Brendan Burgess
Founder
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From yesterday's Sunday Times
HOME LOAN PROTECTION TRADE-OFF IS A
NO-NO
There is a lot more to Ireland’s shrinking banking industry than branch closures, new fees and interest rates that are falling for savers butremaining unchanged for borrowers. Up to a dozen lenders, ranging from specialist hire-purchase firms to household names such as Bank ofScotland (Ireland), MBNA, ACC Bank and Danske Bank (formerly National Irish Bank) have decided to cut their losses by leaving the country.
Liquidators are breaking up what remains of Anglo Irish Bank and Irish Nationwide, selling off the parts to the highest bidders. The shake-upwithin Irish banking is continuing, and more institutions seem destined for the rubbish bin of history.
Dumping customers who have money is no problem — Ireland’s state-owned banks are only too eager for a chance to shake them down. Atougher breed of predator is needed, though, to take on the customers who owe money to the departing banks, especially when nobody knowshow many of these borrowers will resort to new insolvency and bankruptcy arrangements to rid themselves of debts they cannot or will notrepay.
This is the sort of high-stakes gamble that should pay off handsomely for the hedge funds and private equity funds (they reject the term “vulturefunds”) currently picking over the entrails of Ireland’s credit boom. The trick lies in picking up Ireland’s risky debts at discounts that will begreater than the inevitable bad debts coming down the line. There are opportunities, as well as threats, for the borrowers concerned. A hedge
fund that bought your mortgage at a knock-down price has a lot less to lose from writing off part of the debt than the bank that gave you theoriginal loan.
The downside is that hedge funds and similar entities are not regulated by the Central Bank of Ireland. This means that homeowners lose a stringof protections when their mortgages are sold. These include the code of conduct on mortgage arrears, and access to the Financial Services Ombudsman. Unregulated entities are also excluded from the targets set by government to force banks to face up to the mortgage crisis.
The Department of Finance says it is looking at the problem, but warns that the rights of consumers must be balanced against the need to allowbanks to manage their affairs as they see fit. If past experience is any guide, this is another trade-off that consumers are destined to lose. This isnot good enough, especially as many of the mortgages up for grabs are in deep arrears. The vulnerable borrowers caught in the middle need allthe consumer protection they can get. This is why The Sunday Times is launching a campaign in our Business+Money section today seeking to
end the scandal of homeowners losing out when their mortgages are sold.
[email protected]
HOME LOAN PROTECTION TRADE-OFF IS A
NO-NO
There is a lot more to Ireland’s shrinking banking industry than branch closures, new fees and interest rates that are falling for savers butremaining unchanged for borrowers. Up to a dozen lenders, ranging from specialist hire-purchase firms to household names such as Bank ofScotland (Ireland), MBNA, ACC Bank and Danske Bank (formerly National Irish Bank) have decided to cut their losses by leaving the country.
Liquidators are breaking up what remains of Anglo Irish Bank and Irish Nationwide, selling off the parts to the highest bidders. The shake-upwithin Irish banking is continuing, and more institutions seem destined for the rubbish bin of history.
Dumping customers who have money is no problem — Ireland’s state-owned banks are only too eager for a chance to shake them down. Atougher breed of predator is needed, though, to take on the customers who owe money to the departing banks, especially when nobody knowshow many of these borrowers will resort to new insolvency and bankruptcy arrangements to rid themselves of debts they cannot or will notrepay.
This is the sort of high-stakes gamble that should pay off handsomely for the hedge funds and private equity funds (they reject the term “vulturefunds”) currently picking over the entrails of Ireland’s credit boom. The trick lies in picking up Ireland’s risky debts at discounts that will begreater than the inevitable bad debts coming down the line. There are opportunities, as well as threats, for the borrowers concerned. A hedge
fund that bought your mortgage at a knock-down price has a lot less to lose from writing off part of the debt than the bank that gave you theoriginal loan.
The downside is that hedge funds and similar entities are not regulated by the Central Bank of Ireland. This means that homeowners lose a stringof protections when their mortgages are sold. These include the code of conduct on mortgage arrears, and access to the Financial Services Ombudsman. Unregulated entities are also excluded from the targets set by government to force banks to face up to the mortgage crisis.
The Department of Finance says it is looking at the problem, but warns that the rights of consumers must be balanced against the need to allowbanks to manage their affairs as they see fit. If past experience is any guide, this is another trade-off that consumers are destined to lose. This isnot good enough, especially as many of the mortgages up for grabs are in deep arrears. The vulnerable borrowers caught in the middle need allthe consumer protection they can get. This is why The Sunday Times is launching a campaign in our Business+Money section today seeking to
end the scandal of homeowners losing out when their mortgages are sold.
[email protected]