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

Likewise, X took a gamble that they would be able to pay off the mortgage. In cases where they are not able, there should be a repossession, house put on the market and X's obligation cleared. This would seem to be the fairest solution. The bank loses on the sale, X loses the house and will find it difficult to get a mortgage again for obvious reasons.

Pepper etc service the sub prime end of the market. I would imagine most if not all mortgages transferred would have had some form of restructuring, therefore a main lender would not be willing to take the risk on. If Pepper bought the loan at 50c on the euro, then surely they would be delighted if they could sell it on at full rate and lock in profit. Unfortunately for the borrowers, the sub prime lending rate is very high and likely to go a bit higher as the ECB continues to increase rates (although looks like it is nearly done).

I know how it works. My point is that the poster referring to having an 8% interest rate has posted on this thread that their mortgage was sold to one of these funds and they've never been in arrears or missed a payment.

Either they're leaving out some details or their circumstances have changed, maybe property is in negative equity etc etc meaning they can't switch.

Unless they are in negative equity or some weird fixed term variable interest product, the first thing that they should do is switch if the mortgage is sold to pepper. Nothing wrong with these so called vulture funds, it's a creation of the market we have built where repossessions are almost non existent.

My current rate for my mortgage is 2.89% and I have another year or so left of the fixed term. If when I go onto variable rate my mortgage was sold and interest rate put to 8% I'd switch as a matter of urgent priority.

Through inertia perhaps. 8% isn't the current prevailing variable mortgage rate. It's the rate charged by one provider. BOI etc have far lower variable rates.

Based on the information presented by the person in the thread they should be able to switch to a provider that offers a lower fixed or variable rate. Maybe they've left out some details.

That's the kicker, not all mortgages sold to vulture funds are/have been in difficulty, they sell some performing loans to sweeten the deal.

Anyone with a performing loan should switch to another lender as soon as their lender notifies them their mortgage will be sold, some might not understand the implications, or their personal circumstances may have changed since they took out the original mortgage, so they get stuck on a higher rate. As far as I know a fixed rate won't increase, but if you're on a preferential variable rate the increase will be crippling.

Now, if lenders could repossess houses with unperforming mortgages there would be no need for them to sell off loans. Those who pay are being shafted because of those who can't or won't pay.

Well I don't think there should be sub prime new lending although it was a thing in the bubble of course. They would have been allowed to do that due to the fact that it was 2 different companies, the location of the company is completely irrelevant.

Just to illustrate how nuts it was at that time to the younger generation that may not remember:

He bought properties in Bulgaria on a credit card because he saw a guy do it on an episode of Fair City.

There's surely most choice for mortgage providers there though? No one is entering the Irish market because of the difficulties faced repossessing while the mortgage holder sits pretty and doesn't pay.

Base rates here are higher because of the lack of competition.

I tried switching last year before these rate rises via a broker who tried all the mainstream banks and I was refused as I dont earn enough, the funny thing is that I was trying to switch to a 5 year fixed rate of just over 2% which they thought I wouldn’t be able to afford yet hear I am paying 8% without missing a payment! I have an absolutely crystal clear perfect credit history with zero missed payments of any description. But because I don’t tick the necessary income level box I am stuck with pepper. I spoke to mabs who aren’t much help because I’m not actually in arrears

I see what you're saying, but I'm not convinced. For a bank, the risk in lending is that you won't get repaid. If you don't get paid, the mortgage is in default and you lose money; being able to repossess doesn't eliminate the risk if — as was the case in the years after 2008 — the market value of the house is less than the balance on the loan.

In a US-style environment, a lender would have a choice in that situation; repossess, in which case you definitely lose but you crystallise and limit your losses, or manage the defaulting loan in the hope that the borrower can at least partly meet his obligations, which will also limit your losses and leaves open the possibility that, in time, the borrower may actually clear the loan, or at least pay more than you would get on repossession and sale. Deciding which is the better option - i.e. the one likely to net the bank most money - is not easy, and neither option eliminates the risk of loss. In many cases, in the US environment, the choice is actually made by the borrower, who simply hands back the property and thereby escapes any liability for the shortfall. If borrowers can make that choice, they will naturally tend to make the choice which is most advantageous to them, which tends to be the choice which is most disadvantageous to the lender, so it doesn't seem that this would reduce the lenders' risk - logically, it should increase it.

Which would explain why, in fact, banks in the US very commonly do sell off their loan books. Just like here, it's then the purchaser of the loan book who makes decisions about how to manage defaulting loans.

I think the key difference between the US and Irish mortgage markets is that, in the US, fixed rate mortgages for the entire term of the loan, or for a very long part of it, are common, even standard. This greatly reduces the buyer's risk; you don't get a 3% loan and then find yourself a couple of years later trying (and failing) to service the same loan at 8%. And that, of course, reduces the rate of default; i.e. it reduced the bank's risk. That, more than ready recourse to repossession, may explain the narrower profit margins, and therefor lower costs, in the US mortgage market.

It was a very public case but far from unique. There were many cases where people were multiple years without payments. You are pointing to the recovery and saying "look it worked out well", but they wouldn't have known that in say 2012.

It may well have been better to repossess and rent it out for example, certainly better than leaving them in the house paying nothing for years.

Ok, but, without being in arrears for 16 years, there should be a lot paid off the mortgage so the loan to income would be a lot better now surely?

That might give you some idea as to the profit that’s being made on the likes of my mortgage and yet they refused my application of fixing it at 5% for the next 12 months to help us avoid falling into arrears

But you are still ignoring banking regulations. The fact is the ECB regulations are far tighter for European banks when compared to the US. In the US small to medium banks face lower amounts of regulation. They were given some exemptions from the updated Basel III regulations. This lack of regulation was a factor in the recent bank failures in the US.

The reason Irish banks offloaded so many loans to non banks was due to the requirement under updated banking regulations to clean up their balance sheets. This is despite it being a very unpopular measure in Ireland politically. The term "Vulture funds" is testament to that. It was forced by the ECB in an effort to clean up banks and make them more secure. The fact is US banks by and large did not and do not face the same regulatory pressures. Bringing US banks and therefore regulatory pressures into the discussion is comparing apples with oranges.

The fact is Irish mortgages are considered relatively risky because of how hard it is to enforce security. I do appreciate the ability to enforce security on a loan is not the only factor when it comes to risk. However its a major factor. While you obviously disagree with how risky Irish mortgages are relatively speaking, the issue is regulators disagree with you. Banks for better or worse answer to regulators.

The riskier a banks loans are the more capital they need to hold and less they can ultimately lend. Before the rise in inflation Irish mortgage rates were relatively high in a European context but banks were exiting the Irish market. That tells its own story. The profit margins did not offset the risk/extra capital requirements.