Fears for mortgage holders’ lack of protection

The level of protection that will be provided to mortgage holders whose loans have been transferred to unregulated “vulture funds” has been called into question amid fears that the incorrect body may be regulated.

The concerns raised by Fianna Fáil finance spokesperson, Michael McGrath centre on the Department of Finance’s decision to regulate mortgage servicing firms rather than the financial institution which owns the loan, through proposed consumer protection legislation.

Mr McGrath said that placing the focus on firms servicing the loans rather than the owner of the mortgage could lead to a lesser degree of protection than is required as the so-called vulture funds would retain control of important decisions which affect consumers.

“Vulture funds who outsource the administration of loans will essentially still control key decisions such as initiating action for repossession or raising the interest rate that applies to the loan without actually being subject to regulation. This leaves a potentially dangerous gap in the legislation.

“There is also very legitimate concern that loans may be sold more than once with each subsequent transaction resulting in a deterioration of the conditions of the borrower in respect of the interest rate, penalty charges and the status of any restructuring arrangement,” Mr McGrath said.

The bill which was drawn up after a public consultation process last year has been approved by the Cabinet and is expected to be passed in the opening half of the year.

Finance Minister Michael Noonan described the bill as an important piece of legislation which will ensure that borrowers whose loans are sold by regulated firms to unregulated entities retain the same level of protection as they had prior to the sale.

These protections include adherence to the Central Bank’s Code of Conduct on Mortgage Arrears (CCMA).

The bill will also apply retrospectively to an estimated 10,000 loans which have already passed to unregulated entities.

Mr McGrath accused the finance minister of having made a U-turn on the issue saying: “The initial intention regarding the oversight of the sale of mortgages was to make the ownership of credit a regulated activity. It appears that the minister for finance has backed away from this under pressure from financial institutions. This leaves us with a half-baked system whereby the servicing agent for the mortgage will need to be regulated but the same requirement will not be placed on the actual owner of the mortgage”.

Department officials appearing before an Oireachtas finance committee hearing late last year indicated that where a servicing firm was seeking to distance themselves from a complaint, the owner of the mortgage could also be drawn into the complaint, however.

The officials suggested this was unlikely to arise but said it was their intention that the bill would accommodate such a possibility.

“Our intention is that you will either have a complaint lying against a servicer or in the event that that servicer is seeking to disassociate themselves from the complaint and say, ‘No this is actually the owner rather than the servicer’ then the owner will be drawn into the complaint and effectively an award can be made against the owner rather than the servicer,” said department of finance legal advisor Antoine Mac Donncha.

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