What you need to know when a ‘vulture’ buys your mortgage

Ulster Bank’s decision to sell more than 900 residential mortgage as part of the sale of a package of loans which will probably be bought by a vulture fund has again raised the issue of where this leaves the householders concerned. Here are the key points:

1.

There are some new protections which were brought in recently under the 2015 Consumer Protection Act. This says that the mortgages concerned must be either sold to a regulated entity, or that if they are sold to an unregulated entity, it must appoint an “ authorised credit service firm” to service the loan book.

What does this mean? It means that either the loans must be sold to another bank regulated here, or that if they are bought by a fund, then the fund must appoint one of the specialist credit servicing firms operating here - such as Certus and Pepper - to deal with borrowers on their behalf. In turn these credit servicing firms must operate within existing guidelines.

2.

This means that the mortgage borrowers maintain the same regulatory protections that they had prior to the sale. There are a range of

codes of conduct which apply. This means first that when someone’s loan is being transferred, they must get two months’ notice and must be told who they will be dealing with in future. Beyond that, borrowers can still avail of the protections under the Mortgage Arrears Resolution Process (MARP). This obliges lenders to engage with borrowers who fall behind, provide them with information on their options and, if possible, negotiate a way forward which allows the borrower to stay in their house. Only if all this fails can repossession proceedings start.

There has been ongoing debate about the way the banks have implemented this and particularly their willingness - or lack of it - to offer alternative longer-term solutions to borrowers. This has left many householders with temporary reliefs - such as interest-only loans for a period - but without longer-term, realistic solutions. Over the past year there are signs that more cases are being realistically dealt with, but the backlog of mortgage arrears remains huge.

3.

Protections under the various codes of conduct depend on the borrower being prepared to engage with the bank in trying to reach a solution. If they do not, then the bank can move relatively quickly to seek repossession

if repayments are not being made.

In the case of the Ulster Bank loans, the bank itself has said that the 900 mortgages being sold involve loans more than two years in arrears - with a majority more than four years in arrears - and mostly cases where borrowers have not engaged with the bank to seek solutions. If the bank has taken all the required steps to seek to engage with the borrower and the borrower has not cooperated then they way will be clear for whoever buys the loans to move towards repossession. The borrower can still choose to engage at a late stage.

4.

Just because the same protections apply for the borrower does not mean that nothing changes when a loan is bought by a vulture fund.

For political reasons, and because of other relationships with borrowers, banks can be loath to move to actually repossess. More and more repossions cases are coming before the courts as proceedings are lodged, but long delays tend to apply before actual repossession takes place. A vulture fund is likely to take a more focused approach. They will buy the loans at a knockdown and try to make a profit. In some cases this may be achieved by moving more aggressively towards repossession than a bank would.

However vulture funds could also be prepared in some cases to cut a deal with borrowers. After all many may in time want to sell the restructured bundles of loans back to an Irish bank, hoping to have made a profit in the middle.