I can't give a fully satisfying answer, but some item descriptions can give us some ideas:
Long ago, a subjugated tribe discovered a twisted deity amongst the ravages of war, and they were transformed into bloodfiends. The mother of truth was their savior.
A talisman engraved with the lore of an outer god. Raises arcane.
The clan, who lost everything in the great fires, peered upon the corpse of their ancestor, normally an act of sanctity, and saw in its shadow a twisted deity.
The clan had suffered such torment that the horrible thing was taken as an object of worship.
So we know for certain that it's the Mother of Truth who transformed them. Since the ashes are dropped in Rivermouth Cave, and the Heirloom is found in Prospect Town, these could be referring to separate groups, which would mean this might have happened multiple times. As to who they were before, "normal" people, or maybe demi-humans? I don't know if we have evidence of anything in particular. But it seems that, at least for Prospect Town, their transformation seems to have been caused by the devastation of Messmers crusade, just like with Romina.
I have a feeling they are also connected to the Omen, but I have nothing there. Hope someone else can expand!
Anything above their old terms would send a very bad signal to any EU members. There are arguments to be made anywhere between "same rules as new states" and "old rules all the way", but more than that means setting the EU up for other states to follow.