Q&A Dominic Coyle
Will IBRC sale of my mortgage see interest rate rise?
I got a letter from IBRC on the planned sale of the mortgages under its control to qualified bidders, including banks, individuals, funds etc. The letter invites submissions from mortgage holders on how the loans are to be sold.
As a mortgage holder, I am worried about how my mortgage may be managed, and how the winning bidder may extract greater profit margins by increasing interest rates.
Is there anything I, or others, can do with submission rights that might have a meaningful outcome on who my mortgage is sold to?
Mr AO’R, Cork
It’s always worth having your say, though I do share your concern on exactly how much impact that might have on the outcome for your mortgage.
If no buyer can be found, they will be transferred to the State “bad bank”, the National Assets Management Agency (Nama).
As part of the process of arranging the sale of the loans, the State-appointed special liquidators for IBRC have sought the views of the holders of the loans – people like yourself.
If you are unhappy with your loan being sold on to an unknown third party, then you should say so.
Will it make a difference? That’s uncertain, especially in the case of residential mortgage loans – which, by their nature, are smaller individually than some of the other loans held by IBRC, such as those of developer Paddy McKillen over which he has instituted legal action.
The IBRC is grouping the loans it holds in four “portfolios”. These include commercial borrowings here in Ireland and abroad, and also residential mortgages.
This last group – amounting to a loan book of about €1.8 billion and involving the home loans of 13,250 customers of the former Irish Nationwide – is in a portfolio called Project Sand.
That means the average loan is just under €136,000. It’s hard to make an impression when you are just one voice in 13,250 – but there again you might find many other mortgage customers feel the same as you and that your aggregate views do make a difference.
Understandably, your main concern is on how any new owner may manage your mortgage. And, on this, there is unlikely to be much clarity until it is known who that new owner will be.
The special liquidators say that there has been a lot of interest in the loan port- folios, which would mean there is little chance of the borrowings staying in the hands of the State – through Nama.
Of course, they could just be talking up their chances of success ahead of what will be critical auctions. And, crucially, they have yet to state who will qualify as a bidder and how that is determined.
There is thus little clarity on what sort of ventures will be allowed to take over the loans. Will it be an existing lender, or one of the financial institutions trying to enter or expand their current Irish mortgage book? Or will it be a vulture fund, or other private equity group looking to maximise their return quickly.
In part that depends on the state of the loans. How many are performing? What sort of arrears are there in the portfolio? What sort of discount will any buyer be able to secure?
Clearly, if a financial institution buys the loans, the management of your mortgage is likely to be close to your current experience.
Will they look to grow margins? Possibly, but it is not likely to be dramatic as some margin growth has already taken place. And, in any case, a financial institution will be looking to build a relationship with its new customers – that’s part of the attraction of bidding for the loans.
If, on the other hand, the buyer is a vulture fund or other private equity group, they have little interest in building relationships.
It is simply a financial exercise and, presumably, there will be a judgment made as to whether expanding margins will only exacerbate arrears and undermine the ultimate profitability of the exercise.
Of course, rates will only be able to rise where you are currently on a variable rate mortgage. If you have a fixed rate, or a tracker, then any new owner is constrained by the terms of your mort- gage agreement and will not be able to increase the margin.
All other terms of your mortgage contract will also continue to apply, regardless of who acquires your loan.
As you will have seen in yesterday’s newspaper, the sale process for the first of the IBRC portfolios – not the one including your mortgage – will begin next week, with potential bidders getting detailed information of the loans involved after which they will have a short period to make their initial indicative bids.
As your mortgage is not in the first tranche, you may get some insight into the sort of people likely to bid for the loans as this initial sale process continues.
The bottom line from your point of view is that making a submission is not going to harm your cause in any way and, if you have a strongly held view, you should at least make sure that it is on the record.
It is not as though any eventual owner will have access to submissions from the consultation period, so it will not affect your relationship with any new owner of your mortgage loan.
This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara Street, Dublin 2, or to firstname.lastname@example.org