Tuesday, November 30, 2010

Mortgage securitisation fuelled the housing boom and bust in Ireland

2009 11 28_1130_edited-1-copyThe Irish financial institutions took to residential mortgage securitisation like a duck to water. The total value of securitised mortgages in January 2003 (prior to the aggressive inflation of the property bubble) amounted to €3.75 billion. This figure increased to €37.6 billion in January 2010, an increase of 902%! The overall residential mortgage volume increased by 172% in the same period

The securitisation of residential mortgages have been described as the ‘mother of all securitisations’. They generally pass through securities or bonds based on cash flows derivable from residential home loans.

The long maturities of residential mortgages and the lending collateral being real estate providing strong asset backing enabled investors to take an independent exposure on the receivables. The concept originated in the United States and was considered a catalyst in the provision of house purchase finance.

The two main Niche lenders in Ireland relied on securitisation as a funding mechanism and international capital markets took an increasing interest in Irish residential mortgage assets.

The structured funding techniques for residential mortgage lenders are securitisation and covered bond issuance.

The impact of these trends on average house prices has been:



New Houses

Used Houses

Q1 2003



Max average price H1 2007



Q1 2010




Climb 2003-07



Fall 2007-09



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