought trackers very cheaply and now they are very profitable again.

They are getting 6.5% on ptsb SVRs . They bought them at a discount. As far as I know, they funded them in advance with long term money so I doubt that the increase in ECB rates affected them.

Brendan

 

[skrooge]

Anything that undermines the ability of vulture funds to determine mortgage rates will impact the value of any future price of distressed loans. In such a situation you will prolong the drag on the economy of a banking system coming to terms with the fact it made bad lending choices. At worst the banks will not find a buyer and have to deal with the loans themselves.

We're in danger of treating the symptoms not the disease. The reason vulture funds were the approach taken was it was too costly and and too time consuming for banks to repossess/foreclosure on loans.

Steps have been taken - prevention is better than cure - mortgage lending is much more regulated. However, we still fall down on the legal side of things. We still don't have an efficient system that allows for banks to access underlying collateral. Fix that first and there will be less need for banks to turn to vulture fund. At that stage we could consider restricting vulture funds but to do it before the other pieces of the puzzle are in place would be very risky.

 

[CarrotStick]

Hi Coyote

1) I would prioritise consumer protection. I would not allow the sale of NPLs to result in detriment to the borrower.
2) It would not end NPL sales. ptsb would continue to charge market rates, so the vulture fund knows that they would be getting market rates.

The vultures have done very well out of Irish mortgages. They bought trackers very cheaply and now they are very profitable again.

They are getting 6.5% on ptsb SVRs . They bought them at a discount. As far as I know, they funded them in advance with long term money so I doubt that the increase in ECB rates affected them.

Brendan

As the CEO of a large vulture fund said, and I quote,

“Ireland, the land that keeps on giving”

 

[Brendan Burgess]

Anything that undermines the ability of vulture funds to determine mortgage rates will impact the value of any future price of distressed loans.

So scrap the Code of Conduct on Mortgage Arrears completely?

Give them a right to break fixed rate agreements or kick people off trackers?

I presume you wouldn't support either but doing so would make these loans much easier to sell.

The first priority has to be to protect consumers and the CCMA does not allow borrowers to be charged more because they are in arrears. And is what is happening here.

Brendan

 

[skrooge]

So scrap the Code of Conduct on Mortgage Arrears completely?

Give them a right to break fixed rate agreements or kick people off trackers?

I presume you wouldn't support either but doing so would make these loans much easier to sell.

The first priority has to be to protect consumers and the CCMA does not allow borrowers to be charged more because they are in arrears. And is what is happening here.

Brendan

No I'm clearly not saying that. I'm saying a response based on very pigeonholed view of the issue is in danger of making things worse not better.

If you extend your rationale could you argue that no lender, bank or fund, would have the right to set a their own rate? Under your interpretation and AIB customer could claim they are discriminated against if they don't receive the same rate as a BOI customer and the bank would have to respond based on this version of the CCMA?

 

[Brendan Burgess]

I don't know how you could extend my rationale to that at all.

I am saying that if I take out a mortgage with ptsb I should get the rates offered by ptsb. If I take out a mortgage with AIB I should get the rates offered by AIB.

Brendan

 

[CarrotStick]

No I'm clearly not saying that. I'm saying a response based on very pigeonholed view of the issue is in danger of making things worse not better.

If you extend your rationale could you argue that no lender, bank or fund, would have the right to set a their own rate? Under your interpretation and AIB customer could claim they are discriminated against if they don't receive the same rate as a BOI customer and the bank would have to respond based on this version of the CCMA?

Scrooge,

Vulture Funds buy loan portfolios from Irish Banks from their own funds (hence the term funds). They obtain these loans at a discount (usually substantial). They then issue CMBS’s, RMBS‘s or covered bonds shortly after the purchase to reduce their risk further.

They do not have branch networks, large employee numbers, large pensions obligations, associated building costs etc. This should put further downward pressure on the interest rate they can charge their trapped customers, (who have been transferred to them in the first place because they have delinquencies in their historical loan repayments), and still make a handsome profit.

Having said that, I understand that Vulture funds do have a higher default risk customer profile and therefore should be able to charge higher interest rates than mainstream banks, but not double that of the originator, e.g. PTSB, Pepper, that‘s taking the mick altogether.

 

[skrooge]

I don't know how you could extend my rationale to that at all.

I am saying that if I take out a mortgage with ptsb I should get the rates offered by ptsb. If I take out a mortgage with AIB I should get the rates offered by AIB.

Brendan

I'm not against helping the borrower's this thread is about. My concern is the knock-on effects that the changes suggested would have on other borrowers. Put bluntly when you tinker with the system someone (else) ends up paying.

If you limit what a fund can do with a loan you reduce the attractiveness of Irish mortgage to future distressed debt purchasers. It's one thing to say you'll purchase a tracker book where rates are independently set by a third party. It's another thing completely to ask a fund to except that they will have no say on the future revenue and it's all up to the selling bank to decide. Would you buy a car from the bloke down the road if he could decide after you bought it when and where you were allowed drive it.

If the pool of future purchaser's is smaller this will effect the discount price and quantity that will be bought. This means more of the risk is held by banks. That might be okay apart from those banks will likely pass on that risk in the form of higher rates for new borrowers. I'm not suggesting future rates would skyrocket but all things being equal you could expect rates to be higher after such action is taken.

In other words any decision on what policy actions you take now comes down to a choice between a favouring a cohort of existing borrowers at the cost of future borrowers or vice versa.

The cost to one group is easy to measure -current high rates. The cost to the other is harder to measure (and currently unobserved). So it's tempting to give more weight to current borrowers.

This is not a unique problem. the same kind of trade off was present when the government introduced eviction bans in the rental market. Current tenants have been prioritised over future would be renters. We'll have to wait to see how good a call that one was.

I'm not saying we should always favour one over the other but let's make sure we know who we are favouring and at what cost.

 

[CarrotStick]

Why don’t the Irish Government blanket ban vulture funds buying residential mortgages, like the Germany Government did.
This has been seriously considered by the Irish Government.

Government considers total ban on vulture funds buying up thousands of family homes

TDs and senators from opposition and government parties alike call for measures to stop investors 'outbidding ordinary buyers'

www.irishexaminer.com

Also read the following link, no wonder they are here in their droves.

UN says Ireland applies 'preferential tax laws' to vultures funds and it 'cannot continue'

The report states that “landlords have become faceless corporations wreaking havoc with tenants”.

www.thejournal.ie