Thousands of KBC customers left fearing mortgages sold to vulture fund

Charlie Weston

TENS of thousands of KBC mortgage customers were left fearing the bank sold their mortgages to a vulture fund without telling them.

Borrowers were left reeling after their April mortgage repayments were collected by an unknown entity called Phoenix Funding 7.

Fears that the mortgages were sold to a fund were ignited when the legal entity collecting their mortgage changed from KBC Bank Ireland PLC to Phoenix 7 on current account statements.

This set off panic and led to a large volume of calls and emails to KBC Bank.

The bank insisted the use of the Phoenix 7 name that appeared on statements instead of KBC Bank was an error.

It said it has not sold the mortgages, but it admitted has securitised them. Customers were not told about this.

Securitisation is where a lender bundles up a package of mortgages and borrows against the monthly interest payments.

It is a way of raising money on the markets.

The lender remains the economic owner of the loans and continues to service them.

From research by this publication, it appears that there are 33,000 mortgages worth €5.9bn that were bundled together, securitised and called Phoenix 7.

In what is a highly technical piece of financial engineering, KBC Bank Ireland ownership of the mortgages transferred to another entity within the wider KBC Group.

KBC Group is headquartered in Belgium.

A bond was then issued on the back of the securitised loans, with a 149-page prospectus issued as part of this process.

One person familiar with what happened explained: “It was an internal securitisation. So a bit of financial engineering. The larger KBC Bank still owns the mortgages.

“They did not sell the mortgages to a fund. They just bundled them up and got another part of the bank to buy them. They then issued a bond to raise money.”

The prospectus shows that the mortgages are mostly residential, with a minority buy-to-lets.

About 40pc of the mortgages in the portfolio were issued before 2011 when mortgage underwriting standards were lower, according to an analysis of Phoenix 7 issued by ratings agency Fitch.

But these older loans are mostly being paid, Fitch says.

Customers were angry when informed by this publication that their loans had been securitised without them being told.

KBC mortgage holder Siobhan McMahon, of Skibbereen in Cork, said: “God, I hate the thought of our mortgage being sold off to some non-entity. And not being told. I have been with them since 1997-1998 and never once missed a payment.

“I feel very betrayed now.”

She was just one of a number of customers who contacted the ‘Irish Independent’ about the situation.

The bank insisted it was not required to tell the mortgage customers their loans had been securitised and used to raise money through the issuing of bonds.

The bank “followed all theregulations” in relation to whether or not customers needed to be told, a spokesperson said.

It said in a statement: “Some customers’ KBC mortgage payments are appearing on their current accounts with a description of ‘Phoenix 7’ instead of ‘KBC Bank Ireland’.

“This is as a result of an internal issue and KBC is working to have this resolved.

“This has had no impact on the processing of customer payments and we apologise for any confusion that this may have caused.”

It added it was using an “internally-retained securitisation scheme to support the financing of its balance sheet”. This is a well-established practice in the industry and has no implications for customers, it said.