Ulster Bank criticised for selling €1.4bn of distressed home loans to Cerberus

Opposition politicians and consumer advocates have criticised Ulster Bank for agreeing to sell a €1.4 billion portfolio of distressed Irish home loans to the US investment giant, Cerberus Capital Management.

The portfolio, known as Project Scariff, includes about 2,300 owner-occupied home loans, as well as 2,900 buy-to-let mortgages secured on investment properties.

The deal is the third such sale by an Irish bank in recent weeks, following similar moves by Permanent TSB and KBC Bank Ireland.

The sale of mortgages to so-called “vulture funds”, which specialise in restructuring bad loans, has become a source of public controversey due to fears that funds could treat borrowers more harshly than banks.

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Michael McGrath, Fianna Fáil’s finance spokesman, last night accused Ulster Bank of “outsourcing its dirty work to a US vulture fund”.

“What tools does Cerberus have at its disposal for dealing with these loans that Ulster Bank doesn’t have? The bottom line here is fthe banks and the Government are simply washing their hands of the problem,” Mr McGrath said.

David Hall, chief executive of advocacy group the Irish Mortgage Holders Organisation, also criticised the sale. He has repeatedly warned of a "tsunami" of respossessions that he says will arise from the sale of mortgages to funds.

“The tsunami that I warned about has been delayed and outsourced, but it is coming,” he said.

Denouement

Fianna Fáil TD John McGuinness, who chairs the Oireachtas finance committee, said the Dáil should be recalled to discuss the sale of home loans to vulture funds.

However, other commentators, such as Brendan Burgess of the website Askaboutmoney, argue that Irish rates of repossession are very low and that the vulture funds may help bring the mortgage crisis to a denouement.

Ulster Bank insists all of the home loans it is selling are in ongoing arrears and none are in any sort of agreed repayment “arrangement” with the bank. The deal will see it offload about 6.5 per cent of its loan book in the Republic.

“This difficult decision comes a decade after the financial crisis began, and the continued extension of forbearance cannot be maintained,” the bank said.

More than half of the portfolio includes buy-to-lets with average arrears of €32,000 or 34 months of repayments.

Forbearance procedures

The owner-occupied loans in the portfolio are, on average, 83 months, or almost seven years in arrears. Each are behind in their repayments by on average €61,000. Each loan has been through three forbearance procedures, the bank said.

Ulster Bank argues that some distressed mortgages will never be repaid, no matter how many chances the defaulting borrower is given.

“For mortgages that are not sustainable, additional forbearance will not bring them back to a performing position,” it said.

The Project Scariff sale is expected to be the last big portfolio sale undertaken by Ulster Bank, which has been restructuring its Irish assets for almost a decade. In the past 10 years, it has reduced its loan book here by about 60 per cent.