The organs of state must put manners on the banks

skrooge said:
Much of this lending is subprime, higher risk should attract a higher rate.
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Almost none of the sales to vulture funds was subprime.

The quality of the loan is established at drawdown not due to subsequent activity.

A very small number originated as sub-prime loans and I have no problem with them being charged higher rates.
 
ClubMan said:
some of their customers were never subprime and some who were have got back on track so arguably shouldn't be penalised further.
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These were loans granted during the worst excesses of the Celtic tiger. At the time they were adjudged to be okay - perhaps based on the idea that the tiger would keep on roaring. But the lenders risk tolerance changed and these were assessed to be outside what they were comfortable with in hindsight.

It's not necessarily black and white, good or bad, I imagine many of those loans feel in the middle. The bank was unsure and at a time they were hemorrhaging money said better safe than sorry.

The other way of looking at it was if they were of sufficient quality then why was it only vultures interested at the time.

The fact that many of these borrower's didn't default is testament to their hard work and perhaps the recovery of the Irish economy. But hindsight is just that.

Brendan Burgess said:
It's actually very simple in the vast majority of cases. If the loan was sold by ptsb then the fair rate is the rate ptsb is offering their customers today.
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And such a policy, in my view, will make the next crises worse. By forcing vulture funds - which are funded through markets - to price like banks (with cheap inert deposits) you undermine the market for troubled loans in Ireland.

We've already undermined the ability of lenders to foreclose, a second wrong won't make a right.

Prevention is better then cure but if we have to do something to help these customers let's avoid doing it at the cost of future us. Why not a NAMA style agency to allow these borrower's to refinance at some lower rate. Or give them all local authority loans. It will not be cost free nor would the alternative.

It's possible to help the borrower and preserve the ability of banks to sell loans when they want to.
 
Brendan Burgess said:
It's actually very simple in the vast majority of cases. If the loan was sold by ptsb then the fair rate is the rate ptsb is offering their customers today.
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I would broadly agree with that.

skrooge said:
And such a policy, in my view, will make the next crises worse. By forcing vulture funds - which are funded through markets - to price like banks (with cheap inert deposits) you undermine the market for troubled loans in Ireland.
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But not really, or at least not in any problematic way.

First of all, how a purchaser of an asset finances their purchase is irrelevant. Nobody gets a bigger garden or free furniture when they buy a home because they're going to be paying paying higher interest on their mortgage than their neighbour. Because that would be ridiculous.

If I rent a home and the landlord sells that home with me in-situ (as is totally normal in most European countries) that landlord doesn't get to throw out my lease etc. Any burdens associated with me being in there as an existing tenant are accounted for in the sale price.

It should be the same with mortgages. If I take out a mortgage with BankABC then I should retain all the rights and duties of an BankABC mortgagee, including the rates. If AIB choose to sell my mortgage to raise capital, crystallise losses etc, then any burdens associated with the BankABC terms & conditions should also be accounted for in the sale price. So maybe instead of VultureCorp reaming the borrower with 8% interest rates they pay 70% of book value for the mortgage instead of 85%. So the lender takes a bigger hit as a result of their poor business decisions. And if VultureCorp in hindsight has paid too much to acquire the loan then they take the hit then they should (like the original lender) also take a loss.

  • Let's recall that the borrower is already taking a hit in terms of the compounding interest on their loan if they fall into arrears. That's baked into the loan agreement.

skrooge said:
We've already undermined the ability of lenders to foreclose, a second wrong won't make a right.
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I'd agree that repossession & sale of mortgaged properties in default should be achievable within a reasonable timeframe, say 3 or 4 years at most for PPRs (and 2 years for any investment properties). But requiring the purchaser of the lender's rights under a loan agreement to adhere also to the lender's obligations is hardly a wrong.

Rights and duties are a package deal.
 
BIG-notorious said:
It should be the same with mortgages. If I take out a mortgage with BankABC then I should retain all the rights and duties of an AIB mortgagee, including the rates
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You might want this but legally is this stipulated in your contract. I doubt it.

BIG-notorious said:
But requiring the purchaser of the lender's rights under a loan agreement to adhere also to the lender's obligations is hardly a wrong.
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Absolutely no argument on that point if it's found that under the law that their contracts support the case that ptsb rates should apply then that's fair. More fool the vultures for not doing their due diligence.

My concern is more to do with policymakers not liking an outcome and undermining contact law without thinking about all the consequences.
 
@skrooge

Do I understand your position correctly?

"Someone gets into financial difficult and cannot switch lender.
So their lender - whether it's their original lender or a purchaser of the loan - can charge them whatever they like?
15% , 20%. That is what the contract says and no one should interfere with the right to a pound of flesh.

And the vulture funds only buy these loans because they know that they can charge 15% and the borrower can do nothing about it.

But we should not interfere with this because the vultures won't buy loans during the next crisis"

Brendan
 
skrooge said:
My concern is more to do with policymakers not liking an outcome and undermining contact law without thinking about all the consequences.
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Or maybe policymakers have been undermining contract law for many generations having thought through the consequences thoroughly?

It took me about 20 seconds to find the following nugget on the CCPC's website:
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Consumer law outlines how to test terms that may be unfair. The test is based on the principles of good faith and transparency.

Good faith.......
Good faith looks to good standards of commercial practice and morality. It includes:

  • fair dealing by a business with a consumer. This means that a business does not take advantage of a consumer’s:
    • need for a particular product/service
    • lack of experience
    • weak bargaining position
  • open dealing by a business with a consumer. The means the terms in a contract should be:
    • in plain intelligible language that an average consumer can understand
    • available in one location and identifiable as the terms of the contract
    • expressed fully, clearly and legibly with no hidden ‘small print’
The following are considered when assessing good faith:
  • the strength of the bargaining position of the parties
  • whether the consumer had an inducement to agree
  • whether the goods/service was personalised for the consumer
  • the extent to which the business has dealt fairly with the consumer
  • whether the business took the consumer’s legitimate interests into consideration

Significant imbalance​

This means a term should not give a significant advantage to a business without providing an equal benefit to a consumer. When deciding if a significant imbalance exists in the contract, all of the contract and the circumstances of its agreement are considered. If other terms significantly benefit the consumer, they may prevent a term being declared unfair
 
So unless there's a term clearly and openly stating that a mortgage can be sold to any other entity which can then charge any rate of interest they like with no reference whatsoever to the interest rate being charged by the lender with whom the borrower has made the loan agreement then it seems likely that there's some excellent reasons for court cases being settled with non-disclosure agreements.
 
I previously argued that the standard variable mortgage clause that gives the lender the right to unilaterally change the rate charged whenever they like is an unfair contract term. The FSPO at the time (c. a decade ago) rejected the complaint that I made on a friend's behalf. :(
 
Brendan Burgess said:
Do I understand your position correctly?
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Clearly not.

Correct me if I'm wrong but your counter argument can be summed up as "to hell with future borrowers and the banking system they inherit, we must protect customers of vulture funds at all cost."

My point is there is a cost to what you propose. It won't be felt today but it might very well come back to bite us in the future. Fine if you think it's worth it but at least acknowledge the downside of your argument.

As I've said there are other measures that could result in a positive outcome for VF customers without undermining the ability to sell a loan book.

BIG-notorious said:
it seems likely that there's some excellent reasons for court cases being settled with non-disclosure agreements.
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I defer to your 20 seconds of research but you're putting a lot of faith in peoples ability to stay quiet given how much of an open goal you've presented them with.
 
skrooge said:
"to hell with future borrowers and the banking system they inherit, we must protect customers of vulture funds at all cost."
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No, that is not my position.

My position is that vulture funds should not be allowed to exploit prisoners.
The fairest way to do that is to make sure that they are offered the same rates that the lender who sold the mortgage is offering.
Requiring someone to charge the market rate is not a burden.

Vulture funds will still be very happy to buy mortgages if they can still charge mortgage rates. They bought tracker mortgages.

And, yes, I will continue to call for sensible repossession policies and practices because it would bring down mortgage rates for everyone if banks were allowed to possess properties where the tenant was defaulting for a long time.
 
Brendan Burgess said:
No, that is not my position.
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But you continue to ignore the impact that such actions will have on the financial system.

Do you think that an asset yielding a 4% return haa the same value as an asset earning 8%?

Unless you do then you can except that your proposal will impact either the price or the demand for that asset. In this case destressed debt. This would have knock on consequences for the financial hit banks would take and in turn their capacity to lend and price those loans in the future.
 
I suppose the headline was written by an exuberant sub-editor? But ‘vulture funds’ are not banks. They are non-lending non-bank financial entities that can provide certain financial services. None are based in Ireland, but use Irish-based companies for credit serving purposes. So the ‘organs of the state’ really can’t do much.

But is this a big issue for the current holders of mortgages from the pillar banks? According to the Central Bank, Ireland has the ninth lowest mortgage rates in the eurozone, the same as the Netherlands. Irish mortgage rates the ninth lowest in Eurozone. So it’s a bit of an exaggeration to ask why ‘Irish banks can get away with the highest mortgage rates in the eurozone’. Also the Central Bank shows that, as of Dec 2024, for mortgages on principal dwelling houses the floating rate varies between 3.98% to 4.41%, with the fixed rate between 3.09% to 3.52%. ie_table_b-3-1_retail_interest_rates_and_volumes_-_loans_for_house_purchase.xlsx . From the perspective of those who paid an average of 12.5%, with a max of 16.25% in the 80s, a current mortgage from a pillar bank is as close to free money as you can get.​

As for the ‘vulture funds’, simply put, after the banking crisis vulture funds contributed to the stabilization of the Irish banking system by buying distressed debt (e.g. mortgages in arrears) from the pillar banks; the IBRC; and NAMA. If these ‘bad debts’ were not unloaded Irish banks would suffer a liquidity crisis as nobody would lend to them. They needed to get rid of underperforming loans and build up capital. They were persuaded in this by the ECB that was providing a lifeline to the Irish banks through its Emergency Liquidity Assistance programme. There was also a risk that the underperforming loans could be classified as sovereign debt (i.e. dumped on the taxpayer), because of the Covered Institutions Financial Support Act 2008. See, e.g. Chapter 10: Ireland and the Troika Programme | Report of the Joint Committee of Inquiry into the Banking Crisis. One of NAMA’s objectives, which you can see in its annual statements of that time, was ‘the attraction of international capital’, and to do this they flogged distressed debt to vulture funds.

Your headline is correct in one respect but it’s a bit late. “Putting manners on the banks” should have occurred between 1999 and 2007 when Irish banks’ net foreign borrowing went from 10% to 60% of GDP.
 
skrooge said:
Do you think that an asset yielding a 4% return haa the same value as an asset earning 8%?
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Of course it doesn't. But the vultures would still be interested. They might pay a bit less. Their yield on these is far more than 8%. They are charging interest rates of 8% having acquired them at a discount.

If making it a requirement of vultures today to charge people market rates makes them less interested in future, so be it. I doubt that the effect would be material.
 
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