Prospects for Irish mortgage-backed securitization are looking increasingly bright, as the impact of the Euro makes mortgage-backed securitization both easier and much more necessary, according to market pros in London and Dublin.
Ireland's membership of the single European currency has meant that interest rates have come down considerably since the beginning of the year, further stimulating a booming housing market and leaving banks facing unprecedented demand for housing finance, according to Michelle Brennan, a financial institution analyst at Standard & Poor's.
However, falling interest rates on savings and a drop in savings ratios as the boom makes people feel wealthier have left retail deposits unable to keep pace with lending growth, forcing banks to look elsewhere for funding.
"Because rates have fallen, banks are feeling pressures on margins and are having to look at new funding arrangements. So they are looking at the interbank market, commercial paper programs, medium-term note programs and securitizations," Brennan said.
Of course, not only has the single currency increased Irish banks appetite for MBS, it has also meant that, instead of hoping to sell to a limited domestic investor base, MBS issuers have a continent's worth of investors to tap, making for keener pricing and greater liquidity, bankers explained.
Market pros also suggested that securitization may offer a benefit beyond purely raising relatively cheap finance, as banks, rating agencies, shareholders and even the government begin to consider its potentially positive effect on reducing lender's exposure to a downturn in the property market.
"It depends on each deal and how much first loss exposure is retained but there is no doubt that there is a benefit as far as managing the banking sector's property exposure is concerned," said a Dublin-based banker.
Securitization experts also noted that the government is considering a scheme to make Irish housing more affordable that may have securitization as a centerpiece.
"Nothing has been decided yet, but there are proposals that will see purchasers finance only a portion of a property with the balance made up by a trust. There is a good chance that the trust assets will be securitized," said the Dublin banker. MD