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From our friends over at the : Irishexaminer.com
You can see the Full Story: Click Here
From our friends over at the : Irishexaminer.com
You can see the Full Story: Click Here
It may turn out that vulture funds will, indeed, strike the necessary deals with distressed Irish households and write down impossibly underwater mortgages.
Last week that’s what Taoiseach Leo Varadkar said he believes may likely happen as the foreign-owned funds prepare to acquire large parts of the loan books from mainstream lenders in the coming months.
But his remarks involve an article of faith on the intentions of the vulture funds — the US-owned funds and Wall Street investment banks that generate profits to pay dividends to their shareholders back home.
That’s because the funds currently own a relatively small share of the Irish homeloan books.
And, despite what the Taoiseach may believe, there are no compelling ‘numbers’ that can tell how the funds will behave with ordinary Irish households.
Along with the Central Bank and Finance Minister Paschal Donohoe, the Taoiseach has now given his outright support to the three Irish mortgage lenders — over which the Government in part or fully controls — to sell vast amounts of distressed residential mortgages to the foreign funds.
This means that Ireland is about to embark on a big experiment that few other countries would embrace: Funds with no long-term grounding here will take control over many billions worth in long-term mortgages originally written by banks licensed and bailed out by the State.
After the misery of Ireland’s property and financial crash, there’s no mystery that Irish banks hold huge amounts of non-performing home loans.
The banks were given little incentive to write down distressed mortgage debt.
Expensively recapitalised after the disastrous lending binge of the boom years, Irish lenders did, nonetheless, enthusiastically strike deals over corporate mortgage debt.
Over the past six years, the lenders and the State have written down debt or sold distressed loans to vulture funds on all sorts of Irish businesses such as pubs and small retail outlets. The sales attracted relatively little fuss.
And in some cases, the big funds tapped generous tax breaks and handsome returns on Irish office developments underpinned by discounted loans, as market prices roared back. But consider the pub owner whose long-term loans were sold to a foreign fund by an Irish bank and was subsequently turfed out of the business after failing to keep up with the new and costlier loan terms.
There is no affordable route to the High Court for any beaten down small business owner to help out in the unequal legal struggle with the world’s largest investment funds.
The regulator of regulators, the ECB, now wants Europe’s problem children, namely Ireland and Italy, to sort out their crisis-era loans once and for all. Supposedly healthy banks, the ECB has rightly pointed out, don’t carry large amounts of non-performing loans.
A tad disingenuously, the ECB adds it has no favoured way to cleanse European banks of their soured loan books.
The end result is there are now no barriers — financially or morally — stopping Irish banks selling the mortgages of distressed households.
Having failed to write down hopelessly indebted home loans, they gaze at potential higher credit ratings and an improvement in Irish banking’s mediocre profitability scores that the loan sales may entail.
But for distressed households, there is little to no evidence to suggest that vulture funds are the answer. There is no guarantee Ireland’s mortgage debt problem will end happily.
“I’m always reluctant to use the term vulture funds because it is a political term. What we’re talking about here is investment banks, investment funds, finance houses, there are lots of different things and lots of different financial entities there and the term is used, vulture funds,” the Taoiseach told reporters last week.
But you’ll know from the numbers that they’re often better at write-downs of loans than our own banks.
“Our own banks tend to extend and pretend rather than coming to settlements with people. Increasingly they’re covered by the same regulations and the same consumer protections as the banks,” he said.
Experts who have long tracked the arrears crisis are not so sanguine about the unfolding vulture fund experiment.
Well over half of the country’s most distressed mortgages will end up in the hands of so-called non-bank firms if the planned homeloan sales go ahead, leading legal and debt adviser Paul Joyce of the Free Legal Advice Centres has estimated.
The latest mortgage arrears figures from the Central Bank were released earlier this month.
They showed the number of accounts in arrears for over two years, a category that captures the most distressed loans, was little changed, at almost 28,000 at the end of September.
By any reckoning, the number of people in arrears is huge.
Assuming that four people are linked to a single distressed mortgage account, the figures suggest that a population larger than that of Galway city has struggled to pay their mortgages for many years.
‘Bit by bit’ the cases of early arrears are diminishing but long-term arrears of anything over two years remain stubbornly high.
“It is a significant number of households and the question is where are they going in the long run,” when the new fund owners take control, Mr Joyce has said.
The latest arrears figures do not capture the high-profile announcements and proposed loan sales by Permanent TSB, Ulster Bank, and other lenders.
And the vast majority of as many as 14,000 loan sales in the pipeline will likely be in long-term arrears. Mr Joyce
estimates well over half of long-term arrears and the mortgages of the country’s most vulnerable households will be controlled by so-called non-banks, which include vulture funds.
There is another side to the Irish mortgage crisis: About 13% of all the huge amount of households whose mortgages have been “restructured” have failed to keep up with the new terms.
And a huge number of ordinary mortgage accounts have been restructured —almost 113,900 loans since the crisis started.
With no track record to go on, transferring or outsourcing underwater mortgage loans to foreign funds is highly questionable.
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Permanent TSB has announced the sale of more than 6,000 non-performing mortgages to Glenbeigh Securities.
Nearly all of the loans sold were taken out on family homes and will be serviced by Pepper Finance on behalf of Glenbeigh Securities
The loans are valued at €1.3bn.
The bank says it is writing to all affected customers and has set up a helpline at 1890 500 223 or 021 601 3855.
They have also answered a list of frequently asked questions on their website.
The CEO of PTSB, Jeremy Masding, says customers will still be covered by Central Bank consumer protection codes when the loans are transferred:
Mr Masding said: "It enables those customers who have long-term treatments to continue with long-term treatments. The treatments are part of their loan terms and conditions and they travel into the transaction.
"The protections around those treatments also travel with the loan."
- Digital Desk
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By Eamon Quinn
Despite facing Europe’s worst financial crises since the crash and a surge in its sovereign bond yields, Italian mortgages are still about a third less expensive than those in Ireland, new official figures show.
Italian banks charged slightly higher loan rates to lend to families and companies in August, the figures showed, in a sign that market turmoil is seeping through to the real economy.
The Bank of Italy said banks based in the country charged on average 1.55% on loans to non-financial companies — ordinary companies — in August, up from 1.48% in July.
The average rate on house mortgages edged up to 2.21% from 2.15%. Loan volumes remained broadly stable from the previous months and so did deposits by Italian residents.
Italian banks have been hit by a selloff of Italian assets driven by investor concerns over the new anti-establishment government’s plan to ramp up spending and expand the budget deficit.
And the bond crisis for Italy has deepened as Rome digs in its fight with the EU over is proposed budget spending.
However, Brendan Burgess, founder of askaboutmoney.com, said despite the crisis, Italian mortgage rates were still a third less than those offered by Irish lenders.
“It shows there is no justification at all for the Irish rates. I would like to know whether the Italian banks’ cost of loans has gone up,” Mr Burgess said.
Irish banks may be justified in charging relatively more for mortgages on borrowings of 90% of the home value, but not on 50% of the property’s value, he said.
Central Bank studies have repeatedly shown that Irish house borrowers and SMEs pay among the highest costs for their loans in Europe, a hidden penalty for households and small firms doing business in Ireland.
The lenders have in the past justified the higher costs of loans in Ireland during the era of cheap money by the European Central Bank on elevated risks and on the relatively higher levels of capital buffers they are required to carry by Irish regulators to carry.
Irish 10-year bonds trade at well below 1%, compared with almost 3.5% in Italy.
Italy’s ruling coalition said it would not backtrack on plans to increase its budget deficit against criticism from the EU and its own budgetary office.
Meanwhile, Wall Street stocks were hammered as investors dumped high-growth names such as technology and ‘Faang’ stocks, with rising US Treasury yields and trade-related worries sapping their risk appetite.
The benchmark S&P 500, the Dow Jones and the Nasdaq dropped from their all-time highs. All three indices hit records between August 30 and October 3, despite the escalating Chinese-US trade dispute gnawing at confidence on corporate profit growth through most of the year.
However, a recent IMF warning on global growth taking a hit from trade disputes has hit confidence in the stockmarket, as has US Treasury yields at more than seven-year highs, signalling a tightening of capital globally.
“It’s a risk-off environment as investors are focusing on spiking yields and taking profits off the table as they are concerned about whether the bull market is actually coming to an end,” said Ryan Nauman, market strategist at Informa Financial Intelligence.
- Additional reporting Reuters
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