The Government has taken the first steps towards creating a market to make it easier for vulture funds to buy and sell loans in arrears.
inance Minister Michael McGrath opened a consultation on Tuesday on a recent European Union directive promoting a secondary market for non-performing loans originated by banks.
The consultation concerns how the credit services who manage the loans should be regulated and supervised.
The purpose of the directive is to create common framework for the sale and management of bank loans – primarily mortgages – that become delinquent.
Such loans are often bundled into bad loan portfolios and sold at a discount to big private equity funds that contract the servicing to separate providers.
The process now takes place on a bespoke or bilateral basis between buyers and sellers in a private market for such assets, and therefore is not very transparent to borrowers.
The EU Credit Servicers’ and Credit Purchasers’ Directive, which was passed in 2021, is an attempt to address that by formalising a market for non-performing loans across the EU with similar rules in each country.
The idea is to create smoother trade in distressed assets and consistent treatment of borrowers when their loans are sold.
Under the directive, there would be EU-wide authorisation and regulations for any such loans transferred or sold after December 29 of this year. It would exempt all loans that predate December 30, meaning anyone currently in arrears would be unaffected.
It allows authorised firms to “passport” services to Ireland.
