The European Commission last week ended its consultation period on the reports of two expert groups established in April 2006. These groups were created to explore the issues of mortgage funding and consumer protection integration. If plans move ahead, Europe could be looking at a more united mortgage market, although it's doubtful whether the fragmented regulatory environment will readily incorporate and adapt to a pan-European approach to mortgage funding.
Ten EU member states currently have some form of securitization law. In most cases, there is not a single "securitization law," but rather a series of amendments to various statutes and regulations that were developed around the specific public policy or commercial interests in each country at the time the respective securitization laws were passed. But despite the inconsistency, RMBS issuance volume has been significant both in countries that have and don't have these laws. Harmonizing the mortgage market framework would only further facilitate lender banks establishing themselves in a new market and, in the long run, result in greater RMBS market liquidity.
However, in many countries, there are still significant obstacles caused by an inflexible legal framework. "Standardizing securitization is a great idea in theory but it is a lot harder to put it in practice," a market source said. "We've seen a few deals that have taken a pan-European approach but you always end up with a complicated transaction."
For European players, the notion of legal wrangle is an all too familiar, and sometimes, costly concept. "It's difficult to change the way jurisdictions look at things like bankruptcy and it is likely to take more than a securitization law to change these problems," the market source added.
Moving towards a standardized mortgage market should be promoted but there still remain several issues that need further exploration. There isn't, for example, an agreed upon way to view prepayments in the different jurisdictions. The reports also recommended further development toward the standardization of property valuation processes. Land registration may often limit the development of mortgage transferability because of the need for reregistration that is both time-consuming and costly. Foreclosure procedures remain very different within the Union. Data protection is also complicating the tradability and transferability of mortgage loans. This clearly shows why the access to data for mortgage lending purposes should be facilitated.
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