REPEAT: MNI: EU Amend Securitisations Self-Cert Headache

Repeats Story Initially Transmitted at 16:52 GMT Oct 6/12:52 EST Oct 6

By Tara Oakes

     BRUSSELS (MNI) - European Union institutions have amended the previously

agreed text on securitisation to avoid a potential headache on the inclusion of

self-certified mortgages, Market News has learned.

     An EU source close to the matter told MNI that the Parliament, Council and

Commission are putting in place an amendment to the text agreed earlier this

year to help develop a European securitisation market.

     The amendment is "aimed at avoiding the unintended consequence of

prohibiting any securitisation of self-certified mortgages," the source told

MNI.

     The agreed amendment should tackle the worries of financial market

participants, who were alarmed when the securitisation text approved earlier

this year included a restriction on inclusion of self-certified loans in new

securitisations of residential loans after January 1, 2019.

     The initial text of part 17(2) of the proposal -- before the amendment --

read as follows:

     "Where the underlying exposures of securitisations are residential loans,

the pool of those loans shall not include any loan that is marketed and

underwritten on the premise that the loan applicant or, where applicable,

intermediaries were made aware that the information provided by the loan

applicant might not be verified by the lender".

     This would mean that from the application date there would have been an

effective ban on all securitisations involving any self-cert loans. 

     This would have been a major headache for refinancing exiting portfolios

after it came into force in January 2019, with legacy loans already on the books

disqualified from appearing in any securitisation from then on.

     Unaddressed, the problem would have particularly hit the UK, where many

legacy residential mortgage-backed securities (RMBS) would have been deemed

non-conformers and faced fines or worse when refinanced.

     The amended text is being implemented without the need for a major

overhaul, MNI understands.

     "This amendment is being integrated into the text within the legal

linguistic review process, and so won't require discussion," the source said.

     It is understood that the redraft will mean that new rules will only apply

to newly-generated mortgages, allowing for the continued refinancing of

securitisations of RMBS which include older mortgages.

     Creating "simple, transparent and standardised" (STS) securitisations has

been a key plank of the EU's Capital Markets Union, aimed at freeing up capital

across the bloc where many countries remain suspicious of their role in the

global financial crisis.

     With the amendment in place, the linguistic process will be voted on by the

Parliament before the text is signed and entered into the official journal. It

is hoped that this will be achieved before year-end 2017.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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