A leading mortgage debt advocate at the Free Legal Advice Centres, Flac, has called for a new focus on the link between the housing crisis and the sale of distressed landlord loans to vulture funds.
It comes as AIB announced its second sale in less than a year of non-performing buy-to-let loans to vulture fund Cerberus, as the bank complies with regulators’ demands for Irish and other euorozone banks to cut the number of underwater loans on their books.
AIB followed up last May’s announcement with an almost identical sale of non-performing loans, involving buy-to-let loans at a face value of €1 billion involving 2,200 customers to the same equity fund.
A feature of the latest transaction is that a tenth of the customer loans are tied to the family home because the investment property is secured on the main home.
Cerberus last year also bought a significant amount of non-performing loans from Ulster Bank.
Paul Joyce, senior policy adviser at Flac, said that the sale by banks of landlord loans require as much scrutiny as the sale of loans of family mortgage loans because tenants could be caught in “the crossfires” between landlords and the new owners of the loans.
AIB said the sale which includes an average balance of €500,000 “excludes performing restructured customer connections”.
However, “while not categorised as a principal dwelling home (PDH) portfolio sale, for circa 10% of customer connections, the PDH property has been included as it is cross-secured to wider commercial connected debt,” the lender said.
Following the sale, AIB will cut its exposure to non-performing loans from €6.1bn, or 9.6% of all loans, at the end of the year, to around €5bn, or 8%.
The sale is almost identical to last year’s transaction which involved €1.1bn in loans for which AIB also received €800 million.
Goodbody said that “unsurprisingly” AIB said it was on its way to reaching the year-end 5% target demanded by regulators “which should pave the way for substantial capital returns to shareholders” from its 2020 full-year.
The broker said AIB’s gain from the sale provided reassurance about “the quality” of the rest of its non-performing loans.
Last week, Bank of Ireland also announced a transaction of distressed landlord mortgage loans but it opted to securitise or refinance the loans rather than going for an outright sale.
Bank of Ireland’s transaction involves 790 landlords over 1,730 accounts, with a total face value of €375m and remains the contact and servicer for customers.