10 June 2015 – Cinco Días
The packaging and resale of high-risk, or subprime, mortgages between large financial institutions in the United States was the epicentre of the international crisis that began to unravel in 2007 and which revealed its devastating force one year later, with the bankruptcy of Lehman Brothers.
When that bubble burst, it swept away much of the market for mortgage securitisations, amongst other things. In the case of Spain, which had become the second largest market in Europe and one of the most important on the global stage, the market vanished. But now, it is making a come back.
Unión de Créditos Inmobiliarios (UCI), the financing arm of Banco Santander that specialises in loans for home purchases, has just signed the first operation of this kind to be closed with investors since 2007.
Specifically, at the end of May, UCI placed a €450 million package of mortgages, backed by residential homes. The portfolio, which has been assigned a Aa2 rating by Moody’s, is considered to be a high quality product, since it comprises loans that, on average, cover 53.8% of the values of the homes (loan to value), compared with the limit of 80%, recommended as good practice in the sector.
It is understood, therefore, that the clients that took out these mortgages had (access to) significant resources beyond the financing they requested and that the real estate guarantee behind the loans (homes acquired across the whole of Spain between 2006 and 2013, of which 79% are located in Andalucía, Madrid and Cataluña) would more than cover any possible non-payment.
The sale received a great deal of interest from banks and investment funds, primarily those based in Germany, The Netherlands, France, the UK and Spain, with demand for the package exceeding its value by 1.7x, according to sources close to the operation.
The placement coupon was Euribor plus 0.85 points, compared with the differential of 25 or 30 basis points that was paid in Spain eight years ago. That lower differential is being paid now in the UK and The Netherlands, where the market has never completely closed, but where the differential increased to 150 basis points after the outbreak of the crisis.
Sources at UCI, which placed securitisations amounting to €12,000 million between 1994 and 2007, understand that “since this is the first transaction, a premium must be paid in order to return to the market”, but that it is still an “attractive level”.
The same sources say that the step has been taken as the result of three factors. “Until 2014, there were no transactions involving the public issuance of securitisation bonds in countries on the periphery of Europe. Nevertheless, following an RMBS (residential mortgage-based securitisation) bond issue in Italy, we saw an opportunity for us to issue debt”. They add that the debt purchase program launched by the European Central Bank has, in turn, led to the “revitalisation of the securitisation market”. “Despite that, after eight years of paralysis, bond issues have not been possible until now, since we needed to reach a post-crisis economic situation”.
UCI expects to undertake similar issues in the future and hopes that its example will encourage other entities to do the same.
Original story: Cinco Días (by Juande Portillo)
Translation: Carmel Drake