Unless you have been living under a rock, it is unlikely that you have avoided hearing about the housing crisis and the role vulture funds have played. But what exactly is the story with vulture funds?
Technically, they are comprised of hedge funds and private equity firms who invest in ‘distressed securities.’ They have earned the unpleasant moniker ‘vulture’ owing to the fact that they are primarily interested in spotting weakness and hidden value in poorly performing property and business loans. Vulture funds swoop in and buy in bulk at hugely discounted rates. Their business plan is simply about profit maximising and Ireland has proved to be rich pickings as a result of the combined effects of the banking crisis and property crash.
The most well-known funds include Cerberus, Lone Star, Goldman Sachs and Blackstone. They then use special purpose vehicles as tax efficient or tax neutral companies who manage the assets in Ireland, such as Promotoria Finn and Tanager. The Great Irish Sell-Off revealed that vulture funds have bought over 9000 residential mortgages and €200bn worth of property and business loans over the past few years. Astonishingly, this figure is larger than Ireland’s total national debt. A number of customers of these funds appeared on the programme and described in harrowing detail how difficult it was to deal with them and how little these funds cared about the individual circumstances of the debtors involved.
Arguments are made that Vulture Funds were necessary to help the distressed Irish economy submerged within a deep recession. These funds took a high risk and invested in Ireland Inc at a time when no one else would. But at what cost? It is widely reported that many of these funds are paying very little by way of tax, in some instances just €250 a year. UCD School of Social Policy research estimates that €500m has been lost to the exchequer over the last few years due to loopholes exploited by the funds. With the property market continuing to heat up, it would seem the only losers here are the Irish people.
Many question why the banks are selling off their distressed loans to these funds at huge discount but refuse to engage with customers before this regarding any form of debt forgiveness. The moral hazard card is always pulled out when this issue is raised. The banks maintain that strategic default would result. However, it can be clearly established whether a borrower is in genuine financial difficulty or not by assessing their income, expenditure and individual circumstances. State agencies such as MABS could be used to intervene and mediate where a bank suspects that the debtor is deliberately and intentionally defaulting. Unfortunately, common sense appears to have no place in this story.
Families all across Ireland are feeling the harsh effects of vulture funds. Many have already lost their homes and thousands more know that they will be facing homelessness imminently. It is little wonder that they feel abandoned and let down by the state. With rents at all-time highs, social housing lists surpassing the 100,000 mark and the courts already overwhelmed with repossession orders, it is surely high time the government should intervene and take action. While the financial cost might be more easily calculated, the human cost in this story is simply immeasurable and the repercussions will be felt for generations to come.