NO FIRM ACTING on behalf of a vulture fund or bank has ever been sanctioned for a breach of the current code of conduct which sets out how lenders must treat borrowers in a fair and transparent way.
Last week, the intermediaries that work on behalf of vulture funds, escaped tougher regulations after a Central Bank report for the government and the Minister for Finance Paschal Donohoe recommended no changes be made to the current code on mortgage arrears.
The code (Code of Conduct on Mortgage Arrears) which was established during the recession in 2009 to provide statutory safeguards for “vulnerable, financially distressed borrowers” in arrears, states all cases must be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his or her mortgage obligations.
It also states that lenders are required to ensure that communications are “proportionate and not excessive, taking into account borrowers’ circumstances, and that communications are not aggressive, intimidating or harassing”.
However, despite countless reports of customers being put under pressure by banks and vulture funds by letter, phone and even house visits, the Central Bank confirmed to TheJournal.ie that no lender or credit firm has ever been punished under the code of conduct.
In a statement, the bank said a “themed inspection” of lenders’ compliance in 2015 inspected seven lenders and identified a number of key concerns. “Formal supervisory requirements” were imposed and timelines given to banks and lenders to sort out the problems – but no sanctions.
The Central Bank said no sanctions have been put in place since the code’s commencement in 2009.
However it stated it “will take appropriate action where regulated entities and/or individuals fall short of those expected standards of behaviour”, adding that its enforcement division uses a wide range of tools to take action against regulated entities and/or individuals which fall short of our expected standards of behaviour including administrative sanctions, fitness and probity investigations and other enforcement tools.”
Real people
Julie Sadlier, a solicitor who has worked with people in mortgage distress for over 10 years, has said no Central Bank report has ever reflected the “lived reality of the people behind the statistics and balance sheets”.
She said that, over the years, the Central Bank of Ireland has talked to the needs of banks in its reports, not the families at risk of losing their homes.
With that in mind, TheJournal.ie asked the Central Bank whether it had reached out to individual customers to hear first-hand their experiences and treatment at the hands of banks and credit-servicing funds who are working for vulture funds.
In a statement, the Central Bank confirmed that no individual customer was consulted for the report on the adherence to the code of conduct.
Instead, it said stated that “detailed inspections were carried out of credit servicing firms (CSFs) and other firms dealing with borrowers in arrears”.
It added that in carrying out its report, it consulted with “consumer representatives and advocates, many of whom deal directly with borrowers in mortgage arrears, as well as other stakeholders”.
So, who did it talk to then?
The stakeholders included the Money Advice and Budgeting Service, Free Legal Advice Centres, the Irish Farmers’ Association, and consumer advocate Brendan Burgess.
It also talked to the Irish Mortgage Holders Organisation, the Competition and Consumer Protection Commission, the Insolvency Service of Ireland and the Banking and Payments Federation Ireland.
The questions asked of these organisation were based on their views on the effectiveness of the code in the context of the sale of loan books.
David Hall of the IMHO told TheJournal.ie that he had a “robust exchange” with the Central Bank about the report, stating that they were not asking the right questions, stating the code was not fit for purpose, as it did not make it a requirement for a lender to offer a solution to their problem.
Dubbing the code review report “spin”, Fianna Fáil’s Michael McGrath said he was disappointed no review will be undertaken, reiterating Hall’s point that the code does not prescribe lenders to offer a suite of options to homeowners.
“It only requires loan owners to consider the restructuring options from the suite of options offered by that firm. This provision allows vulture funds to cherry pick the alternative repayment options they wish to offer and are not obliged to even consider all options.
“In effect, they can ignore the main restructuring options if they wish and the Central Bank still deems them to be fully compliant,” he said.
This was confirmed to TheJournal.ie by the Central Bank.
It stated that the code “does not prescribe that lenders must offer particular solutions to borrowers”.
“It said each regulated entity must consider the borrower’s situation in the context of the suite of arrangements the entity offers, which may differ from firm to firm,” said the Central Bank, adding that the code includes a list of arrangements that regulated entities may choose to consider within their suite of arrangements.
The Central Bank cannot interfere with the strategy and commercial decisions or the legitimate contractual rights of lenders where such firms are complying with their regulatory and contractual obligations.
Data released by the Central Bank to the Oireachtas Finance Committee earlier this year reveals that unregulated loan owners, or vulture funds, have provided only 6% of all restructure arrangements between April 2017 and March 2018.
This is despite the fact that they own 10% of all loans in arrears and 19% of all loans in long-term arrears.
Hall was also critical of the Central Bank carrying out the review on the foot of the public outcry from the mortgage loan book sale of PTSB, stating that report should have been carried out by the Department of Finance or an independent expert.
When TheJournal.ie asked the Central Bank about the report’s methodology and who it consulted when drawing up the report, the bank said it carried out “detailed inspections” of credit servicing firms (agencies that act on behalf of vulture funds) and other firms dealing with borrowers in arrears.
The Central Bank added that it carried out on-site inspections of just two firms involved in credit servicing activities.
These two firms only represent 79% of primary home loans serviced by CSFs.
Desk-based inspections of one retail credit firm and one bank were carried out as part of the report.
“The scope of the inspections included a comprehensive examination of borrower documentation and various policies, procedures, systems and controls. The extensive work also involved interviews with credit servicing firm staff at different levels, including those assisting borrowers in arrears” said the Central Bank.
The inspections examined complaints made to credit servicing firms that related to their approach with borrowers, whether these firms, acting on behalf of vulture funds, honoured existing arrangements when a loan is sold by a bank to a vulture fund until the agreed term of the arrangement comes to an end, and whether the content of borrower communications issued by the bank and firms, following the sale of a loan to a vulture fund, complied with the code of conduct.
The Central Bank also stated that it inspected letters issued by the firms and banks to borrowers in arrears. The content of these letters from found to have “complied” with the code and were “consistent with the equivalent communications issued by banks”.
The report states that the scope of the inspections “included a comprehensive examination of borrower documentation and various policies, procedures, systems and controls”.
The extensive work also involved interviews with CSF staff at different levels, including those assisting borrowers in arrears.
A study, published last week, paints a different picture to the Central Bank report, and tells of the experiences of people coping with mortgage distress.
It reveals a picture of shame, silence, stress, lack of legal representation, rejection in court and a failure by state support systems like MABS and Abhaile to support them adequately.
The qualitative and quantitative research project compiled by Community Action Network (CAN) and is based on information gathered at a series of eight public information sessions held in 2018, and a survey of customers.
Sadlier said that the CAN research is significant because it is the first to concentrate on the people behind the statistics.
There are some 66,000 mortgages in arrears in Ireland, of which 28,000 are in arrears for more than two years. There are currently an estimated 20,000 possession cases before the courts.
Based on a minimum of four people per mortgage, the CAN researchers estimate that mortgage possession is affecting the lives of approximately 250,000 men, women and children.
New vulture fund regulations
Some positive action was taken this week, with the passing in the Dáil of Fianna Fáil’s Bill, which will allow the Central Bank to take enforcement action directly against overseas funds known as vulture funds who operate in Ireland through middlemen, was passed by the Dáil.
Despite the government’s initial hesitation on the Bill, it was later given government support.
Currently, the vulture funds, which buy up mortgage and business loans from pillar banks, are outside the scope of normal regulation. It is only the credit servicing firm – or the middleman which operates as a go-between for the vulture fund and the mortgage-holder, which is regulated under Central Bank rules.
This means the borrower never actually gets to speak or make contact with the organisation or fund who own their loan, and ultimately make the decision about restructuring the mortgage or loan, or who have the power to offer solutions.
The new laws will give Central Bank powers to “turn up at the door” of vulture funds, according to Fianna Fáil’s Finance spokesperson Michael McGrath.
Up until now, these funds have been untouchable, said McGrath.
“The Central Bank will now, for the first time, be able to have direct contact with these funds and apply strict regulation directly to them,” he said.
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