Public consultation on the sale of mortgage books

The Department of Finance has launched a public consultation on their proposals to make sure that mortgages sold to vulture funds are protected

http://www.finance.gov.ie/sites/def...n_loan_books_ public_consultation _pubweb.pdf

Closing date: 22 August

In a nutshell, the draft legislation makes the ownership of credit a newly regulated financial activity which requires Central Bank authorisation. It does this by changing the definition of “retail credit firm” to include firms which own the credit.



The consultation document sets out the details of the proposed legislation and explains the reasons that this approach was adopted. The Department poses a number of questions in the document to which it invites responses.

I have read through this document.

The reason why loans sold to vulture funds are not covered is because of the inclusion of the following exclusion in the MIFID Act

‘retail credit firm’ means a person....but does not
include—


(c) in relation to credit that was originally provided by another person, a person to whom all or any part of that other person’s interest in the credit is directly or indirectly assigned or otherwise disposed of, or

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[FONT=&quot][/FONT][FONT=&quot][/FONT]

This is being changed to

(c) in relation to credit that was originally provided by another person, a Securitisation Special Purpose Vehicle (SSPV) that has obtained all or part of another person’s interest (by direct or indirect assignment, sale or otherwise) in the credit, or

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And an SSPV is defined as follows:

‘securitisation special purpose vehicle' or 'SSPV' means a corporation trust or other entity, other than a credit institution, organised for carrying out a securitisation or securitisations, the activities of which are limited to those appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPV from those of the originator of the loan or loans, and in which the holders of the beneficial interests have the right to pledge or exchange those interests without restriction but shall not include an entity which carries out loan book servicing activities:

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This is the solution which I proposed when the issue first arose

Why are mortgages sold to Vulture Funds not regulated by the Central Bank?

[FONT="]Why would mortgages sold by IBRC to a vulture fund not be covered by the Central Bank [/FONT]

[FONT="]Because of a clause in the MIFID Act 2007 which amended the Central Bank Act 1997. See below. [/FONT]

[FONT="]The objective of this amendment was to exempt securitised loans from Central Bank supervision. But the side effect is that any loans – mortgages or otherwise – sold by authorised lenders are not covered by the Central Bank’s Codes. They are covered by the Consumer Credit Act. [/FONT]

[FONT="]...[/FONT]

[FONT="]This could be fixed easily by removal of the exemption “c” highlighted below. [/FONT]

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I don't fully understand the SSPV issues, but I assume that it is only a technical issue.

from the Consultation Document


[FONT=&quot]I[/FONT][FONT=&quot]s the proposed legislation retrospective?[/FONT]

[FONT=&quot]The legislation is not retrospective. However, it will apply to all owners of loans, regardless of when they were acquired, thus capturing entities which have already purchased loan books.

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This is very simple piece of legislation and I can't imagine that there will be any objections to it.

As such, they should be able to draft it formally and slot it into the Dáil time and have it passed before the end of the year.

Brendan

I spoke to the Department of Finance.

They have received 18 submissions to the consultation process, which they are now reviewing.

They plan to publish the draft legislation by the end of the year with a view to enacting it in Q1 2015.

Brendan