The organs of state must put manners on the banks

Of course the vulture funds need an incentive but we equally have to factor the human side here.

When you go to jail as a punishment for a crime you get an end date, you have opportunity to get out for good behaviour, and the period is relatively short for the majority of crimes - you, if you are a good citizen, can get on with your life.

The current setup for vulture fund mortgages, as I understand it, condemns people to maybe 15-20 years of super high interest rate mortgages. Many of them will have already been extended at 3-4% mortgages. The situation I imagine to be suffocating, potentially life/family destroying and grossly unfair, and certainly does not help people to prosper - which in the end likely creates more cost downstream for the state. I know many responsible people in relatively good financial health and intelligence who would not be able to withstand excessive mortgage rates long-term.

Plenty of the big boys in NAMA have been allowed a path back to success, and indeed the same names are owning some of Dublin's biggest developments and sites again....suffocating a family into some sort of purgatory feels wrong. They may well be living beside someone getting the same house for next to nothing from the government too. Different topic, but that makes no sense.

presidenttttt said:

The current setup for vulture fund mortgages, as I understand it, condemns people to maybe 15-20 years of super high interest rate mortgages.

Click to expand...

Does anybody know what proportion of loans held by vultures are or have been in arrears and/or restructured (e.g. split, term extended etc.)? Or, conversely, what proportion of vulture borrowers would be able to switch to a more competitive lender (admittedly with the hassle and costs involved) if they chose to do so?

I think if there were to be a "must match the interest rates offered by the original lender" rule, the time for adopting it would have been when the loans were sold to the vulture funds. And I think if you had done that, the sale would have taken place on very different terms, or quite possibly not at all.

Skrooge makes the point that vulture funds raise their funds in the money markets. Their cost of funds is higher, and much more volatile, than for banks. If the vulture funds are forced to price their loans by reference to the banks' cost base rather than their own, their business model is unstable, and quite possibly unviable.

Remember why the sales to the vulture funds happened in the first place — the banks' business model, in the conditions of the time, had proven to be unviable. That wasn't a pleasant experience for anyone. The last thing we want is to adopt a policy which risks make the current lenders' business model unviable.

Whatever regulations are adopted to protect the customers of the vulture funds have to deal with the reality of the market in which the vulture funds operate. They're not deposit-taking institutions and regulating them as if they were is not likely to end well.

[On edit: Didn't the Irish Life run a home loans operation in the 1980s that was funded in the short-term money markets? And didn't an interest rate hike in the late 80's mean that it had to be hastily sold to a bank at a considerable write-down? Or am I hallucinating?)

Hi Tom

But if I took out a mortgage with ptsb or AIB I was taking it out with a mainstream bank and assuming the pricing behaviour of a mainstream bank, active in the new business market. This means that I should be charged a fair mortgage rate over the term of the loan.

It is totally unfair that my mortgage is sold to a vulture fund which has a very different pricing strategy.

Treating customers fairly is the bottom line.

Brendan

ClubMan said:

Does anybody know what proportion of loans held by vultures are or have been in arrears and/or restructured

Click to expand...

Some commentators refer to the 120,000 customers of vulture funds but this number is meaningless (and wrong.)

There are 3 categories
1) Those who can switch and don't. I am less concerned about them. They are paying 8% and can switch to another lender and pay 3.5%, but don't. I would encourage them to switch but it's up to them.
2) There are those who can't switch but who would not benefit much or at all from switching. People on cheap trackers and people with split mortgages with substantial warehouses. I am not too concerned about them either.
3) The third category is the one I am concerned about. They can't switch and they are paying extortionate rates. I have estimated that there are 25,000 in this cohort. The Central Bank has told me that they do not agree with my numbers but despite asking, don't produce their own.

The implication of your argument is that the sale to the vulture fund should not have been allowed — either it should not have been allowed at all because a sale from a bank to a vulture fund is intrinsically unfair, or it should have been allowed only on terms which, in reality, would have made it uncommercial, so it wouldn't have happened.

Back in the day, when the banking crisis was being resolved, what would have happened if sales to the vulture funds had not been possible? Genuine question! The answer is necessarily a bit speculative and my knowledge is limited but my impression is that the sales to vulture funds were a key component of restructuring the sector and getting it back on track.

In any event, we have to deal with the reality that the sale were allowed, and did happen. I think it's problematic to change the rules under which lenders operate now so as to (effectively) undermine or destroy the business of the vulture funds. I think the state would be setting itself up for lot of reputational damage and legal liability by doing that.

There may be another way to approach the problem, which is to focus not on the interest rate that the bank lenders charge but on the margin they give themselves over their cost of funds. Would it be feasible to identify that margin, and then regulate the vulture funds so that could not take more than that margin over their cost of funds? That should still leave them with viable business model, while protecting borrowers from rampant profiteering.

That still leaves borrowers paying more than they would if the loan had remained with a bank. But I don't see that we can allow the transfer of loans to non-banks without exposing borrowers to the associated risks that arise from the cost of funds for non-banks.

TomEdison said:

[On edit: Didn't the Irish Life run a home loans operation in the 1980s that was funded in the short-term money markets? And didn't an interest rate hike in the late 80's mean that it had to be hastily sold to a bank at a considerable write-down? Or am I hallucinating?)

Click to expand...

This one?

TomEdison said:

The implication of your argument is that the sale to the vulture fund should not have been allowed — either it should not have been allowed at all because a sale from a bank to a vulture fund is intrinsically unfair, or it should have been allowed only on terms which, in reality, would have made it uncommercial, so it wouldn't have happened.

Click to expand...

Not at all.

I was one of the people who argued that the sales were essential.
But the express and implied terms of the mortgage contract should be respected.
The implied terms were that the borrowers would be charged market mortgage rates over the full term of the mortgage.

You are saying that if the vulture funds were not allowed to exploit their prisoners with sky high rates, they would not have bought the mortgage book. That is just not correct. About 40% of the mortgages they bought were trackers where they could not exploit the prisoners.

The world does not fall in just because you demand that consumers are treated fairly.

ClubMan said:

This one?

Click to expand...

That's the one.

From the sludge of my memory I'm dredging up the notion that the Irish Life launched a mortgage provider with the idea that it would sell endowment mortgages, thereby creating a demand for its endowment policies.