The Government is under increasing pressure to give full legal force to its code of conduct on mortgage arrears for loans sold to so-called vulture funds.
This follows a Government defeat in a 64 to 31 Dáil vote about the lack of effectiveness of the measures in place to hold the funds to account.
The House instead accepted a Fianna Fáil amendment demanding that the code needs legislative force to ensure that restructured arrangements must be adhered to when a loan is sold by a bank to a vulture fund.
During a debate this week Fianna Fáil's finance spokesman Michael McGrath challenged claims by Minister for Finance Paschal Donohoe that the rights and protections of borrowers transfer with their loans when they are sold by banks to funds.
Mr McGrath said Mr Donohoe had stated that “where a loan is sold all the protections travel with the loan and the borrower is not disadvantaged in any whatsoever”.
Mr McGrath said the code provides that if the borrower has entered into an alternative funding arrangement and is cooperating with it then that arrangement must be honoured by the new loan owner.
But the Fianna Fáil TD said “that’s not written down anywhere”.
The debate was on a private member's motion by the Rural Independents Group calling on the Government to accept the evidence of the Free Legal Advice Centres (Flac) that borrowers were not being informed when their loans were sold by banks, leaving them with no control over the terms of the loan once it is transferred.
No sanctions
Mr McGrath also said the Central Bank had not imposed a single sanction on vulture funds which did not comply with the code of conduct on mortgage arrears despite finding a "litany of breaches".
He also said there was nothing the Central Bank could do if a fund decided to tear up a loan arrangement if it did not like the alternative funding provisions put in place.
Mr McGrath said banks were selling off hundreds of home loans that were technically described as non-performing, but were “inherently good loans” because they were still being honoured by both lender and borrower.
He said provisions to enforce the code were “not written down” and there was no primary or secondary legislation signed by the Minister to make them enforceable.
There “cannot be any ambiguity” about enforceability, he stressed.
The banks are under pressure from the European Central Bank to cut the number of non-performing loans. But because of a technical definition of a non-performing loan by the European Banking Authority, “very good loans are being sold off as well as those that aren’t in good shape”.
He also said it was “not on” that funds that bought loans were not obliged to come before the Oireachtas the way Irish banks did.
In the debate, the Minister for Finance said “we have seen the number of people in mortgage arrears nearly halved”.
More than 115,000 mortgage accounts had been restructured and the level of arrears “has dropped for 21 consecutive months”, Mr Donohoe added.
But he said “we still have one of the highest rates of non-performing loans” in the EU which is “very, very high versus the European average”.
The Government is not obliged to act on the Dáil vote but there has been increasing concern that funds who buy loans are not adhering to the code of conduct.
