Proposed law to control operation of vulture funds ‘could undermine financial stability’ – ECB

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Proposed law to control operation of vulture funds ‘could undermine financial stability’ – ECB


European Central Bank (ECB) President Mario Draghi
European Central Bank (ECB) President Mario Draghi

PRESIDENT of the European Central Bank Mario Draghi said a proposed law to control the operation of vulture funds could undermine financial stability.

And a top Department of Finance official claimed to the Oireachtas Finance Committee the No Consent, No Sale bill is disproportionate and “likely unconstitutional”.

The bill, proposed by Sinn Féin’s Pearse Doherty, will give mortgage holders a veto before their home loan is sold to a vulture fund.

But the ECB boss said that if the bill became law it could reduce economic capacity and have a big impact on mortgage pricing and availability.

Mr Draghi, in an opinion letter to the Finance Committee, warned the bill would have “significant adverse effects on Irish credit institutions’ ability to participate in Eurosystem monetary policy operations”.

“In turn, this is likely to result in additional costs being passed on to other borrowers.

“It could also result in a significant impact on mortgage pricing and availability, and even an increase in [non-performing loans], all of which are likely to impact financial stability, Irish taxpayers and ultimately the Irish economy.”

If banks are not able to sell non-performing loans this would add new costs for banks, which would be passed on to consumers.



(Stock image)(Stock image)

(Stock image)

“This could result in a significant impact on mortgage pricing and availability, further increasing interest rates charged to borrowers in Ireland, including holders of variable rate mortgages, and potentially leading to higher levels of non- performing loans.”

The bill would kill off securitisations, the ECB said.

Securitisation is the packaging up of mortgages and by financial engineering raising money against the income. The bank that does this usually still manages the mortgages.

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Mr Draghi said borrowers in arrears would be less inclined to engage with their lenders if the bill becomes law.

Outgoing Central Bank Governor Philip Lane has expressed what he called grave concerns about the bill. The Banking and Payments Federation has claimed mortgages would become more expensive if the bill becomes law.

And the Department of Finance said the bill is probably unconstitutional.

Assistant secretary in the department Finance Gary Tobin said: “This would introduce a statutory obligation on a lender to seek permission from the borrower before a loan is sold when it relates to a residential property.

“This essentially would eliminate the market for loan sales in Ireland. The Bill is disproportionate and likely unconstitutional.”

Officials in the department believe the bill would override existing rights of lenders sell mortgages to third parties, and unilaterally change existing contract terms.

The department said this would lead to higher mortgage rates, particularly for those with variable rates. It claims there would be stricter conditions imposed on those getting mortgages.

It maintains there would be more repossessions as banks would be able to sell their non-performing mortgages. The bill will end the ability of banks to sell non-performing loans, Mr Tobin said.

Mr Doherty responded that concerns about the bill limiting securitisations could be dealt with through amendments.

He said it was important to protect homeowners from vultures preying on them.

Mr Doherty the bill becoming law would not mean a borrower can simply not pay and expect to stay in his or her home.

The bill has moved into stage three of the parliament process, the committee stage where it will be examined in detail and amendments made.

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