The selling-on of debts is a fact of life when boom meets bust but there should have been robust protection standards in place to safeguard borrowers and tenants, writes Paul Joyce.
VULTURE funds are centre stage in the news this past week. This is mainly because of the proposed evictions of large numbers of tenants from apartments in Blackrock in Cork City and from a housing estate in Tyrrelstown in West Dublin.
But how did we get to a stage where so many are facing homelessness in an exhausted rental market? Where were the consumer protections?
Like many other aspects of the personal debt and housing crisis in Ireland, the seeds of this fiasco were sown some years back. As the credit boom quickly turned to a debt bust, opportunities presented themselves for profit. Predictable as it was that vultures would circle, the State was slow to protect consumers.
Wikipedia tells us that a vulture fund is a hedge fund or private equity fund that invests in debt considered to be very weak or in imminent default, also known as “distressed securities”.
These funds will invest in assets that are performing poorly and may therefore be currently undervalued, which presents an opportunity. This has been going on since trade began. With capital at your disposal, buy cheap, sell on at a handsome profit when the time is right and take no prisoners.
This is “greed is good” writ large. Thus, it is notable that the outfits overseeing these evictions have been quick to point out that they are just complying with the notice provisions of the residential tenancies legislation, just like any other landlord; they are simply motivated by making a profit for investors.
Curiously, Minister for Transport Pascal Donohoe was quoted last Sunday as describing the Tyrrelstown evictions as “inappropriate and unfair”. This is a bit like asking the playground bully for your ball back when you have no means of compelling him to do so.
Government cannot have been unaware of the developing situation. Nama has been busy offloading to foreign investment funds for some time.
And there is plenty of evidence that a number of these assets have already been sold on or flipped at a considerable profit. The 2015 Price Waterhouse Cooper Global Real Estate Index records Dublin as attracting heightened international interest as a property investment centre. Competition amongst these investors pushes up prices; profits are harder to realise.
We sometimes look across the water for guidance when problems occur, particularly around legal solutions. It is a pity that we seem not to have learned from the aftermath of the UK personal debt crisis of the 1990s.
The Observer reports that in 2007, a record £7bn in unpaid consumer debts was sold by British banks for a pittance to other agencies which had since been chasing them up.
In April 2008, with the Irish bust under way, the UK citizens advice bureaux noted that it was seeing people who lost their homes in the 1990s only now being pursued for that mortgage debt. The UK consumer credit counselling service suggested that this increase was “because of the huge growth in debt purchase”.
The selling-on of debts is a fact of life when boom meets bust. Therefore there should have been provision for robust consumer protection standards for borrowers whose agreements are sold on, whether those agreements are or are not in arrears.
In Ireland, however, it was not until the spring/summer session of 2014 that the Government signalled its intention to publish a “Sale of Loan Books to Unregulated Third Parties Bill”. By that point, many distressed loan agreements had already been sold on to eager buyers. This bill evolved into the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015.
Instead of attempting to regulate the buyers of debt, many of whom have no presence in Ireland, it focused on regulating the servicing firms engaged to collect debts on the buyer’s behalf.
For sold-on mortgages, the act affords the same largely inadequate protections that apply to unsold mortgages — the rules in the Central Bank’s code of conduct on mortgage arrears and access to the complaints scheme of the Financial Services Ombudsman — to the servicer of the credit only.
Curiously, this act defines what is and what is not credit servicing. For example, “the determination of the overall strategy for the management and administration of a portfolio of credit agreements and the maintenance of control over key decisions relating to such a portfolio” is not credit servicing. This might include seeking to increase a variable interest rate, for example. These are questions we need answered.
Whatever loyalty a domestic lender with a presence in the Irish market may feel for borrowers, a vulture fund will have no such scruples. The 2015 act does not entitle borrowers to know for how much a portfolio of agreements was sold or to be have any summary of their rights and entitlements. The vulture fund can keep its bottom line to itself.
In a market where property values are rising, the implication for mortgages in arrears is clear, in terms of repossession. The sooner the State provides those terrified at the prospect of eviction or repossession with the legal and financial advice they so badly require, the better.
Paul Joyce is Flac senior policy analyst
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