By Eamon Quinn
A political spat over consumer protection when mortgage loans are sold by the main Irish banks to vulture funds is in danger of distracting from the real scandal that banks in Ireland are unwilling to write down long-term distressed mortgage debt to reflect the market value of homes.
Instead, lenders still insist that borrowers pay back every cent borrowed due to artificially high property prices before the crash over 10 years ago. The row was signalled last week when Fianna Fáil finance spokesperson Michael McGrath picked up the cudgels with the Government over the plans of State-owned banks to sell mortgage loans to vulture funds because homeowners won’t have the same consumer protections when their loans are sold to the new owners.
Fianna Fáil over the weekend spelled out it would table amending legislation in the next two weeks to extend protections to home borrowers whose loans will be bought by vulture funds, a move that could snarl plans by Government-owned Permanent TSB (PTSB) for its huge €4bn disposal of distressed loans.
And yesterday, Sinn Féin finance spokesperson Pearse Doherty joined in with a pledge to support changes to the 2015 Regulation of Credit Servicing Firms Act to ensure new owners of the loans — and not just service agents or intermediaries — are obliged to follow stricter consumer protection rules.
“Political pressure is required and we stand ready to support any moves that will prevent these sales.”
Whether extending consumer protections will stop the sales by Government-owned banks to vulture funds or to any other lender is questionable.
Some analysts say PTSB could have to pay even larger discounts in its proposed €4bn loans selloff.
However, shares in the 75%-Government-owned PTSB and near-71%-owned AIB appeared to reflect little or no such concerns. They traded only slightly lower in the latest session. Seasoned observers of the great failure of Irish banks to write down mortgage debt are somewhat underwhelmed by the row.
Paul Joyce, head of policy at the Free Legal Advice Centres which has long
campaigned for mortgage holders has said it wanted the protections to be extended in the 2015 original legislation in the first place.
However, Mr Joyce also said the key problem of long-term debt distress would still not be addressed by solely extending the consumer protection regime.
Another debt advocate — a former banker who has long campaigned for the banks and Government to overhaul their approach to mortgage debt — says he remains bewildered that Government and opposition politicians appear set to clash over the clearly inadequate 2015 act, but still not to put debt-forgiveness at centre stage.
There is also some concern that pressure by the ECB, which as far as we know remains neutral on specific ways to clean up the Irish loan books, is being used by bankers to justify sales to vulture funds or to other mainstream banks.
In the North, some of the same banks that operate in the Republic have written off mortgage debt. And almost everyone agrees the Irish banks which were rescued at huge cost have enough money to clean up the mess by traditional means without reverting to sales. The arrears figures suggest the costs are not that daunting: At almost 31,625, the number of people who have been in financial trouble for two or more years represents about €2.5bn of arrears on about €7.12bn of outstanding mortgages on the banks’ loan books.