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homeowners' rights

Central Bank to scrap code of conduct for banks on the transfer of mortgages as it's 'not relevant'

Sinn Féin’s No Consent, No Sale Bill aims to puts the code on a statutory footing.

THE CENTRAL BANK plans to scrap the voluntary Code of Practice on the Transfer of Mortgages because it is “not relevant” to the current banking environment. 

Sinn Féin’s No Consent, No Sale Bill aims to put the code on a statutory footing – it is currently just a voluntary code that banks can choose to apply.

Donegal TD Pearse Doherty’s Bill also aims to give mortgage holders the power to block the sale of their mortgage bank loans to vulture funds.

The Dáil voted by 80 votes to 45 to pass the Bill – the government opposed the proposed legislation.

Today, Central Bank officials will tell the Oireachtas Finance Committee that it has “significant concerns” regarding the terms of the Bill.

Voluntary code

In its opening statement, the Central Bank states that the code of conduct was issued as a voluntary code. 

“Consequently, the Central Bank’s regulatory powers, including the use of its Administrative Sanctions powers, do not apply to the Code of Practice.

“The Central Bank is of the view that the voluntary Code of Practice is not relevant or
appropriate in the current regulatory and financial environment. The Central Bank therefore considers the Code of Practice to be redundant and intends to revoke it,” states the opening statement to the committee. 

The code of conduct states that ”a loan secured by the mortgage of residential property may not be transferred without the written consent of the borrower”.

Ask for consent to sell on someone’s mortgage

It also sets out that the bank, when seeking consent from either an existing or a new borrower, must provide a statement containing sufficient information to “enable the borrower to make an informed decision”.

It states that a “clear explanation of the implications of a transfer (including the borrower’s future membership status where the lender is a building society) and how the transfer might affect the borrower” must be given to the homeowner.

It also outlines that the borrower must be approached on an individual basis and given reasonable time to give or to decline to give consent.

Banks who have sold on or transferred their customers to vulture funds, and other intermediaries who act on behalf of vulture funds, have been criticised by politicians, such as Doherty, as well as Fianna Fail’s John McGuinness, for not informing people prior to the sale that their mortgages are being sold or transferred. 

The issue of consent was previously raised by Doherty during an Oireachtas Finance Committee meeting when he asked PTSB bosses if they would be adhering to the code of conduct. 

Doherty said the Central Bank’s Code of Practice on the transfer of mortgages is being ignored and banks “have turned a blind eye” to it because it is voluntary.

Central Bank says there is no need for the code 

However, today, the Central Bank will state that “all relevant participants in the market are now subject to regulation by the Central Bank, including compliance with relevant statutory codes in place”.

They add:

Most loan agreements include a clause that allows the original lender to sell the loan on to another firm. It follows that the Bill is in conflict with contractual rights or the lender or loan owner, while not strengthening the consumer protection regulatory framework.
… It is the Central Bank’s view that the introduction of this Bill will significantly constrain the ability of banks to engage in portfolio sales (whether of performing or non-performing loans) and, so, limit their ability to deal with outstanding vulnerabilities…

The Central Bank states that the Bill in its current form “would be costly, both by hindering the continued recovery of the banking system and, most importantly, by reducing the ability of the banking system to absorb adverse shocks in the future”.

“Ultimately, these costs will be faced by households and businesses in Ireland,” it adds.

The Central Bank will tell committee members that from a consumer protection regulatory perspective, the enactment of the Bill “will not offer new or existing borrowers any additional consumer protections and it could result in consumer detriment arising from an increase in interest rates and/or a decline in mortgage availability”.

Large loan book sales by banks

It also defended the actions of the banks, who have been widely criticised for not dealing with individuals, instead choosing to sell on large portfolios of their loan books to third parties. 

“There are various methods through which banks can deal with non-performing loans (NPLs), the option to sell portfolios of loans – undertaken alongside strong consumer protection rules – is important”, adds the Central Bank. 

It states that loan sales “have been part of the toolkit used by the banking system to deal with non-performing loans”.

Giving an insight into the level of customer’s mortgages the banks have offloaded to third parties, such as vulture funds since 2013, the Central Bank said the stock of NPLs held by the retail banks (across all loan portfolios) has declined by €67 billion.

Selling of family homes and buy-to-lets

Around 12% of that reduction was achieved through residential loan portfolio sales, including Buy-to- Let and Primary Dwelling Home (family home) loans.

The Central Bank will also confirm that further loan book sales are on the cards, though it did not state how many homeowners would be impacted.

“Looking forward, while NPLs have declined in the Irish banking system, the level is still above the average across European banks. As part of the Single Supervisory Mechanism,  the Central Bank requires Irish banks to reduce NPLs in a sustainable way. In this context, Irish retail banks have submitted updated NPL reduction strategies, which include both planned workouts and potential sales.”

‘Grave concerns’

Department of Finance officials are set to agree with the sentiments of the Central Bank stating that it has “grave concerns” about the Bill.

Last week, a UN special rapporteur on housing sent a letter to the Irish government noting that they have facilitated housing financing through “preferential tax laws and weak tenant protections among other measures”, adding that it “cannot continue”. 

The UN report said it wished to remind States of their human rights obligations to regulate investment in residential real estate so that it supports the right to adequate housing and in no way undermines it.

They are also critical of the lack of regulations of vulture funds operating in the housing sector.

“What makes this practice particularly egregious is that it is being done without any monitoring, or accountability mechanisms in place. Governments seem not to have made the connection that this new form of finance is taking place in an area that is governed by international human rights law, which imposes obligations on them. We remind all States, that while gold is a commodity, housing is not, it’s a human right,” states the report.

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