Home loan sales to vulture funds are ‘legitimate’

By Eamon Quinn

Senior Central Bank official Ed Sibley has strongly restated the regulator’s support for the sale by banks of their troubled mortgage loans to vulture funds.

The Central Bank for the first time last month clearly voiced the bank’s backing of the plans by Permanent TSB, Ulster Bank, and AIB to sell billions worth of residential and buy-to-let mortgages.

In his strongest comments yet, Mr Sibley told an Institute of Banking gathering that the sales were a “legitimate” way to help heal the “dysfunction” of the mortgage market.

It comes after initial strong objections were raised by opposition politicians who were worried that households would fail to get the full consumer protection when their loans were sold on.

Debt advisers have said the sales will do little for distressed households in long-term arrears, who could be helped if their unsustainable mortgages were written down by their existing lenders.

The Central Bank should be doing more to protect mortgage holders under its remit to protect consumers, some critics say. However, Mr Sibley defended the Central Bank’s role in looking after consumers and households.

He re-iterated that lenders would need to lower their elevated levels of non-performing loans, a legacy of the banking and property crash, to bolster their resilience to future economic blows.

The continued high level of non-performing loans makes banks highly vulnerable to future economic downturns, from both the existing non-performing loans, and potentially new defaults.

"While all the Irish retail banks are significantly better capitalised than pre-2008, they are more vulnerable than those without this legacy to future economic shocks,” he said.

“One key role of the financial services system is to provide borrowers with loans to purchase their homes. The Central Bank’s role is to serve the public interest by seeking to ensure that mortgage provision is prudent, sustainable and that consumers’ interests are protected,” he said.

Mr Sibley said a healthy market would encourage competition.

“A functioning market should deliver a sufficient supply of appropriately priced mortgages to support house prices that are in line with the fundamentals of the economy, without driving credit-fuelled house price bubbles,” he said.

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