A right hornet's nest has been stirred up this week over the fate of the more than 13,000 former Irish Nationwide mortgage-holders whose home loans have been packaged up for sale to the highest bidder by the special liquidators of Irish Bank Resolution Corporation.
The loans have a combined par value of €1.8 billion and have been split into four portfolios, which have been offered for sale on the open market. Little detail has been made public about the portfolios but only one of the four is thought to be performing.
The liquidators– Kieran Wallace and Eamonn Richardson of KPMG –have extended the deadline for bids until early March. If some or all of the loans cannot be sold, they will be transferred to the National Asset Management Agency, which in turn has lined up Pepper Asset Servicing to manage these loans on an outsourcing basis.
The borrowers were informed some time ago about the process and told they could buy their loans at full face value. Otherwise, the liquidators would package them up and sell them off.
As you might imagine, there aren’t too many people in Ireland right now in a position to pay off their mortgages in full. Hence the portfolio sales that are in train.
The charge levied against the Government is that there’s one rule for the rich and another for the ordinary Joe. This is a reference to the fact that certain corporate loans were sold at big discounts while mortgage holders were told that they had to pony up the full amount to buy out their loans.
This isn't exactly true. There were only about 20 individual corporate loan sales with the balance packaged up into portfolios – Evergreen, Rock, Salt and such like.
Access to funding
The reality is also that certain corporates and wealthy businessmen such as Denis O’Brien had access to funding whereas the vast majority of the Irish Nationwide mortgage holders would struggle to refinance their home loans.
Some time back, Minister for Finance Michael Noonan was asked in the Dáil if he had considered transferring the Irish Nationwide mortgage book to other banks rather than selling them to the highest bidder.
AIB and Permanent TSB are both more than 99 per cent owned by the State and both have invested a lot of time, money and manpower towards building units to deal efficiently with loan arrears and collections. PTSB chief executive Jeremy Masding believes the arrears management unit he has set up is among the best in the world.
The Minister said this wasn’t an option as the liquidators were mandated to secure the best price possible while overseeing the liquidation for the “benefit of all creditors of the institution, including the State”. Taking a different path could have left the whole liquidation process open to challenge, he said.
This is debatable and cold comfort to the 13,000 mortgage holders, who now face an uncertain future. The expectation is that an international investment fund will buy up some or all or the mortgage loans at a substantial discount and then set about collecting the maximum amount from the homeowners.
One former senior banker I spoke to yesterday said this was an efficient way of dealing with the loans. The funds would have a five- to seven-year horizon and would strike deals with borrowers to get the cash flowing. He also dismissed the idea that they would jack up interest rates, on the premise that this would most likely injure a borrower's ability to repay. They'd be shooting themselves in the foot, he said.
David Hall of the Irish Mortgage Holders Organisation scoffs at these suggestions saying it amounts to a State-sponsored "live financial experiment" for 13,000 borrowers.
The likelihood is that these funds who buy the mortgages will be unregulated entities and so won’t be covered by the Consumer Protection Code, the Code of Conduct on Mortgage Arrears and the Consumer Credit Act.
Nama is also an unregulated entity but the State agency would be expected to adhere to these various codes.
In a statement issued to me yesterday, the Central Bank said it was “concerned that the consumer protections available to mortgage-holders under the statutory codes could be impacted by the sale of mortgage books to unregulated firms”.
The Central Bank has communicated its preference that the “outcome of any sale of mortgage books by regulated entities would ensure continuity of borrower protections under codes”.
This doesn’t appear to be carrying a lot of weight with the Department of Finance or the liquidators. The process is the process, full stop.
If the sale results in the mortgages being sold to an unregulated foreign vulture fund, then so be it. This would bring fresh investment to the economy rather than soaking up valuable funds from existing retail banks that are needed for lending into the economy.
But imagine the political reaction if AIB, Bank of Ireland or Permanent TSB announced they were going to sell a large chunk of their Irish mortgage books to an unregulated foreign fund?
That’s what the Government is doing to 13,000 Irish Nationwide borrowers. It’s not really good enough.