Worry for customers as loan book could be sold to an unregulated vulture fund
THE decision of Permanent TSB to put its subprime mortgages unit up for sale is just the latest in a string of disposals of troubled mortgage books.
The fear is that another loan book will be sold to a vulture fund that is not regulated by the Central Bank, and so mortgage holders will lose important consumer protections.
Permanent TSB's Springboard Mortgages was set up in 2006.
It compromises about 2,200 mortgages, which are mostly in arrears.
Springboard stopped writing business in 2009.
The subprime unit had €466m of loans at the end of 2012, according to companies office extracted by Bloomberg. It had set aside €147m of loan-loss provisions at the time.
The big worry for those who have a Springboard mortgage is whether or not they continue to be covered by the Central Bank's code of conduct on mortgage arrears and the consumer protection code.
The arrears code is a legally enforceable rule book that sets out how people are to be treated when they genuinely can't repay their mortgage.
The rules in this country mean that unregulated entities are not allowed to issue mortgages, but it is possible for them to buy loan books.
Already subprime lender Start Mortgages has admitted it is exploring the sale of its business here.
Its sale would represent the second large disposal of a troubled mortgage book following the controversial sale of three tranches of the IBRC mortgage book earlier this year.
New legislation is due in 2015 that will force vulture funds that buy up mortgage books here to honour the Central Bank's code of conduct on mortgage arrears and decisions made by the financial services ombudsman. Permanent TSB argues that it is likely to be next year before the Springboard business is sold, so borrowers will be covered by the code.
Worth remembering too is the fact that vulture funds are more likely to do deals with stricken mortgage holders because they buy the loans at a big discount.
Australian lender Pepper, which bought the mortgages issued by GE Money, has shown the way with innovative deals for distressed mortgage holders.