Blow to mortgage market as key source of funding cut
THE Irish mortgage market looks set to be deprived of a key source of funding for years to come after ratings agency Moody's warned there was "little to zero chance" of our banks being able to 'securitise' home loans in the "medium term".
The Irish Independent has also learned that Moody's believes arrears levels in mortgages could rise to more than 16pc by the end of the year -- sharply worse than the 11.98pc reported by the ratings agency at the end of January.
'Securitisation' was a major source of bank funding in the boom years, allowing our institutions to sell on some €50.6bn of loans into specially set up companies which got the benefit of the mortgage payments.
Customers noticed no difference because the banks continued to collect monthly repayments -- but the process gave the banks fresh injections of cash that enabled them to lend again. A key feature of the securitisation deals is that investors in the so-called Residential Mortgage Backed Securities (RMBS) bear the majority of the risk for losses on the mortgage portfolio.
This risk has increased markedly since loans were securitised, and Moody's last week warned that RMBSs "continued to deteriorate rapidly" in the first month of this year amid rising arrears and falling house prices.
Moody's is also concerned about the impact of a new personal insolvency regime which could allow struggling homeowners to get some of their debt written off by agreement with their banks.
Asked about the prospect of Irish banks being able to issue new RMBSs in the future, Moody's senior analyst Anthony Parry told the Irish Independent: "There's little to zero chance of that."
"Investors hate uncertainty," he added. "With arrears rising and PIA [Personal Insolvency Arrangement] type issues, there's a lot of uncertainty with Irish RMBS."
Mr Parry said Moody's analysis showed up to 25pc of the owner-occupier mortgage book could be susceptible to write-off under the new insolvency regime, but said that the situation was "a little more uncertain" for buy-to-let properties.
"Our central scenario is that the PIA mortgages will remain in the RMBS, though that will vary from deal to deal," Mr Parry said.
"Most transactions are quite flexible."
Before factoring in the new insolvency regime, Moody's was already pencilling in an expected loss of "8 to 8.5pc" across the Irish RMBSs, based on house price falls of about 60pc from the peak.
Mr Parry said the loss expectation for RMBS's would "most likely be revised upwards" once the impact of PIAs had been factored in.
"We see arrears continuing to rise this year, they're at about 12pc now, we see them continuing on a similar trend," he added predicting that arrears could reach the "high teens" by the end of the year, "maybe a bit over 16pc".