Europe tells PTSB to sell its high-risk mortgages
Published 10/04/2015 | 02:30
An Irish bank has been told to reduce the number of its tracker mortgages in arrears, including by selling off the high-risk home loans.
Bailed out lender Permanent TSB (PTSB) was ordered to reduce its book of tracker mortgages in arrears as a condition for European approval of a long-term rescue plan.
The bank is losing money on the trackers, loans where interest charges have automatically followed the ECB rate to an all time low.
Competition authorities at the European Commission said yesterday that they have approved a restructuring plan for the bank. Brussels said it paves the way for PTSB to return to viability after the €2.7bn bailout.
But conditions laid down by Europe for granting the approval are set to prove highly controversial.
That includes a commitment from the bank to reduce the value of its defaulted Irish tracker mortgages - either by restructuring the distress home loans for customers or by selling them.
It is the first time a bank here has been specifically told to sell the home loans of customers in arrears, who are by definition most at risk of repossession.
Bank sources said last night that PTSB's preference is to "cure" rather than sell the loans, but the lender is up against a time table which has been set by European authorities and which ends no later than 2018.
PTSB has previously sold its springboard Irish sub-prime mortgages business to UK fund Mars Capital, but that includes a mix of good and bad loans. Like most lenders planning to remain active in the Irish market, the bank has shied away from selling home loans made in its own name, even as it disposed of other assets.
The sale of customer mortgages by bailed-out banks, including, notably, by the liquidators of the former Irish Nationwide Building Society, has proved highly controversial.
That is in large part because borrowers automatically lose the protection of the Central Bank's code of conduct on mortgage arrears if their home loan is sold to an unregulated buyer.
Up to 20,000 mortgages have been sold by banks since the financial crisis, mostly to unregulated foreign investment funds.
After a public outcry the Cabinet approved draft legislation earlier this year that will see all homeowners get full consumer protections, but it has yet to be signed into law.
Until then, funds that buy mortgages are not bound by the consumer protection code, which limits what a lender can do when someone is in arrears.
The deal approved by Europe also includes a commitment by the bank to maintain its income ratio at targeted levels. That will be a worry for PTSB customers campaigning for a cut to the cost of their standard variable rate mortgages, which carry interest rates of around 4.5pc which are a multiple of the cost of servicing tracker loans.
At a fractious annual general meeting earlier this week, PTSB chairman Alan Cook said the bank is not yet profitable, and therefore cannot bring down prices for customers.