US hedge funds buy €1.2bn of Irish Nationwide mortgages

US hedge funds Lone Star and Oaktree Capital Management have bought a

bout €1.2 billion worth of mortgages put up for sale by the Irish Bank Resolution Corporation’s (IBRC) special liquidators.

Kieran Wallace and Eamon Richardson of KPMG, who are liquidating the State bank that absorbed the businesses of Anglo Irish Bank and Irish Nationwide, confirmed yesterday they had sold part of Project Stone, a number of commercial property loans with a headline value of €9.3 billion, and Project Sand, a group of 13,000 former Irish Nationwide mortgages worth €1.8 billion.

Lone Star and Oaktree Capital Management bought 64 per cent by value, roughly €1.2 billion worth, of the mortgages, meaning the borrowers must now repay the cash to the US funds.

They have appointed a third firm, Pepper Asset Servicing, to manage the loans and this organisation will deal directly with the borrowers. It is likely the remaining 38 per cent of the mortgages will be transferred to Nama.

Abide by code

The special liquidators said yesterday they would inform those affected “immediately”. They also

said the loans’ new owners voluntarily agreed to abide by the Central Bank’s code of conduct on mortgage arrears.

This obliges lenders to engage with those whose payments are behind and find a possible resolution. The code is binding on Irish lenders, but the US funds have signed up to it voluntarily.

Michael McGrath, Fianna Fáil finance spokesman, argued the funds' commitment was no substitute for the legally-binding protections available to other mortgage holders. "This voluntary compliance has no legal standing and is utterly unenforceable," he warned.

However, Pepper chief executive Paul Doddrell pledged the company would "adhere to the code of conduct on mortgage arrears in relation to the residential mortgages in this portfolio and are committed to working with them to find viable and sustainable solutions for both borrowers and lender".