Be careful what you wish for. CB powers under FF bill
- Thread starter cremeegg
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Brendan Burgess
Founder
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I am not estimating the value of bank shares. I am telling you that the taxpayers' share of the mortgage market is 50% not as you suggested: "shareholders (which happen to be the taxpayer for the most part)"
You are right and I made this very point at the AIB AGM this morning. They are paying lower deposit rates and charging higher mortgage rates, but the biggest difference comes from the mortgage rates. Irish depositors can, relatively easily, open deposit accounts in other countries. Irish mortgage holders can't borrower from Eurozone lenders to buy homes in Ireland.
You have pointed it out often and it's completely irrelevant.
Say I go into my local Spar shop to buy a litre of milk and they try to charge me €2 on the grounds that they sold a litre to an earlier customer for 10 cents, so they have to charge me more to make up for that. I will just cross the road to Tesco and pay the market price for the milk which is €1.
It should be the same with mortgages. If the lenders charge me 3.7% for new business because they are charging the tracker holders 1%, I should be able to cross the road and take out a mortgage at the 2% rate applicable in other Eurozone countries.
I appreciate that this will hit the profits. Again at AIB's AGM this morning, I pointed out that their reported profits would fall from €900m to €600m if they charged fair rates.
If Frank Money gets going or if any other competitor freed from the tracker baggage and high cost base of the Irish banks, then this will become clear. All the banks' arguments as to why they must charge 3.7% will disappear.
Brendan
By what legal mechanism did the Irish taxpayer acquire a share of the residential mortgage market? By holding shares in Irish banks.
Why would any rational investor acquire more shares in a company that is barely profitable and where legislation is threatened to make it even less profitable? I think we can safely assume that there would only be one potential candidate for such an investment – the State. Where, ultimately, does the State get its money? The taxpayer.
You said there is no reason why a shareholder would not want to invest more capital in our banks. As a taxpayer, I strongly disagree.
I want the State to divest itself of its investment in our banks - not add to it.
Again, the past may not be relevant to you but it is certainly relevant to the banks in question and their regulator.
Why would Tesco charge €1 for a pint of milk if Spar are charging €2? Surely Tesco could charge a lot more than €1 and, provided it was materially less than €2, they would still clear up.
I would be delighted if we saw a number of new entrants into our mortgage market, competing strongly for market share. If the incumbent banks can't compete with these new entrants, well so be it. That's the way capitalism works.
My biggest fear is that potential new entrants will be put off by attempts to fix prices for short term political gain. In the long run, price fixing always costs consumers.
Fundamentally, this comes down to a difference of opinion - I believe in free markets, you obviously don't.
Brendan,
Re Frank Money, a lot of people seem to be putting their faith in this business entering the market. Other than saying they're going to enter the market and undercut the competition there is very little information about them.
Who is providing the equity, what's the funding/liquidity model - on what basis (tenor/pricing etc), who's going to service their mortgages, what's their process for NPLs, what's their compliance/legal governance program. There are an awful lot of unknowns with this new entrant.
I've read comments here that because it's not a deposit taker it doesn't matter - this is incorrect - what happens if it defaults? I presume the CBI doesn't want to deal with more portfolio sales. If there plan is to purely be a servicer/originator and securitize the mortgages how do they plan on doing that given Irish RMBSs have essentially stopped since the GFC.
The possibility of Frank money entering the market is great (I'd happily borrower at the rates hinted at), but the approval process is not a simple box ticking exercise.
Andy
Re Frank Money, a lot of people seem to be putting their faith in this business entering the market. Other than saying they're going to enter the market and undercut the competition there is very little information about them.
Who is providing the equity, what's the funding/liquidity model - on what basis (tenor/pricing etc), who's going to service their mortgages, what's their process for NPLs, what's their compliance/legal governance program. There are an awful lot of unknowns with this new entrant.
I've read comments here that because it's not a deposit taker it doesn't matter - this is incorrect - what happens if it defaults? I presume the CBI doesn't want to deal with more portfolio sales. If there plan is to purely be a servicer/originator and securitize the mortgages how do they plan on doing that given Irish RMBSs have essentially stopped since the GFC.
The possibility of Frank money entering the market is great (I'd happily borrower at the rates hinted at), but the approval process is not a simple box ticking exercise.
Andy
Defaults on what? If it doesn't take deposits it can only default on its bondholders. Why should the Central Bank care about its bondholders (assuming they are not also regulated entities)?
I thought I explained that pretty clearly in my post.
If it defaults on the bonds then those bondholders will take the assets and sell them.
There is enough media hysteria already about Irish mortgages being sold to "Vulture Funds".
Media hysteria aside, why should the Central Bank care about any subsequent loan sales?
Servicing loans is already a regulated activity and the Minister has indicated that he intends to introduce legislation to require funds to comply with the Central Bank Codes (not that the Central Bank should be pre-empting any such legislative developments).
Either way, I don't see why it should slow down the approval of a retail credit firm (if that is the case). When this legislative change was originally introduced, sub-prime lenders were approved within a matter of weeks.
Brendan Burgess
Founder
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I absolutely believe in a free market, but I am not blinded by ideology.
If the free market is dysfunctional and does not correct itself, then the state must act to protect its vulnerable citizens from being exploited.
Most of the arguments I have heard against this in the media are purely ideological - "the state should not interfere in the market", "The Central Bank should remain independent". They ignored the practicality of 300,000 who have been overcharged on their mortgages for some years.
Brendan
Brendan Burgess
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Hi Sarenco
That is very interesting. Do you have any official source I can refer to on this?
Was this just the existing lenders who were here already or did new sub-prime lenders come in?
Brendan
1.
It probably shouldn't care about subsequent loan sales but it does & should care about the solvency of the originating firms that it regulates.
They'll have to get comfortable with company's business plan.
It is not clear what this new entrant intends to do - (i) how it intends to make money and (ii) what it's going to do with the home loans once originated.
- (i) Is its business model origination fee based or clipping a spread after selling the assets or holding the assets long term,
- (ii) If they're going to retain the assets then they need to get comfortable with the long term funding model. If they're going to sell them then they'll need to deal with the execution risk involved with Irish RMBS.
2.
Servicing mortgages is pretty straight forward once you have a platform in place.
Most of those that entered the market in recent years, have a track record in other jurisdictions or have outsourced it to existing servicers.
It is not clear if this new entrant has an existing platform, intends to outsource it or intends to develop a new platform from scratch.
3.
Why would it slow down an approval process? (i) it might not approve the credit firm, (ii) the plan submitted might not be supportable, (iii) they might need more information, (iv) general irish sluggishness.
4.
There are an awful lot of unknowns listed above. This new entrant hasn't provided any guidance on this to the public. Complaining about delays in their approval when you don't know any of the business details is crazy.
5.
I get the impression from your points that the Central Bank shouldn't care what happens the firm, once it's not a retail deposit taker. If that's the case, then why have any Approval Process in the first place?
If you look at the relevant Central Bank register you can see that most of the few remaining sub-prime lenders and home reversion firms from that time were authorised in or around September/October 2008. The relevant legislation was commenced in February of that year but the Central Bank gave the relevant firms until 30 April to apply for authorisation.
The only reason the legislation came into being in the first place was to apply the Central Bank Code of Conduct to the sub-prime lenders and home reversion firms. It certainly wasn't out of concern for the funders of these firms or for the robustness of their business plans - they were already a busted flush by the time this legislation was introduced.
To be fair Andy I haven't been complaining about delays in their approval. As you say, I know absolutely nothing about this company (other than what is publicly available) - I don't even know whether they have in fact applied for approval or, if they have, when they did so.
I am simply making the point that authorising a non-bank lender is a completely different matter to authorising a deposit taking bank.