This unfolding central bank mortgage scandal has all the hallmarks of another crisis

Every time there has been a big sale of a bundle of residential mortgages, there have been multiple warnings that there is an urgent need to regulate the vultures who make the interest rate decisions.

The fear was that nothing would stop them from ratcheting up interest rates again and again. But calls for regulation of vulture funds have been ignored.

Individuals whose loans were sold to vulture funds have been repeatedly told by the central bank, senior politicians and the Treasury that they would keep their original terms.

And the central bank once told the Oireachtas Treasury Committee: “When a loan is sold the relevant Irish and EU consumer protection rules continue to apply. In other words, there is no restriction of consumer protection rules for borrowers when their mortgage is sold.”

It is now clear that people whose mortgages were sold to vultures – whose loans are now being serviced by loan servicers – have been pushed aside and are now suffering.

Just as predicted, once the ECB reversed its policy of a decade and started raising rates, the vulture fund lawsuits, which make the decisions about rates on the mortgages they buy, began raising rates far more than ECB rates. All of this while denying borrowers the ability to set their interest rate.

And no one can complain that this could not have been foreseen – a previous central bank governor was aware of this issue as early as 2015 and pointed out that there may be a need to limit variable rate hikes on sold loans.

Funds that owned the mortgages wouldn’t raise interest rates because they wouldn’t be competing for new business, then-Governor Patrick Honohan said.

That’s exactly what happens. A copy of a letter sent to a person whose mortgage is managed by Start Mortgages says the rate will rise to 7.09 percent. That’s three and a half times the ECB rate – and that’s before the ECB acts again next week.

Another borrower shared how his monthly repayments went from around €200 to €700 a month.

All the people who had been managing variable LTV rates with Permanent TSB have now lost them – which took these people by surprise.

Many of these people are the most vulnerable borrowers whose loans have been sold because they have had a history of difficulty making payments.

And Personal Bankruptcy Practitioners (PIP) said some of the rate hikes vultures pushed through were so large they would force those who had entered into court-approved personal bankruptcy agreements to default.

Leading PIP Mitchell O’Brien of IRS Ireland said the law needed to be changed to allow a second filing for a personal bankruptcy order. All of this has the makings of a new mortgage crisis.

The Central Bank and Treasury have been asked what they will do to deal with this developing crisis.

They were also asked if they accept responsibility for this unfolding scandal, which is affecting 100,000 people, and if the situation would inevitably lead to mass backlogs and an eventual taxpayer-funded bailout.

The central bank did not answer any of these questions directly. The Treasury did not respond.

The central bank said it could not comment on its regulatory engagement with any individual company.

She added: “More generally, the Central Bank expects all regulated entities to take a consumer-centric approach to all decisions affecting their customers (new and existing) and to communicate clearly, effectively and timely with all customers. ”

It states that customers are entitled to switch their mortgage to another provider at any time if a mortgage is fully viable.

The central bank said if a borrower cooperates with the terms of an alternative repayment arrangement and the loan is sold, the new regulated entity or loan servicer cannot unilaterally change the payment arrangements agreed between the borrower and the original lender.

It also said all regulated businesses must also consider the impact of their decisions on vulnerable customers and provide the necessary support.

So it seems that nothing is happening at the moment to deal with a situation turning into another mortgage chaos.