Tracker mortgage scandal to have ‘limited’ impact on securitisations

Rating agency DBRS Ratings said on Monday that the ongoing tracker mortgage scandal was likely to have a “limited” impact on securitisations of Irish residential mortgages.

However, it warned that there could be scope for borrowers to bring claims against the issuers of securitisation vehicles when these lenders were no longer present in the Irish market.

Last month it was disclosed that more than 30,000 home-owners were found to have been either denied a tracker mortgage or were put on the wrong rate, and customers are currently being offered redress and compensation. The Central Bank expects to finish its review in 2018.

DBRS rates about €12.3 billion of outstanding Irish residential mortgage securitisation (RMBS) bonds, with exposure to mortgages originated by 10 lenders.

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In a new review of how the scandal would impact on securitisation vehicles, DBRS said that as the redress and compensatory payments on offer from the impacted banks, which includes Bank of Ireland, AIB and KBC Bank, were "substantial", it could mean that the outstanding balances of mortgages in the RMBS portfolios are reduced to the extent of the potential payouts.

DBRS added that it anticipated that Irish RMBS were likely to see an increase in prepayment rates as sponsors (continue to) repurchase loans that were granted rate rectifications and/or balance write-downs, mitigating the impact on Irish mortgage securitisations.

Borrowers

One risk, however, was that in cases where the lender no longer operated in Ireland, borrowers may be entitled to bring set-off claims against the securitisation issuers.

“There is more uncertainty as to whether securitised loans originated by these parties will result in liability falling on the securitisation issuers,” DBRS said.

The rating agency also found that the redress and compensation payouts arising from the Central Bank’s review were larger than those seen in previous mortgage indemnification processes.

These include the European Court of Justice’s ruling on Spanish mortgage floor clauses in 2016, and the auto-capitalisation of arrears in the UK mortgage market in 2017.