‘Sell off bad loans to boost mortgage market’

A leading mortgage expert has called for Irish banks to fast-track the sale of non-performing home loans to improve competition in the market and facilitate new lending.

Ross Maguire, founder of New Beginning, a mortgage advocacy group, said lenders were weighed down by large portfolios of bad loans which limited their ability to issue new loans. This, he said, had stunted the mortgage market and made it more difficult for prospective homebuyers to secure a mortgage.

He warned, however, that the sale of owner-occupier mortgages was politically fraught and unlikely to happen. This was true of lenders in which the state has a stake, such as AIB which is 99.9 per cent owned by the taxpayer, he added.

“AIB should offload its entire non-performing book as soon as possible to make itself able again to move forward and make a contribution to the next generation [of homebuyers].

“People can’t get mortgages today partly because there’s no competition in the market and part of that is because of the quagmire that’s being created here with non-performing loans. I think banks should just go ahead and do it now,” Mr Maguire said.

“It’s more politically difficult, certainly, for state-owned banks to sell on owner-occupied portfolios. I think AIB would have difficulty doing that.”

Earlier this week, AIB confirmed that it had sold a portfolio of non-performing buy-to-let property loans to Goldman Sachs for a price understood to be about half the €400 million face value of the loans.

AIB said the 1,200 or so borrowers whose loans were sold as part of the portfolio, known as Project Cypress, were in “deep long-term” arrears but it declined to confirm the price paid.

“The continued reduction of these impaired loans remains a key focus for the management of AIB and of the regulator,” the bank said. “This reduction of the bank’s non-performing loans, through the transfer of investment loans, provides ongoing opportunity for the bank to focus on actively implementing sustainable solutions for customers in financial difficulties who engage with us.”

There are about 33,500 homeowners mired in arrears of more than two years across the Irish banking system. Mr Maguire said it was difficult to see how a sustainable restructuring solution could be found for most of those borrowers but said sales to so-called vulture funds should be encouraged.

“The funds are much more able and willing to do deals. We’re left in a situation where because it’s politically toxic for Irish banks, especially the state-owned banks, to sell owner-occupied loans they won’t do it and the problem is not being resolved, but it’s a false position,” Mr Maguire said.

“The people who say that the vulture funds treat people less favourably than the banks either don’t know what they’re talking about or are deliberately misleading others.”

He said borrowers whose loans were sold to such funds received “precisely the same” protection as they did prior to the sale.

Further loan sales are expected from Irish banks this year as they continue to offload bad loans from before the financial crisis.

AIB is likely to pursue further deals as it prepares to return to private ownership in the coming months through an initial public offering of shares. Michael Noonan, the finance minister, has signalled his intention to sell a 25 per cent stake in the bank in early summer or autumn of this year. The sale is expected to yield about €2.8 billion for the state.