Space in the U.K. RMBS market is getting more cramped than the halls of last week's Global ABS conference held in Barcelona. However, panelists said, there is ample room for growth - in the U.K. as well as in other European ABS markets - just as long as lenders can continue to get borrowers to make their payments.
The Monday morning discussion on the outlook for European nonconforming residential mortgage-backeds focused primarily on U.K. RMBS. The panel, composed of representatives from four banks and one investment firm, shared concerns about the growing number of lenders and the slowing housing market, both potentially detrimental to RMBS.
"The [U.K. RMBS] market is worth GBP350 billion [$688 billion] per year," said Ravi Takhar, head of residential mortgages at Investec Bank. "But there are too many players. Will they settle for a GBP2 billion [$3.95 billion] share of that, each? No. The margin is so squeezed in the U.K." But more important to future RMBS, the panel said, was for lenders to establish solid services to help borrowers avoid arrears.
Takhar and his fellow panelists explained that European RMBS markets are expected to grow in other countries, especially in the Netherlands, Germany, Italy and Spain. In addition, ABS deals are being struck for the first time this year in such places as Kazakhstan, Turkey and Ukraine.
Italian ABS also faces challenges from the recent Bersani Decree, which eliminates some prepayment penalties on mortgages. The net effect, according to Marco Grimaldi, head of European securitization at Dresdner Kleinwort, a speaker at an afternoon panel on Italian ABS, is for households to get deeper in debt. "It is more regulation, in an overregulated market," added Grimaldi. "The market needs liberalization to continue."
ABS hurdles for Europe aside, Italian panel moderator Marco Lantelme, a partner at Lovells Studio Legale, concluded that it has been a particularly active first half of the year for Italian ABS. "The second half of 2007 is going to be extremely active," he said.
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