Vulture funds and Ulster Bank

Ulster Bank has recently created a portfolio of €900 million of problem mortgages for sale. This portfolio includes an immense number in which borrowers had short term forbearance deals with Ulster Bank. Forbearance is a special agreement formed with a lender and borrower to delay a foreclosure. This occurs when mortgage borrowers are unable to repay according to terms and lender may choose to foreclose the property or asset.

Many of the affected borrowers for loan sales were engaged with the bank to secure least short term debt deals. However, Ulster Bank has claims that past customers who engages with the bank to make repayments of loans even on loans in the past are far less likely to see their loan sold to a vulture fund.

Vulture funds are generally private equity firms or a form of financing that is provided by firms to invest in properties that are performing poorly. These poor performance properties are likely to be undervalued and thus the vulture funds take advantage of the underestimated properties.

Private home mortgages on average in the current sale have been subject to debt forbearance deals. A prominent mortgage campaigner David Hall said that great levels of engagement by borrowers  exist, but none of the mortgages that are for sale are currently in an agreed long-term restructuring that the bank sees as sustainable and predicted to be sustainable.

Ulster Bank has confirmed in its Q3 2018 report that it will be selling its non-performing mortgages. Private dwelling house loans have been assigned to the portfolio that follows a concentration of effort with customers facing difficulties to ensure they were given an opportunity to agree to a sustainable solution. Furthermore, customers have been burdened by trying to find a home that they can remain in and can afford. In regard to the customers discussed above, forbearance cannot be maintained.

Also, not all private dwelling house or buy to lets are sustainable and the bank is obligated to reduce the level of non-performing loans on its balance sheet. Non-sustainable mortgages will not be brought back to preforming positions through forbearance.

Non-performing loans are defined by regulators if the loans have been subject to two or more forbearance deals. Thus, Irish banks are then put under pressure to reduce stocks of bad loans. Ulster Bank aims to reduce bad loans to 5% of its lending instead of its current 10% of lending bad loans.

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