AIB plans ‘ethical’ sale of up to 650 distressed mortgages

AIB is selling up to 650 distressed mortgages as a part "ethical" loan sale, the first of its kind undertaken by a lender in the Republic, in the coming days.

The portfolio of non-performing, owner-occupier mortgages dubbed Project Iris had an original value of €150 million.

The loans will be sold as a single lot to an “ethical” finance house or debt charity, which will work to find a borrower-friendly solution to the outstanding arrears problem.

The two bidders in the running are the Irish Mortgage Holders Organisation, set up by mortgage campaigner David Hall, and funded by UK debt investor Arrow Global, and London-based investor LCM Partners which is affiliated to the Home for Life group here.

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Both entities have access to the State’s mortgage-to-rent scheme, which allows distressed borrowers to surrender their home but remain in the property as social housing tenants, with an option to buy the property back at some future date.

It is expected that about 30 per cent of the households affected by the AIB sale will be placed in this scheme. The remainder will be offered a range of other solutions, such as split mortgages, debt-for-equity swaps and/or interest-only deals.

AIB, the State’s largest mortgage lender, is expected to announce its favoured bidder before the end of the month.

Debt charity

Mr Hall confirmed his group was one of the bidders. “We have submitted a funded bid with funds from Arrow Global. We are an experienced debt charity and have a track record in helping keep people in their homes,” he said.

He described the process as a game-changer for dealing with distressed debt.

LCM Partners declined to comment.

The sale of AIB’s Project Iris portfolio comes in advance of the much bigger and more controversial Project Oak portfolio sale. The latter will see the bank sell off up to 6,000 distressed loans, with an original book value of €1.3 billion, on the open market. The bank decided last March to postpone the Project Oak sale indefinitely – its first sale of non-performing private residential mortgages.

In a statement, the bank said: “AIB has reduced NPEs [non-performing exposures] from €31 billion in 2013 to €4 billion for the third quarter of this year. The vast majority of the reduction in NPEs has been achieved through working with customers.

“We remain focused on reducing non-performing loans to a normal, sustainable level. Supporting customers in difficulty remains a key priority for AIB and, where feasible, we will continue to implement sustainable solutions for customers who engage with the bank on a case by case basis,” it said.