Increasing numbers of household mortgages in arrears are owned by ‘vulture funds’

Shadow banks or “vulture funds” are playing an increasingly prominent and worrying role in mortgage lending and servicing of non-performing loans, with interest rates often twice the prevailing rates, the Money Advice and Budgetary Service (Mabs) has said.

Citing figures from the Central Bank, Mabs said two “nonbank lenders” alone increased their share of new mortgage lending from 3 per cent in 2018 to 13 per cent in 2021.

Dr Amie Lajoie social policy and research executive with Mabs said “nonbanks” were also now responsible for a third of new lending in the refinancing and buy-to-let segments of the market.

Dr Lajoie told TDs and Senators non-banking entities held 74 per cent of all domestic mortgage accounts in arrears for more than one year in September 2022.

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Speaking at the Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach, Dr Lajoie said the significance of this was that these creditors “lose patience” with the process of engaging with borrowers through alternative restructuring arrangements and would rather “cut their losses and sell”.

She said there were “ongoing concerns over the consequences of banks severing the relationship with borrowers through loan sales, in particular for how these borrowers will bank and access credit in the future”.

Since 2014, Mabs and the Banking & Payments Federation Ireland (BPFI) have had an agreed protocol to ensure that all lenders ‑ banks and non-banking firms ‑ work with Mabs to help resolve mortgage debt problems, ensuring borrowers that their rights to consumer protection are safeguarded throughout this process.

However, Dr Lajoie highlighted four points of contention which she said can arise in working with these lenders. Firstly, she said in cases where their loan books are sold, clients have no legal basis to appeal the sale. Secondly she said, in supporting borrowers, “it is very important for Mabs to be able to locate responsibility/accountability within the credit supply chain and draw on related regulation and legislation to support its clients to up-hold their rights”.

Thirdly, she said over the past six months, some Mabs clients have faced an interest rate spike to over 6 per cent, more than twice the European Central Bank tracker average of 3 per cent. “The interest rate hikes serve as a particularly alarming trend during a cost of living crisis, and is having disastrous effects” she said.

Fourthly she said, in many cases non-banking entities do not have a tradition of public accountability, “and in our experience, this can indicate a lack of willingness to accommodate clients and their needs”.

Dermot Sheenan of Mabs said the organisation had seen possession orders granted for homes when the amount owned was as low as €6,000. He said this happened where those in debt did not engage with the process and get advice and he encouraged everybody in difficult circumstances to contact Mabs and engage with the process. He added that Mabs had assisted in more than 42,000 cases in the past year.

Paul Joyce, senior policy analyst with the Free Legal Advice Centres (Flac) said the sale of loans in Ireland was “now endemic” with some 113,000 mortgage loans “sold by the main banks to vulture funds in recent years”.

Addressing the legislative framework he said three pieces of legislation have been introduced “further facilitating the growth of a loan sale and loan servicing infrastructure”. While the loans were sold at a discount and the interest rates imposed by the vulture funds were often higher than the banks, the three pieces of legislation had ironically been headed “Consumer Protection” he said.