Ireland could consider boosting borrower protections in loan sales

* Opposition party seeks to extend regulation on loan sales

* Government says changes must be in line with cutting NPLs

* 3.7 bln euro portfolio includes 14,000 homeowner loans (Adds PTSB details on loan sale)

By Padraic Halpin

DUBLIN, Feb 20 (Reuters) - Ireland (Other OTC: IRLD - news) could consider boosting protection for borrowers whose loans are sold to unregulated funds, Prime Minister Leo Varadkar said on Tuesday, amid political opposition to a planned sale by majority state-owned permanent tsb (PTSB).

Irish banks are still grappling with large stocks of legacy bad loans a decade after a severe property crash. PTSB in particular has come under pressure from European Central Bank supervisors to cut its level of non-performing loans (NPLs).

The mortgage lender, whose NPLs represented 28 percent of its loan book at the end of June, last week kicked off a formal sales process for a 3.7 billion euro portfolio that represents almost two-thirds of the book value of those loans.

Challenged loan books have been snapped up by large private-equity and investment firms in the past.

Ireland's main opposition party Fianna Fail, whose backing Varadkar's minority government relies on in parliament, introduced proposed legislation on Tuesday to extend regulation to such funds.

"I know there is considerable concern out there. If additional protections are required, we are certainly open to considering that," Varadkar told parliament, adding that this had to be done in line with PTSB's obligation to cut its level of NPLs.

PTSB said on Tuesday the portfolio included loans belonging to some 14,000 homeowners, representing almost 75 percent of the total, with the balance made up of properties bought as investments.

Of those 2.7 billion euros in loans, just under 2 billion is accounted for by customers who have not engaged with the bank for as long as seven years, whose mortgages are unsustainable or have been unable to meet attempted restructurings, it said.

The portfolio also contains some loans where the bank has agreed to let the homeowners pay as much as they can afford. Their inclusion elicited particular anger in parliament but the bank said it was required by regulators to address all bad loans, regardless of forbearance measures.

"We are now almost 10 years on from the start of the crisis. The bank believes that now is an appropriate time to implement measures considered part of normal banking practice in the UK and other European countries," PTSB said in a statement.

Currently unregulated buyers use regulated 'credit servicing firms' to service acquired loans, prompting Davy Stockbrokers to call the opposition party bill "an unwelcome and unnecessary development" given consumer protections already in place.

Analysts at Davy, Investec (LSE: INVP.L - news) and Goodbody Stockbrokers all said any onerous restrictions imposed on buyers would likely lower the price achieved for future portfolio sales and legislative changes could also delay those sales. (Reporting by Padraic Halpin; Editing by Adrian Croft and Edmund Blair)