The Irish Independent – Charlie Weston

A not-for-profit company set up with the aim of buying distressed mortgages in order to keep people in their homes has threatened to take legal action to block AIB’s planned sale of €1bn of its home loans.

Homeoptions claims a process used by the largely State-owned bank to sell a book of bad home loans to a so-called “ethical fund” is “flawed”.

Homeoptions, headed by Dublin-based businessman Brian Reilly, is a not-for-profit company that was set up as an alternative buyer of bank distressed mortgages, which have overwhelmingly been bought by vulture funds. Its aim is to buy the loans and allow people in deep arrears to stay in their homes as renters, rather than repossess the properties.

It is understood Homeoptions has submitted an indicative bid of €800m.

It has written to AIB chief executive Colin Hunt complaining that it was mislead over the bank’s plans to sell a portfolio of soured loans.

In July, amid the backlash against banks’ sales of distressed home loans to vulture funds, AIB launched an alternative process allowing not-for-profit groups to bid for mortgages.

AIB is selling a portfolio understood to have around 8,000 non-performing loans in it, called Project Alder. It is understood the portfolio is valued at around €1bn, but only a portion of the residential loans would go to an ethical fund.

Last week, the Irish Independent revealed that two funds have been short-listed to buy the loans.

They are David Hall’s Irish Mortgage Holders Organisation (IMHO), backed by private equity group Arrow, and Home For Life, a mortgage-to-rent operator funded by UK-based LCM Partners and supported by private mortgage-to-rent operator Arizun. The two will now be given the chance to prove they have the funds to buy some of the non-performing home mortgages.

However, the head of third bidder Homeoptions, Mr Reilly, has threatened legal action to disrupt the process.

He has questioned how it was conducted and told the AIB boss he will seek a court injunction.

In the letter to Mr Hunt, seen by this publication, Mr Reilly claimed AIB was backing vultures, and “not backing brave”. This is a reference to AIB’s advertising slogan, which refers to backing brave.

“As a courtesy to yourself I thought it only fair to let you know that it is our intention now to seek a judicial review of the misleading process undertaken by AIB in conjunction with KPMG (the bank’s advisers on the sale).”

The letter also claims Homeoptions was “misled from the outset of this process”.

Mr Reilly questions how a sales process reserved for ethically funded alternative mortgage groups came to include private companies.

Neither Home For Life nor the Irish Mortgage Holders Organisation responded to requests for a comment, as they are understood to have signed non-disclosure agreements. AIB had no comment.

Caroline Lennon-Nally once vowed that she would never resort to mortgage-to-rent (MTR), a state-backed debt-relief scheme that allows distressed borrowers to remain in their homes by swapping ownership for a long-term tenancy.

“I would rather burn [my home] than rent it back off the banks,” she declared during media interviews in 2011. “I have put huge amounts of my own money into this house. I worked my whole life for it.”

For a brief moment she became the public face of a hitherto hidden problem: public servants with jobs for life who could not afford their mortgages following a succession of crisis-era pay cuts and tax hikes.

Eight years on, Lennon-Nally appears to have changed her mind. She resurfaced last week as one of six directors of Home Options, a not-for-profit company that claims to have a more palatable alternative to the accepted narrative that the only way of ridding Ireland of its legacy of toxic mortgage debt is to sell the loans to vulture funds.

The idea is to tap into ethical funding from America and elsewhere to provide a private version of the state’s MTR scheme that will allow households to buy back their properties at a discount in the future as their finances improve. Rather than being consigned to rent for the remainder of their days, Home Options offers them a second chance at homeownership — a feature likely to have influenced Lennon-Nally’s U-turn.

“There is a fairer way,” said Michael Durkan, another Home Options director, whose day job involves producing and directing theatrical Irish dance shows.

“The politicians have failed us, so we’ve taken matters into our own hands and come up with our own solutions . . . We’ve access to the same resources and expertise as the vulture funds.”

The launch comes as banks are preparing at least three batches of distressed mortgages for sale before the end of this year, according to Link Asset Services, an Australian outsourcing specialist that has taken over the management of many of the portfolios that Irish banks have already sold to vulture funds.

Ulster Bank will be next out of the traps with plans to offload about 3,500 mortgages, on which €900m is owed. Arizun Group, another provider of owner-turned-tenant debt packages, estimates up to €7.8bn owed on 40,000 distressed Irish mortgages could be up for grabs. Some are still on the banks’ books while the remainder have already been sold to vulture funds, which are now trying to exit their investments by reselling the loans to other distressed-debt specialists.

The impetus for all these transactions comes from European banking watchdogs, which are demanding that lenders finally draw a line under their legacy of bad loans. While the three Irish-owned banks have more than halved non- performing exposures to 8% of their loan books in the three years to the end of 2018, regulators want this reduced to under 5%. This is why Link sees Ireland as “the gift that keeps giving”.

Yet the Central Bank of Ireland sounded a note of caution last week, warning that vulture funds could quickly lose their appetite for the risks involved in turning around soured Irish mortgages as the global economic outlook becomes more uncertain. Even if investor interest were to hold up, the Central Bank said its research “suggests that many non- performing loans still on bank balance sheets may be difficult to cure”.

The aspect of loan sales that sparks most public anger — the ability to dispose of loans without borrowers’ consent — is what makes them attractive to banks. Packaging thousands of loans into a single job lot is a much quicker way of getting them off the banks’ books than alternatives such as restructuring and MTR, which require the agreement of each borrower before they can proceed.

Home Options aims to combine the best of both: offering banks a quick fix by taking entire portfolios off their hands and then offering debt forgiveness to the borrowers involved if they agree to surrender ownership in exchange for a long-term tenancy.

While it is vague on details, it is understood that Home Options is already in talks with AIB and plans to bid for the portfolio that Ulster Bank is bringing to market. This risks dragging it into a bidding war with vulture funds such as Cerberus Capital Management, the most active buyer of distressed Irish mortgages.

Home Options is betting that its ethical credentials and not-for-profit ethos will give it the edge over the vulture funds, making it a more politically acceptable alternative for a banking industry that is still largely state-owned.

Lacking the nakedly commercial focus of the vulture funds, Home Options will be able to offer more upside to its owners-turned-renters, especially when it comes to the terms under which they can buy back their homes in the future.

This will give it a clear edge when dealing with the banks, according to Ben Hoey, a former banker whose company, Quartech Solutions, will provide funding and asset management for the mortgages that Home Options plans to acquire.

“We’ll be able to match the [vulture] funds on price while at the same time helping banks protect their reputations and franchises,” he said.

“There’s a weight of money — billions of euros — available from US pension funds and other ethical investors if we can show that our proposition has a social dimension. We can offer debtors a clear plan under which they will one day own their properties again.”

Buying entire portfolios with the hope of converting the households involved from owners to tenants is a risky proposition, according to Arizun founder John McDaniel. He believes that up to 20% of loans in any portfolio are owned by strategic defaulters who lack the will, rather than the ability, to pay what they owe. They are unlikely to co-operate with any debt deal they are offered, no matter how sweet the terms.

“If Home Options has a magic bullet for dealing with people who are gaming the system, then more power to them,” McDaniel said. “They can’t do a deal without the agreement of the guy living in the house.”

Despite its ethical credentials, Home Options will not be a soft touch, according to Hoey. “If debtors don’t accept any of the solutions on offer, we will enforce against them,” he said.

Home Options and Arizun are targeting what they believe is a large gap in the market left by the state’s MTR scheme, which is open only to households with incomes of less than €25,000-€35,000 after tax, depending on where they live. Apart from excluding many struggling families on income grounds, the state scheme is also mired in bureaucracy. Just 445 mortgage-to-rent cases have completed since 2012.

Yet households that exceed the MTR income limits should have the resources to reach a restructuring deal that is less drastic than surrendering ownership of their homes, according to Paul Cunningham, chief executive of Home for Life, an MTR provider funded by AIB.

“If you can afford to pay a market rent, you can afford to make a substantial payment on your mortgage,” he said. “Why would your bank sell your mortgage in these circumstances?”

Ulster Bank faces similar questions as details emerge about the latest portfolio it is putting up for sale. While the loans involved have accumulated an average of more than two years of arrears, this problem could have arisen any time in the past six years, according to consumer advocate Brendan Burgess of Askaboutmoney.com.

“Ulster Bank’s previous loan sales were justified because they involved customers who were paying nothing and not engaging,” he said.

“The current portfolio includes people who are paying their mortgages. These loans should not be sold because the arrears could be sorted out by extending the mortgage term or reducing the rate of interest. The loans may be non-performing under the nonsensical definitions used by banking regulators, but they are sustainable.”

Ulster Bank said the portfolio was being sold only after an extensive trawl of all its problem mortgages to find alternative solutions. The portfolio includes only loans that are unsustainable or in which the borrower has failed to co-operate, according to the institution.

As more mortgages come to the market, questions about the merits — financial and otherwise — of what the banks are doing will only intensify.

A new not-for-profit company has launched with the promised aim of keeping families who cannot pay their mortgages in their home.

Homeoptions says it will provide an alternative to so-called “vulture funds” for banks to sell distressed home loans to and is currently in active discussion to buy portfolios of non-performing loans.

The all-island organisation claims to have the financial potential to handle the estimated 28,000 home mortgages that have been in arrears for more than two years.

A Mortgage-to-Rent-to-Repurchase structure will be operated by the new entity, offering home owners with repayment issues the opportunity to stay in their houses through to retirement.

They will also have the option to buy back their property at a price agreed today, should their circumstances allow for it.

But forbearance will only go so far, and Homeoptions said it will have to enforce rules against any participants who don’t meet their obligations.

It says this will only happen once approval has been received from the board and procedures fully followed.

The company is being set up by individuals involved in activities focused on keeping families in their homes, with each of the board members holding shares in trust.

The board is to be chaired by Erskine Holmes OBE, the Founding Director of the Ulster Community Investment Trust.

“Homeoptions is a socially and economically responsible alternative to vulture funds – an Irish solution to the distressed family home mortgage crisis rooted in a not-for-profit business model and an ethos of ‘fairness for all’,” he said.

“Now, all of 10 years since the property crash, Homeoptions represents an important opportunity to put 28,000 families out of the reach of profit-motivated vulture funds and to deal fairly with all sides for the wider and long-term benefit of Irish society.”

Other founding members of the board include Michael Durkan, a Founding Director of civic advocacy group Right2Homes, Eve Earley from Empowering Change & Right2Homes, healthcare and mental health worker Caroline Lennon-Nally and Brian Reilly, a non-executive director of Magnet Networks & a Founding Director of Right2Homes.

Homeoptions says its aim is to keep families in a home by providing “tailored, affordable solutions, taking account of each family’s personal circumstances.”

Funding will be provided via senior and junior debt, it claims, and public funds will not be needed.

Any profits will be invested back into further loan purchases as well as an affordable housing programme for young people.

The funding and asset management services will be provided by Irish firm Quartech Solutions – a company with a background in managing large loan portfolios.

The new firm has received the backing of Master of the High Court, Edmund Honohan, as well as Fr Peter McVerry.

“It is essential to create the building blocks of reconstructing our stressed housing economy on a North-South basis.

The Ed Honohan Bill, when it becomes law will create a bonus no one has noticed.

There is no Mortgage Rescue Scheme in Northern Ireland and the one-way traffic of the reliance in the South on Vulture Finance has created a smugness in the North. There is a tendency here to say ‘We have it under control, no Vultures here’.

The main mortgage lenders backed off running to the courts about a year ago and seem to think they have a successful formula of reputational damage limitation. This, they say relies on forbearance, extended terms and agreement on voluntary sales.

This simply cannot last with the highest levels of negative equity in the UK and a potential tsunami of home loss once base rates rise again, as they certainly will.

Social lenders and housing associations on a cross-border approach to mortgage rescue have to be part of the answer. There are sources of funds still to be tapped in Ireland, Europe and the USA for social ethical lending where the funders will be interested in the ethical bottom line.

Ulster Community Investment Trust (UCIT) is willing to take the lead in creating an “Ethical Housing Finance Fund”.

Erskine Holmes| Founding Director of UCIT and NIFHA

MORTGAGE RESCUE – NO COST TO THE TAXPAYER

WHETHER you are a “performing” borrower or a “non-performing” borrower and in arrears, the sale of your loan and mortgage to a Vulture Fund represents an alarming development. Even though it is stated Government policy to “keep families in their home”s the self-same Government’s actions are of little effect.

The Bank or Building Society which gave you the loan in the first place had the right to demand repossession once you fell into arrears and, even if you were up to date, could have changed the interest rate at it’s “discretion”. They often didn’t press these buttons, though, because the banks are long term credit providers and can afford to  take a long term view.

For Vulture Funds, however, the scenario is entirely different. You are not a “customer” as such. They are not offering you credit cards or car loans. They want to get back what your loan cost them, together with a windfall profit. If you cannot raise the finance to meet their demands, you will eventually be evicted.

And if you are not currently in arrears they will “review” your loan term and use those very same “discretionary” clauses to squeeze you to the point of unaffordability and eventual default.

Default is the end game, and the Vulture Funds are not regulated.

Since 2016 players in the consumer mortgage market are forced to comply with very extensive data requirements imposed by EU Directive when they offer a new facility, and any offer of new terms for an existing loan is, strictly speaking, a new facility. Vulture Funds have no intention of becoming long term providers of credit. Forget that. They want to sell or flip the property and pocket the profits. If the house is sold, the State can rehouse the borrowers,  job done, right?

It’s happening already in the rental market. Without any Court Order, a mortgage lender can appoint a Receiver to evict tenants and sell. That’s the reason for the lengthening emergency housing lists. And the Judgement Mortgage carnage will be next.

The Focus Ireland Amendment to keep tenants in their homes when a Landlord or his Receiver is selling was deemed “Unconstitutional.” Michael McGrath’s Bill to set up a debt resolution agency was “blocked by the ECB.” Boxer Moran’s Bill to require Courts to conduct a full inquiry is now “on the long finger.”

I have the strong suspicion that although Ministers talk about” keeping people in their homes,” they are really ok with the situation as described above.

Repossession and Personal Insolvency is their preferred option!

Slowly but surely Official Ireland is preparing to turn a blind eye to the activities of the vulture funds cranking up to evict families in mortgage arrears.

Evicted families will struggle to find emergency accommodation anywhere.

About 10% of all house mortgages are in serious arrears. Leo Varadkar has claimed that their default has resulted in higher interest rates for the rest, but the reality is that it is the loss making tracker mortgages which are forcing Irish banks to overcharge on variable rate mortgages. An Taoiseach is joining the mob which is demonising the 10% as “strategic defaulters” without any serious research to back up this allegation. It is a populist charge and unbecoming of an Taoiseach.

He also asserts that if lenders in a housing market cannot be reasonably sure of repayment, if necessary through repossession, they won’t lend. That, clearly, is not the case when one sees the competition in lending at the moment. If an Taoiseach was keen to see other lenders entering the market, why is he so opposed to the Public Banking proposals of Sparkasse?

Ask yourself this question, why is  Official Ireland so keen to paint a rosy picture of the future in the hands of Vulture Funds?

The reason is simple. I believe, down the road they want to be able say that when Michael Noonan invited them in and gave them tax breaks, they didn’t know the vulture funds’ real intentions. They can never admit to having made an incredibly stupid mistake. They will say they were misled.

That mistake will cost us all dearly.

There is a grim determination to let the vulture funds get on with their clearout. The government has stalled on Boxer Moran’s bill; on Michael McGrath’s bill regulating debt servicers; on John McGuinness’s bill to introduce not-for-profit alternatives to the vulture funds. None of these would cost the taxpayer a red cent. The government has no genuine interest in addressing the issue, whatever they say in public.