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