Morgan Stanley has launched a deal to borrow around €412.9m on the bond market secured against a mix of Irish owner-occupier and buy-to-let mortgages, including more than a thousand so called ‘re-performing’ loans.
Morgan Stanley bought at least some of the mortgages from vulture funds Lone Star and Cerberus rather than from banks themselves.
Despite buying masses of Irish home loans at knock-down prices after the last crash, vulture funds have struggled to turn a fast profit because courts here are slow to grant repossessions and investors are bound by strict consumer protection codes for those in arrears.
However, Morgan Stanley’s ‘Shamrock 2021 1’ residential mortgage backed securitisation (RMBS) deal is structured to take advantage of the buoyant bond market by borrowing against the income from mortgage holders who remain in their homes including after a debt restructuring.
There are 2,405 mortgages in the pool, of which 45pc have never been in arrears while 48pc have been through some class of restructuring.
Analysis by the Kroll rating agency shows the bulk of cases that had been classed as distressed or non performing loans are now ‘re performing’ meaning borrowers are servicing their loans either fully or within the terms of an agreed restructuring.
The Kroll data also shows the mostly 2006, 2007 and 2008 era home loans that had been characterised by deep negative equity now mostly owe less than the value of the property they are secured on.
Around 25pc of the loans are still in negative equity however.
The Morgan Stanley portfolio is made up of a mix of mortgages originally issued by seven lenders: Ulster Bank Ireland, Danske Bank, Stepstone, Permanent TSB, Bank of Scotland (Ireland) and Start Mortgages.
The Ulster Bank and Permanent TSB tranches make up the biggest shares.
Being bundled up for this latest bond market deal will be the third time some of the individual mortgages involved have been traded since the global financial crisis and a significant number have also been managed by multiple loan serving agents.
All of the loans involved are currently serviced by either Pepper or Start Mortgages and will continue to be once the deal is done.
The bond market transaction will not affect borrowers directly and the lender of record, for example, will not change.
Pricing on the deal will be closely watched by banks and other investors holding similar assets who could follow suit if terms prove attractive.