Ulster Bank reviews 'securitised' mortgages in light of new rules
ULSTER Bank has launched a review to find out if the €4.4bn of mortgages that it has 'securitised' in off-balance sheet arrangements are likely to be adversely impacted by new personal-insolvency rules.
CEO Jim Brown confirmed the review to the Irish Independent this week but said it was too early to predict the kind of difficulties that the new rules could create for existing and future securitisation.
The news comes as ratings agency Fitch warned this week that the impact of the new rules on securitised mortgage debt "remains highly uncertain".
Securitisation allows banks to put their mortgages in a special entity and then sell bonds in that entity to new investors.
The investors essentially assume the risk of non-payment, although banks often pay an agreed 'first loss'.
Ulster is the largest mainstream player in the market, with €4.4bn of loans securitised and therefore kept off its balance sheet.
The Government is proposing new measures that would allow struggling homeowners to write off some of their mortgage loans by striking agreements with their lenders.
Asked what kind of impact this could have on securitisations, Mr Brown said the bank was "working through any potential impact now" by "carrying out a review based on the draft legislation".
He declined to speculate on whether the new measures could force the bank to take back some of the mortgages it had securitised out or whether they would make future securitisation deals more difficult.
If there are implications, they could also affect the state-supported banks. Bank of Ireland has €3.5bn of securitised mortgages (though this also includes some UK loans) and AIB has €890m through subsidiary EBS.
On Monday, BoI chief Richie Boucher said that the new regime could make it harder for the bank to raise money through future securitisations, since mortgages would look riskier.
A senior banking lawyer this week said it was hard to imagine that the new regime could force banks to take securitisations back onto their balance sheets, since banks were typically protected from that kind of unforeseen hit.
In its dispatch, Fitch said: "The precise impact of debt forgiveness on Irish RMBS (securitisation) transactions remains highly uncertain."
Fitch went on to warn that the new regime could change both "borrower and lender behaviour", adding: "Any resulting increase in losses affects the structural workings of transactions."
When the Personal Insolvency Bill is published at the end of April, Fitch will then "consider" if the reforms "have an impact above" the losses that it has already pencilled in.