The implications of the Pepper Finance (vulture fund mortgages) Court Ruling.

Of course the borrower could buy the bundle of loans and then, given their altruistic nature, write off the debt for everyone (or more likely, chase what they're owed to try and make some money off their outlay).

All these funds and problems come down to the lack of repossession in Ireland, if this were functioning properly, on both sides, keys would be handed back and someone else would buy and live in the property very quickly, it would also cause house prices to drop due to more supply and houses being a riskier asset for the bank (loan offers are less on riskier assets).

If we don't want repossessions than house prices will remain high as the risk taken on by the buyer is very small.

Surely the point of making repossession easier would be to reduce the bank's risk? The bank is comforted by knowing that, if the need arises, it can enforce its security quickly and cheaply. Therefore banks would be more ready to lend, not less ready.

It's the borrowers who would carry increased risk in this scenario. Logically, they should respond by borrowing less, but that depends on a dispassionate assessment of the risk.

Sure. But all of this means that banks will be willing to advance more rather than less. While borrowers should, in theory, be more reluctant to borrow because of the higher risk they carry, I think in practice what limits borrowers is not the fear that they can't repay but the unwillingness of the bank to lend more that a certain amount. If banks are willing to lend more borrowers will borrow more and defaults will increase, not reduce. (And of course prices will rise, not fall.)

The fact that repossession is so difficult doesn't mean that the mortgage gives the bank no security - if it did, banks wouldn't lend on mortgage, or wouldn't accept mortgages as security. The lender is normally incentivised to repay the loan not mainly out of fear of dispossession but simply because he wants to acquire the equity in the house and wants eventually to be able to sell it. Thus the problem really only becomes acute where you have a large number of lenders who are not only in negative equity but expect never to return to positive equity. And I cautiously suggest that our attitude to that issue should mainly focus on regulating the market so that that situation doesn't arise, rather than protecting the interest of the banks when it does.

The US homeloans market not only features relatively rapid repossession, but also fixed-rate mortgages for the full term of the loan and limited-recourse mortgages under which the borrower's obligation is fully discharged by repossession - he is not liable for any shortfall. It seems to me that importing the one aspect of the US model which favours the banks but not balancing it with those aspects which favour the borrowers is . . . unbalanced? Unfair to borrowers? At any rate, it's not something I'd rush into.

FYP

Dontmindme: Thank you! I'm embarrassed.

Podge: Lots of people being in negative equity is bad from every point of view, and we should try to structure the housing market so that the risk of it happening is reduced. I wouldn't frame this as trying to ensure that "people never enter negative equity" as this might suggest — I'm sure this wasn't your intention — that we are framing the problem as one of buyers/borrowers making poor choices.

Astrofool: I don't think the main factor creating risk for the banks is, or ever was, the relative difficulty in repossessing. And, FWIW, most of the anecdotal stuff I hear about this compare repossessions in Ireland with repossessions in the US, but mortgages in Ireland are relatively expensive compared to other Eurozone countries. I know nothing about the ease of repossession in other eurozone countries — is it as hard as Ireland? As easy as the US? Somewhere in between? Genuine question.

I think the cause of the problems in Ireland was a massive housing bubble, house prices that are absurdly expensive relative to earnings, and a very high owner-occupier rate and correspondingly limited rental market (which means that people who are at the margins of being able to buy are pushed towards buying). I don't think faffing around to make repossession processes more expeditious is going to do much to tackle those problems.

Podge is right when he says that lowering the real cost of housing is going to put many people in negative equity, certainly if the lowering happens over a short-to-medium term and not at a time of high inflation. That's not ideal, but it may be an unavoidable outcome of a transition to a saner housing market. If so, we'll have to deal with it, but I don't think in that situation the optimal way of dealing with it will be making repossession easier.

The difficulty banks have recovering property from defaulters is an issue. Ireland in a European context is a relative outlier in terms of how long it takes to repossess property/enforce loan security. It means Irish property loans are relatively risky which means Irish banks have to hold more capital when compared other European banks (who face the same regulations). It means Irish banks can lend less money as a result and as they hold riskier loans they face higher financing costs. We have had a situation where banks have been exiting the Irish mortgage market despite high interest rates relative to the rest of Europe. Yes that's changed recently as Irish mortgage interest rates have not increased in line with the ECB. But that's down to the fact due to banks leaving there is very little competition among Irish banks keeping financing costs lower as deposit interest rates have also remained low.

Using US comparisons is not a good idea due to more stringent regulations in Europe. The US gave exemptions to smaller banks from the newer Basel regulations. Which was a factor in Silicon Valley bank going to the wall.

I certainly don’t envy those with Pepper finance on high interest rates- talk about making a bad situation even worse - it’s designed to fail. For those with Pepper who have good performing loans but are struggling, is there previous bad credit history that’s preventing you from switching to another financial institution?

In terms of people taking on ridiculously large mortgages, unfortunately until housing supply increases significantly, prices will remain high - but the double whammy of increased prices and increased rates hasn’t been with us for many years- it’s like musical chairs- some group of people in the future will be caught out without a chair- I hope to god at the very least they can sell their house and clear their debts.

The thing is they bought mortgages from the likes of ulster bank so the home owner has no choice.

That’s a pretty silly way to manage your money, wait till your in arrears and then ask for help? Dosnt make any sense but then the whole mortgage process in Ireland dosnt make much sense to be honest

Yep they have no problem discussing any issues whatsoever relating to my mortgage once they ask some security questions, they have no issues taking payments over the phone but all of a sudden I’ve to send proof of ID to get a phone call recording when surely my security questions should be enough

Most of the construction activity in Dublin is funded by foreign investment companies. The Irish property developers never properly recovered after the crash. After 2008 practically all large scale developments in the city were funded by vultures with a few exceptions.

The Johnny Ronan's of this world are funded by vulture funds.

Irish developers cut their own throats with greed but as least the profits they made back in the day largely stayed in the country and did not end up in investment firms in France, Germany or the United States.