In January 2015 I published an analysis of the Regulation of Credit Servicing Firms Bill (aka Vulture Funds Bill), which was going through the Oireachtas at the time.
Part of the Bill's aim was to regulate vulture funds that were buying Irish home loans. In the preceding years, all the main banks and the state (via NAMA) were sellers, whilst the state was also the regulator. The banks and NAMA needed money, so the state didn't regulate international investors that were buying home loans: doing so meant banks received higher prices, since the buyers preferred unregulated products. As the banks' and the public finances improved, the state decided to bring international investors under the supervision of the Central Bank.
This led to the Vulture Funds Bill, which was decent legislation in the provisions it planned. But its origins, as outlined above, were messy. Not regulating during the recession was a gamble on the security of homeowners whose mortgages were being sold off and left them with uncertainty. The Government took the risk because the banks needed capital and NAMA needed to offload its portfolio. This worked, and both the banks and NAMA achieved their aims, but it meant the state was ceding administrative control of numerous mortgage books to unregulated international investors. Once the aims were achieved, the government decided to regulate the sale of home loans and the Bill became an Act last year, meaning international investors came under Central Bank supervision.
One year on and vulture funds are back in the news. This time the subjects are tenants rather than homeowners. In Tyrrelstown, Dublin 15, homes being rented by their developer are being sold as part of a re-financing deal with Goldman Sachs. In doing that, those renting the houses have been told their leases will not be renewed over the coming months, which is permissible under tenancy legislation (2004 Act). Were all of the homes bought by individual buyers, rather than by a fund, no greater protection would be afforded to the tenants. In effect, this is simply how the market operates and everything is within the rules.
Individual cases like those in Tyrrelstown happen every day and in every town, but there is a sense that this is different because of the scale, because it is happening in the already-precarious rental market, and because it is allowed to happen at all. That the state can allow mass postings of 'notices to quit' is reflective of the predominant regulatory ideology that exists here. Rather than use the recession to strengthen protection afforded to homeowners and renters, we avoided this, and we did so whilst making ownership of debt become more international and anonymous and less domestic and visible.
Looking back, the recession was a huge missed opportunity in relation to regulating investment funds and property. In my post last year, I said that the legislation was better late than never and that if the gamble paid off, such that investment funds would not act opportunistically against Irish homeowners, the government's actions may have been justified. Tyrrelstown presents a case of opportunism in relation to investment funds and weak tenancy regulation. If that opportunism is repeated elsewhere and if it is applied to both tenants and homeowners, it will be clear that the gamble will not have paid off. The government will have gambled homeowners and renters on the generosity of vulture funds, and it will have failed.
You can read the original post from January 2015 below.
The Regulation of Credit Servicing Firms Bill came before the Oireachtas this week. Let’s call it the Vulture Funds Bill. Why? Because it regulates international investors that have bought groups of mortgages from Irish banks but are not subject to Central Bank rules.
Under the Bill, all owners of mortgage books will have to stick to Central Bank rules and all homeowners can complain if their rights are breached. So if your home mortgage was sold from an Irish mortgage company to a non-Irish unregulated company, this bill should please you.
But why is this being introduced at all? And why now?
When the economy crashed and the banks got into trouble, they sold off thousands of mortgages to international investors. Some of the sales were from private companies such as Bank of Scotland Ireland (2,000) and Permanent TSB (2,000), and some from state-run liquidators. Estimates for the number of mortgages sold on are as high as 20,000, while the government thinks between 5,000 and 10,000. But there’s a general view that nobody really knows.
But why did this happen? Or why was it allowed to happen? Paudie Coffey TD clarified this when he said: “the vast majority of Irish assets sold in the wake of the financial crisis have been openly marketed for sale to ensure that the best price available in the market is achieved”. What mattered was that the banks would get a good price, not who was buying. Banks needed money and investors came calling. Tanager, Mars, Starwood, Shoreline, Lone Star: all with hard cash and soft names.
This Bill’s benefits are pretty clear: all mortgage-holders are treated equally, those whose mortgages have been sold on have greater certainty, and the rules have become clear to potential investors. But for those investors the mortgage books are now less valuable, because they can’t do what they want with them, as it will now be more difficult to evict someone with a regulated mortgage and sell the property to another homeowner at a higher cost. The net effect could be that they might stop buying mortgage books, or the price they will want to pay will fall.
So here’s a thought. During the recession, banks and government needed to sell the mortgages, buyers saw a regulatory gap and thought they were getting a good deal, so the sale took place. Now, the government is filling that regulatory gap and the buyers must follow the rules. If the rules were in place before, the buyers would have paid less. So effectively, leaving the gap – and not regulating vulture funds buying mortgages – may have led to banks and the government getting a higher price.
If this was the play, the State may have conned vulture funds (which is no small feat), and may have got a good deal for the economy. Of course, whilst doing that the government will have gambled with the worries of many homeowners concerned about their mortgage protection.
Can this Bill be improved? It’s hard to see how. It solves a problem. But could it have come sooner? That depends. Had the Bill been in place 4 or 5 years ago, international investors would not have been so keen to buy and the banks would have had more capital-problem, but many homeowners would have fewer worries. Whether this is an appropriate policy approach is another question. But either way, it is definitely a case of better late than never.
 Regulation of Credit Servicing Firms Bill
 Cited in Weston, Independent, 9 January 2015
 Michael Noonan TD Reply to Michael McGrath TD PQ 32194/14
 Paudie Coffey TD Reply to Paul Murphy TD PQ 9103/15