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

Brendan Burgess

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[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]





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="]a person to whom all or any[/FONT] [FONT="]part of that other person’s interest in the credit is directly or indirectly assigned or otherwise[/FONT]
[FONT="]disposed of" [/FONT][FONT="]in other words a vulture fund which buys a mortgage created by some other organisation.[/FONT][FONT="]
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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.
 
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.
 
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.”
 
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.
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[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.
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