A new Italian law that requires stricter controls on brokers as well as more transparency in loan origination will benefit Italian ABS backed by consumer loans, said analysts at Moody's Investors Service.
The law enacted on Sept. 19 legislates that delinquencies and defaults from new loans based on revolving structures or new deals will be lower than for existing loans.
ABS backed by consumer loans in Italy represent one of the top ABS consumer markets in EMEA with roughly €10 billion ($13.47 billion) in outstanding transactions.
Moody's analysts said it expects improved performance on broker-originated loans.
"On average,[these loans show] worse performance than loans directly originated by Italian lenders," Moody's analysts said. "Generally, broker underwriting standards are more liberal. The new legislation reforms the broker profession by introducing stricter controls on brokers, such as tighter criteria to become a broker and making a broker liable for the acts of its employees."
This new set-up will have a positive impact on the performance of new broker-originated loans. These changes will cause brokers to select higher quality borrowers and undertake additional diligence, which will result in better performance for certain consumer ABS.
Most large originators were already voluntarily adopting at least some of these procedures, according to Moody's. However, the law will promote consistency across the Italian consumer loan market in particular for less sophisticated originators and brokers.