Mort­gage ar­rears:

Con­sumer ad­vo­cate says about 2% of cus­tomers were not en­gag­ing with banks Web­site founder says vul­ture funds are nec­es­sary if banks not al­lowed to re­pos­sess

The Irish Times - - Front Page - EOIN BURKE-KENNEDY

Some 10,000 bor­row­ers in long-term mort­gage ar­rears should have their homes re­pos­sessed, Bren­dan Burgess has claimed.

Some 10,000 bor­row­ers in long-term mort­gage ar­rears should have their homes re­pos­sessed, con­sumer ad­vo­cate Bren­dan Burgess has claimed.

He told the Oireach­tas Fi­nance Com­mit­tee the cus­tomers in ques­tion had not paid their mort­gages for five years or more and, in many cases, had not en­gaged with their lenders in any mean­ing­ful way.

Mr Burgess, who founded the con­sumer web­site ask­about­, said these bor­row­ers were partly re­spon­si­ble for the higher in­ter­est rates be­ing charged by banks here and were there­fore be­ing sub­sidised to stay in their homes by re­spon­si­ble bor­row­ers.

“It is ab­so­lutely es­sen­tial that if you want to pro­tect the vast ma­jor­ity of re­spon­si­ble bor­row­ers you’ve got to al­low the banks deal with the very small per­cent­age – about 2 per cent, 10,000 or so – of bor­row­ers, who are not pre­pared to pay their mort­gage,” he said.

Re­cent Cen­tral Bank fig­ures show there are 24,000 bor­row­ers in mort­gage ar­rears of more than two years, and 10,000 in ar­rears of over five years. “This would not be tol­er­ated any­where else. It’s an ex­tra­or­di­nary high level of ar­rears,” Mr Burgess said.

Sev­eral Ir­ish banks, in­clud­ing AIB, Per­ma­nent TSB and Ul­ster Bank, are in the process of sell­ing off bil­lions of euro of non-per­form­ing loans to so-called vul­ture funds, a process that has been linked to the le­gal dif­fi­cul­ties faced by banks try­ing re­pos­sess prop­er­ties. “I would like to see vul­ture funds re­dun­dant . . . but if you’re not go­ing to al­low the banks to re­pos­sess houses then vul­ture funds are nec­es­sary,” he told the com­mit­tee.


Mr Burgess said banks typ­i­cally lost about 20 per cent of the value of a loan by re­pos­sess­ing the un­der­ly­ing prop­erty, but when sell­ing to vul­ture funds the write-off could be as much as 60 per cent. “So the bank is los­ing money by sell­ing it to a vul­ture fund – it would be much bet­ter to al­low them re­pos­sess the house,” he said.

Mr Burgess said he wanted to see re­spon­si­ble bor­row­ers pro­tected, not­ing some vul­ture funds had been ag­gres­sive with cus­tomers. Many bor­row­ers, who got in trou­ble some years ago but have since re­cov­ered, were now pay­ing the in­ter­est on their loans and some cap­i­tal but were still be­ing “har­ried” by vul­ture funds. In other ju­ris­dic­tions, he said, these bor­row­ers would have their ar­rears cap­i­talised and their mort­gages resched­uled.

Martha O’Hagan Luff of the Trin­ity Busi­ness School sug­gested the sale of dis­tressed loan port­fo­lios to pri­vate in­vest­ment funds may fa­cil­i­tate debt re­struc­tur­ing. “Pri­vate funds will have greater flex­i­bil­ity in the res­o­lu­tion of non-per­form­ing loans (NPLs),” she said. “In the case of a rene­go­ti­ated loan in­volv­ing the vol­un­tary sur­ren­der of a prop­erty, funds will have greater flex­i­bil­ity to al­low debt for­give­ness on the out­stand­ing loan which is very dif­fi­cult for banks to do given the moral hazard issues which would arise with other cus­tomers. In this scenario cus­tomers may be able to ne­go­ti­ate a bet­ter deal with a fund than they would be able to with a bank.”

Debt cam­paigner David Hall, how­ever, said vul­ture funds were a “can­cer” in Ir­ish so­ci­ety that would trig­ger thou­sands of home re­pos­ses­sions.

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