* Irish lenders still grappling with legacy bad loans
* Minority government to accept opposition party bill
* Central bank told to review mortgage arrears code (Adds details, quotes)
By Padraic Halpin
DUBLIN, Feb 27 (Reuters) - Ireland will extend protection for borrowers whose loans are sold to unregulated funds, Finance Minister Paschal Donohoe said on Tuesday, amid a political backlash over who some Irish lenders may sell distressed mortgages to.
A planned 3.7 billion-euro portfolio sale by permanent tsb , which is majority state-owned, sparked vocal political opposition last week over the likelihood that home loans would be sold to non-banking entities.
Ireland’s main opposition party, Fianna Fail, whose backing the minority government relies on in parliament, introduced a bill last week to extend the scope of regulation. Donohoe said he would accept the bill with “significant” amendments.
“I have reviewed this with a fresh eye and I’m open now to extending the regulatory reach further into the loan owners themselves,” Donohoe told reporters.
“There is a prerogative to ensure that the balance sheets of our banks are further moving to the level required, but I also need to ensure that if the ownership environment Irish mortgage exist in changes in the future, that we have the strongest level of regulation in place that is proportionate.”
The government has also requested that the country’s central bank review the mortgage arrears code of conduct, Donohoe said.
Unregulated buyers now use regulated “credit servicing firms” to service acquired loans, prompting Davy Stockbrokers to last week call the bill “an unnecessary development” that was likely to lower the price of portfolio sales.
Opposition parties argue that while repossessions remain rare in Ireland by international standards - banks are pushed to restructure loans instead - so-called “vulture funds” are more likely to seek a swifter resolution.
The 75 percent state-owned permanent tsb is under particular pressure from European regulators to cut its level of non-performing loans, which represented 28 percent of its loan book at the end of June last year.
Royal Bank of Scotland’s Ulster Bank also set aside money last week for a potential sale of distressed mortgages .
If such portfolios are sold at lower prices, lenders would have to use up more excess capital to account for the loss on the original book value.
“There are many consequence possible of what we are doing. We are in the very, very early phases of the permanent tsb sale and I’m not in a position to indicate if those effects will be material,” Donohoe said. (Reporting by Padraic Halpin, editing by David Evans, Larry King)