Investment funds and credit servicing firms could be breaching the terms of mortgage contracts by not offering fixed rate options to borrowers whose loans they have bought from banks, a consumer advocate has told an Oireachtas committee.
Financial advisor Padraic Kissane claimed mortgage borrowers whose loans have been purchased by such organisations should continue to enjoy the same range of rate options on offer in the bank from where their loan was transferred.
Around 113,000 borrowers here, many of whom had experienced difficulty in repaying their mortgages, have had them sold by their original bank to so-called "vulture funds" and they are now managed by credit servicing agents.
Of these, around 38,000 customers have variable rates which are being increased as the European Central Bank hikes lending rates, with some now facing rates of 8%.
The funds and credit servicing agents do not in the main offer fixed rates and because of their credit histories, the borrowers are not able to move their loans to other lenders.
Mr Kissane is a member of the Irish Banking Culture Board.
He told the committee in a written copy of his opening statement submitted in advance of a hearing on the matter later today that the lack of a fixed option creates a problem in terms of certainty and security for these borrowers.
He said he believes it is wrong that the firms do not offer fixed rates.
He said in addition to the express terms of a mortgage contract, certain implied terms may also be deemed to be part of the agreement under law.
When a customer decides to take out a mortgage with a bank it could be argued that it is an implied term that if the bank decides to sell or transfer the mortgage, the customer will not be deprived of options that would have been available had the loan remained with the originating bank, he stated.
"I see this as an entirely reasonable position," Mr Kissane said.
"The customer entered the contract with a clear expectation that both fixed and variable rate options would be available through the life of the loan and both types of interest rates were available up to and including until the loan was sold."
"Indeed, the originating bank still offers both fixed and variable rates as options of interest rates."
He added that in such circumstances there is therefore a good case that the new owner of the loan is in breach of the terms of the mortgage loan contract if the full suite of options is not available to the borrower.
He said the Central Bank's Consumer Protection Code also applies in such circumstances and requires firms to act honestly and fairly in the best interests of customers and the integrity of the market, but questioned if that is happening.
"Many of the customers are in repayment arrangements, and increasing rates by the levels seen will pile the pressure on these arrangements requiring many to be revisited and reassessed to establish the correct levels of affordability," he said.
Mr Kissane added that there are other issues arising around what happens at the end of the term to residual balances for warehoused parts of a loan and for interest only loans.
He also highlighted the lack of regulation around the setting of interest rates by investment funds.
"The problem here is this is occurring against people who literally have no option but to suck it up or go further into arrears," he stated.
In his written opening statement, David Hall, co-founder of the Irish Mortgage Holders Organisation claimed mortgage borrowers in arrears who are customers of funds do not have the same protection as they would if they had stayed with their banks, despite being told they would.
He said those whose mortgages have been restructured have had their interest rates increased, "pushing them further to the edge".
While those seeking mortgage arrears solutions are also in difficulty, he added, as the rates push up any agreed repayments.
He claimed "vulture funds" have and continue to "torture" those in arrears, despite attempts by the borrowers to come to some arrangement.
Mr Hall was also critical of the Central Bank, which he claimed had "failed miserably" in its key role of protection consumers.
He said the consumer protection roles should be taken out of the Central Bank and that legislation should be put in place to protect customers instead.
