Mortgage arrears publication to be changed by Central Bank

The Central Bank is set to change how it publishes information on mortgage arrears on loans owned by vulture funds, after claims that such funds are overstating the value of arrears on these distressed mortgages by hundreds of million euro.

However, the regulator says that it believes the issue is limited to just a small number of “unregulated loan owners” (vulture funds) and “has no impact on the likelihood of repossessions”.

In June, the regulator started giving a breakdown of arrears by loan owner type – banks, retail credit firms, and “unregulated” loan owners, such as vulture funds – for the first time.

These figures showed that unregulated or vulture funds have a small share of the market, at about 2 per cent of total mortgages outstanding, or some 11,824 mortgages as of June 2018.

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However, when you look at distressed mortgages, the proportion of accounts under vulture fund control increases sharply to 59 per cent. And when it comes to long-term arrears (those over two years), some 42 per cent of loans owned by vulture funds fall into this category.

So, while vulture funds hold a very small portion of the overall mortgage universe, when it comes to impaired loans, they hold a much greater proportion.

Of these, almost 5,000 loans (4,985) owned by vulture funds were in arrears of more than two years in June 2018, with an outstanding balance of €1.5 billion, and arrears of some €834 million. The majority of these loans are for buy-to-let properties.

Real level

However, this figure of €834 million has been queried by Brendan Burgess, of the consumer forum Askaboutmoney.com, who says it is overstating the real level of arrears.

“As of the end of June 2018, the Central Bank said the vulture funds had total arrears of €850 million. But, in reality, it’s probably about half of that,” Mr Burgess said, adding that this is due to the way vulture funds calculate arrears.

For example, when an interest-only loan matures, these funds consider the full loan to be in arrears ; second, when a vulture fund calls in a loan in arrears, it may consider the entire loan to be in arrears.

“So a mortgage of € 100,000 with € 10,000 arrears would go from being €10,000 in arrears to € 110,000 in arrears overnight,” Mr Burgess explains. This could have implications for property owners who face a repossession, as the information, as reported by such funds, and the Central Bank, may suggest the arrears on their loan are higher than they actually are.

Recording loans

Now the regulator has said it is set to amend its approach on how it reports on these arrears figures.

“Recording loans fully in arrears due to full loan demand is not providing a full picture of the underlying arrears on the loan,” it said, adding that providing a “consistent” recording of arrears, across all loan owners, including banks and vulture funds, is a “priority”.

“We will be clarifying the treatment and requesting revision where appropriate,” it said.

The Central Bank has previously questioned vulture fund lenders about how they use a mortgage-restructuring method called arrears capitalisation, which arises when a borrower who is behind in repayments has some or all of the amount in arrears added to the remaining principle balance, to be repaid over time. Such an approach can result in a borrower taking longer to clear arrears, and paying additional fees and charges, and has been the subject of a UK investigation.

“The Central Bank is committed to providing fuller analysis and explanatory notes to stakeholders in the Q3 2018 Mortgage Arrears Statistics in order assist stakeholder understanding on this important issue,” a spokesman for the bank said last night.

Earlier this year, Tanager, a fund owned by US private equity house Apollo, was forced to withdraw legal proceedings against a number of property owners, due to miscalculation of arrears. Tanager acquired about 2,000 Bank of Scotland mortgages back in 2010.