State banks to lose as vulture law looms
It is now clear the Government will tighten legislation governing vulture funds which buy mortgages.
But exactly what the new regime would mean for people whose loans are bought is still far from clear.
The Department of Finance and the Central Bank are being forced to change the rules because Fianna Fáil's Michael McGrath has pushed them on the issue.
Introducing protections for mortgage holders should not be a surprise. Fine Gael and Fianna Fáil agreed it in the Supply and Confidence Agreement which underpins the Government.
Now that Mr McGrath has introduced a bill in the Dáil, Finance Minister Paschal Donohoe has found himself with little option but to accept the proposed legislation.
It does not mean the Fianna Fáil proposal will automatically become law in its current state.
Minister Donohoe said it would need amendments and re-drafting and that he would work with Mr McGrath on the issues.
So exactly what emerges after it is rewritten is still unclear.
For AIB and Permanent TSB, both more that 70% state owned, the timing could not be worse.
The two banks are trying to sell large portfolios of loans.
Now the goal posts moving because new legislation is being introduced while sales are underway.
When asked about the impact on loan sales on Tuesday, Minister Donohoe said it would have "consequences".
At this point AIB is in advanced negotiations to offload a significant tranche of commercial and buy-to-let borrowings. These were once valued at €3.7 billion.
At an awkward conference call with journalists this week AIB's CEO Bernard Byrne declined to discuss the sale.
"We are not going to comment on something we never commented on," he said, in a gnome-like utterance.
He added the bank had no plans to sell owner-occupier loans.
Despite that statement, analysts such as Owen Callen from Investec expect AIB may try to sell owner -occupier mortgages later this year or in 2019.
More controversially, Permanent TSB is selling 14,000 owner-occupier loans in arrears.
When banks sell distressed mortgages they do so at big discounts.
In Permanent TSB's case it will be about €400 million.
Obviously if buyers are subject to tighter restrictions it could scare off some potential purchasers, leading to a higher discount.
Even if vulture funds are subject to full regulation from the Central Bank it is still unclear to what extent protections for homeowners will be enhanced.
In many cases, foreign funds which take aggressive action against mortgages owners in default are doing something banks had the power to - but avoided because bankers feared the public relations impact of evicting families.
However, an investor taking decisions in New York is not bothered by a backlash in Roscommon or Kildare. They are nothing more than pinpoints on a map to the funds.
One of the reasons Michael McGrath has pressed for vulture funds to be regulated is because his constituents have described harsh treatment at the hands of unsympathetic foreign investors.
But some mortgage holders have also been able to agree deals with funds where the homeowners had made no progress with their original lenders.
The banks, the Central Bank, the Department of Finance and the ECB would prefer to see mortgages in arrears sold off.
The key issue will be whether the redrafting of Fianna Fáil legislation will result in a political fudge which makes no difference - or a new law which halts mass sales to vulture funds.
Comment via twitter @davidmurphyRTE