Proposal for State to buy out distressed mortgages held by vulture funds

Vulture funds are on a six or seven-year lifespan, while people living in homes under long-term arrears require a 25-year or 30-year solution, says business group chairman.

John Moran is chairman of SME Recovery Ireland and is a former secretary-general at the Department of Finance.

The State could play a role in solving long-term mortgage arrears by helping regular pension funds take on the distressed home loans held by the so-called vulture funds, said John Moran, who is a former secretary-general at the Department of Finance.

Mr Moran, the current chairman of business group SME Recovery Ireland, said that with interest rates at rock bottom levels, "the forgotten" problem of 10-year mortgage arrears could be tackled.  

He warned that the issue of problem mortgage loans from the last economic crisis, in arrears for over five and 10 years, will only get worse because so much of the distressed home loan debt is held by the vulture funds who are short-term holders. 

Mr Moran said the vulture funds are on a six or seven-year lifespan, while people living in homes under long-term arrears require a 25-year or 30-year solution.

"The weak point in the system is the over-10-year arrears," he said, because the vulture funds will be looking at ways to exit their assets from the first round of home-loan purchases in Ireland in previous years.  

His proposal involves the Government using the period of historically-low and negative interest rates to help supplement the interest payments on the distressed mortgages and help households with five to 10+ arrears to resume paying their mortgages, knowing they can stay in the homes.              

In turn, he said, turning the mortgages into interest-only loans will mean attracting new funding sources from pension funds that are not short-term vulture funds and who will seek to get a long-term return from the properties.  

"We would end up being able to get new types of funding and be able to take them from the vulture funds, which have a short life," said Mr Moran. 

"We absolutely need a solution. Personally, I think the State needs to intervene. 

"Up to now, we tried to use mortgage-to-rent [solution], but that has been very expensive because at the moment rents are very high in Ireland."

Central Bank figures published last week showed that the number of arrears of between five to 10 years was down to 11,489, while there was an increase in the number in arrears for over 10 years, to 5,014 accounts.

The Central Bank said the "non-bank entities", which include credit-servicing firms and vulture funds, that have played a large role in buying up soured mortgage loans from Irish banks in the fallout of the last financial crisis, hold 13% of all home loans but account for 57% of all those accounts which are in arrears for over two years. Mr Moran said that the vulture funds own a huge share of the mortgages in arrears for over 10 years.

On the credit-servicing side, he said the proposed international merger of Link and Pepper, which manage many of the loans on behalf of the alternative funds, could lead to a significant part of Irish credit-servicing loans being held by a single firm. 

Last week, the EU appeared to put its weight behind European banks selling non-performing loans built up during the Covid crisis.