By Eamon Quinn
Confirmation that Ulster Bank has struck terms with a vulture fund for a major sale of its troubled mortgages with a face value of €1.4bn has reignited the debate over loan sales by Irish banks, with debt advocates again questioning if regulators should insist lenders writedown debt rather than selling on loans.
Ulster Bank, which first unveiled its plan in May, said it had agreed on the sale of 2,300 non-performing home loans, and the disposal of a further 2,900 buy-to-let or investment home loans, to Cerberus, the US fund which is best known for its buying of distressed Irish commercial loans, including the controversial Project Eagle sale by Nama.
Ulster did not disclose the hefty discount that usually applies in such sales by banks but said no loans currently subject to a home loans arrangement between the bank and borrower were part of the deal.
The average span of arrears on the loans was almost seven years, the banks said, and affected customers would be contacted.
Plans of Irish lenders have the backing of the Central Bank, as one of the means to reduce the huge pile of soured loans on their books and to bolster their return to full financial health. The ECB is insisting Irish and other eurozone banks badly affected by the property and debt crash that started 10 years ago cut the share of their bad loans to around 5% in the coming years.
Despite the political furore, Permanent TSB last month agreed to sell 10,700 buy-to-let mortgages and principal home loans to Lone Star, while Bank of Ireland, which had previously said it had no need to sell loans, said it too may sell non- performing loans as it rethinks the best ways to preserve capital and boost profitability.
However, Paul Joyce, head of policy at Free Legal Aid Centres, or Flac, said that the sales by Ulster Bank and Permanent TSB were “substantial” and accounted for a large slice of all the country’s mortgage arrears.
The sales raise questions over why lenders hadn’t written down the loans for customers who had been in arrears for an average of seven years, instead of selling the loans, Mr Joyce said. “We would prefer that loans are not sold to vulture funds who are likely to be less accommodating to homeowners. Vulture funds are not going to wait around,” he said.
David Hall, chief executive of the Irish Mortgage Holders Organisation, said that the details Ulster Bank had provided about the loans showed that distressed customers had engaged with the lender. “The tsunami that I warned about has been delayed and outsourced, but it is coming,” Mr Hall said.
However, consumer advocate Brendan Burgess said that the Ulster Bank sale would benefit many borrowers. “There was little evidence that vulture funds will hound the borrowers more than the main banks”, while homeowners will have the same legal protections under the new owners, Mr Burgess said.
Ulster Bank said: “This difficult decision comes a decade after the financial crisis began and the continued extension of forbearance cannot be maintained.
“Not all mortgages are sustainable and we are obliged to reduce the level of non-performing loans on our balance sheet.
“For mortgages that are not sustainable, additional forbearance will not bring them back to a performing position.”