'King of Bankruptcy' sets sights on the EBS
Wilbur Ross tells Charlie Weston why he wants to buy a bailed-out building society and let some homeowners write off a portion of their mortgage.
AN AMERICAN billionaire trying to gain control of EBS Building Society has promised to cut a deal with mortgage holders who are in arrears -- but there would be a sting in the tail.
Potential EBS investor Wilbur Ross said Irish lenders would have to cut the principal amount that people owe on their mortgages.
But any deal to forgive some of the mortgage amount owed by heavily indebted households would come with a large number of conditions, Mr Ross told the Irish Independent.
An aggressive company raider, Mr Ross's suggestion to write off some mortgage debt caused consternation among other lenders who fear that pressure will be brought to bear on them to forgive a portion of the debt for those unable to meet their repayments.
The billionaire 'vulture capitalist', also known as the 'King of Bankruptcy', has formed a consortium with investment giant Carlyle Group and Dublin-based Cardinal Group to bid for the EBS.
Cardinal is a small Dublin-based fund that was set up by local entrepreneurs Nick Corcoran and Nigel McDermott six years ago. Carlyle is a huge US investment group that counts former US president George Bush senior among its advisers.
Mr Ross said that some EBS mortgage holders were unable to meet their repayments. But he admitted that anyone who benefited from a debt write-off deal would be tied into a contract that would mean they would have to split any profit they made in future if they managed to sell their home or if its value rose significantly.
Mr Ross's New York-based company, WL Ross & Co, owns American Home Mortgages Services, which administers 480,000 sub-prime mortgages with a value of $85bn (€65bn).
WL Ross is also involved with the US federal government in a company that was set up to modify distressed mortgages.
He said any debt write-off here would only be applied "judiciously" and would involve a number of conditions.
Around one in 20 homeowners is in arrears on their mortgages across the economy, but it is understood that the level of arrears is higher in the EBS.
However, the building society is in a position to extract extra payments from its mortgage holders as just 20pc of its home loans are trackers. The majority are standard variable.
Up to half of the residential mortgages of other lenders are trackers, which lenders can only increase when the European Central Bank rate rises.
EBS has increased its standard variable rate twice already this year. The building society, which is now effectively owned by the State, has 83,000 mortgage holders.
Mr Ross said people in Ireland, unlike some states in the US, remained on the hook for their borrowings, even if a bank had repossessed a home.
"We will be able to give people a lot of relief on their mortgages and yet be able to make the bank function well," Mr Ross said. "If you have a guy who has a mortgage which is 125pc of the value of the home, the chances of that guy paying are really slim because he is under water. He would be throwing money into a rat hole."
Almost 36,500 homeowners have not paid their mortgages for three months or more, figures out earlier this month showed. Around 24,800 of those have not paid the mortgage for six months or more, putting them at risk of getting so deeply into arrears that they could lose their homes.
Mr Ross said cutting the principal amount owed on mortgages in arrears would reduce the monthly repayments and make the mortgages more manageable.
Asked if those borrowers who took a conscious decision not to over-extend themselves during the boom would not resent those who had over-borrowed getting a deal, Mr Ross said: "We would only do it very judiciously and in relatively limited circumstances. You don't want to reward bad behaviour and punish good behaviour."
A government-appointed expert group on personal debt and mortgage arrears is currently looking at solutions for people who have taken out mortgages that they have no hope of being able to repay.
Some people borrowed up to 10 times their salary during the boom to pay for houses that have now dropped in value by half. But due to job losses or pay cuts, they are not now in a position to meet the repayments.
Meanwhile, an inspection carried out by the Financial Regulator into how lenders deal with mortgage holders who are in arrears has found no issues with the way cash-strapped families are being treated.