Vulture funds could help us clean up this mess
IT MAY seem odd, but one of our best hopes for recovery would be mass sales of the loan books at our bombed-out banks.
So-called vulture funds tend to snap up bundles of loans at massive discounts.
They are generally from outside the country and have little appreciation of the legal and cultural norms. If a lender from outside the State takes over your mortgage you will lose your protections under Central Bank rules.
For example, under the Central Bank's rules your home can't be repossessed from a lender regulated here if you are in arrears but co-operating.
On the other hand, buyers of distressed loan books have shown they are more realistic about the situation.
They recognise that many borrowers are in over their heads and so will be more prepared to do deals.
Take Australian group Pepper, which bought the mortgage book of subprime lender GE Money. It recently did a deal with a family in arrears where €110,000 was written off on condition that the house was sold.
Buyers of distressed loan books would typically buy the portfolio for, say, 20c for every €1 in loans. This means that anything they get back over 20c is profit.
So if you owe them €200,000 and pay any amount above €40,000, they are in profit and may be happy to do a deal.
These deals will be mostly offered to those in arrears. Selling loan books would also set a floor on the value of mortgages and other loans and help us to move on.
For homeowners who are not in trouble meeting their payments, the most likely way they will get a deal from the new owner of their mortgage would be if they could get finance from some new lender.
Our banks are still broken and not in a position to finance such a buy-out. For such a deal to work we need new banks to come in here. And there is little sign of that yet.