Above: Illustrartion by Holly Pereira. Check out more of her amazing work at Hyperpictures.
Last January, the Master of the High Court Edmund Hanahan warned that over the next five years home repossessions were to increase five-fold. Already this year there have been 517 cases lodged by companies affiliated with vulture funds against debtors, that’s a tenfold increase from the 53 cases recorded in the High Court last year. Sean Finnan looks at the surge in the fund activity this year and what’s been done to fight off the bastards.
Ireland currently has over 76,000 mortgages in arrears, an insidious hangover from the financial crisis. Up until this year, few suffered the fate of evictions and having their home repossessed. However, this year has seen a tenfold increase in the number of cases taken in the High Court against debtors. Why?
Since 2014, the European Central Bank has began turning up the heat on Irish financial institutions to address non-performing loans. This is an effort to give an impression that its affairs are squeaky clean, and to remove the last vestiges of a crisis that has continually threatened the very union that it governs. Fiscally at least. Financial institutions here have been scrambling to rid themselves of their non-performing loans, packaging them up and selling them off to private equity funds aka vulture funds in common parlance.
Private equity funds, or vulture funds as they’re more commonly known as, specialise in purchasing ‘toxic debt’. As Dr. Michael Byrne explains in the Debt and Development Report on Vulture Funds activity in Ireland:
“Vulture funds are a particular type of financial firm and financial investor. They usually take the form of private equity firms or hedge funds and their defining characteristic is that they specialise in investing in ‘distressed debt’. Debt can be understood as ‘distressed’, also referred to as ‘non performing’ or ‘toxic’, when the debtor is no longer making full loan repayments and is therefore in breach of their obligations under the loan contract, or when there is a high risk that this will happen. In other words, a debt which is in or close to default.”
AIB is a state owned bank. Last April it sold €200 million of non-performing loans to the vulture fund Goldman Sachs. This transferred god knows how many distressed mortgages from an institution that governs under some (ahem) consumer regulations to a private equity fund answerable only to profit.
With property prices expected to match their boom time height by the end of the year, it’s no surprise that the vultures are seeking a return now on their investment. By seeking repossessions on arrears, the private equity funds are using the state’s judiciary system to evict homeowners in order to free up the property to sell for a lucrative profit.
“If someone can pay a restructuring amount then a bank might have a solution. But if the loan is sold to a vulture they don’t do restructuring,” states Hall. “So a family could pay €1500 of a €1900 mortgage but the vulture has no restructuring process to accept this and therefore requires full payment plus arrears. A bank might split the mortgage and accept the €1500. This means it’s way more likely for a vulture fund to proceed with repossession proceedings.
So, what’s the difference between a bank owning your mortgage or a private equity fund. For one, vulture funds are not regulated by the central bank. They abide by their own rules. Like the rack renters seeped deep in the Irish psyche, vultures can and have behaved with impunity. They offer no opportunities to restructure and unlike banks, are not regulated under European Consumer Law.
Larry Broderick, of the Irish Financial Services Union spoke to rabble on the main differences between the two.
“At present the banks are putting in a significant effort to work out solutions with people in arrears on their mortgage. Off-loading non-performing home loans to a for-profit, so called ‘vulture fund’ could have serious implications for thousands of mortgage holders in financial distress. There is no guarantee that a ‘vulture fund’ would put the same effort into finding solutions for mortgage holders in distress and it could aggressively pursue court proceedings and try to secure repossessions.”
“As of September 2016, 90,000 Irish loans are in the possession of vulture funds. The number of mortgages are unclear but there is anywhere between 10,000 Irish mortgages to 20,000. There has been a 40% increase in the number of repossessions of PDHs in arrears between 2016 and 2015. The Irish state is not galled by their presence nor the unprecedented power that they are acquiring in Irish society.”
Earlier this year Minister for Finance Michael Noonan stated of the funds:
“You criticise me for not intervening with vulture funds. Well, it was a compliment when they were so dubbed in America because vultures, you know, carry out a very good service in the ecology. They clean up dead animals that are littered across the landscape.”
Such a good service it seems that, as the Sunday Business Post reported earlier this year, the government allowed them to pay just €8,000 in tax on assets of over €10 billion. I’ll let you scoop your jaw up off the ground before reading that figure again.
It’s not just in the absence of a tax rate that the Irish state is allowing private equity funds to set its agenda. Just look at the complete absence of regulation of the firm’s dealing with their ‘clients’ and the use of state authorities, such as the Gardai and the County Sheriff to carry out evictions.
What can be done to suppress the role of the vultures and offer banks an alternative to selling their non-performing loans on to the vultures?
Broderick states that it’s up to the government to look at its own role, especially since it’s the majority shareholder in AIB bank which has been selling off its bad loans to the vultures.
“The State needs to look at what is good for society as a whole and it should use its power, including its majority shareholding in AIB, to achieve the best social outcomes. Keeping people in there is a positive social outcome and that needs to be reflected in AIB’s approach to its non-performing loan book.”
He continued, “The banks could offload their non-performing loans to a not-for-profit organisation which is focused on keeping families in their homes. There are proposals along these lines currently being developed, some at a very advanced stage.”
Some of these proposals have since come to fruition. One of which has been the Mortgage To Rent scheme, launched in September by the Irish Mortgage Holders Association, AIB and iCare housing.
In this scheme, a mortgage owner in distress contacts one of the above, and if they qualify for the scheme, iCare buys the mortgage at a discount rate from the bank. Mortgage holders then rent their home from iCare but with the option at any time to re-buy their house at the discounted price which iCare bought it from.
iCare isn’t the most desired solution. AIB’s involvement raises a lot of eyebrows given the recent announcement that it’s to pay no corporation tax for the next 20 years.
Yet in the short term at least, iCare does keep the wolves from the door and gets rid of the constant stress that comes with facing down the banks every day. It’ll do for now.