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Securitisation thriving within healthy and diverse funding market – Phoebus

by: Richard Pike, sales and marketing director of Phoebus Software
  • 13/06/2019
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Securitisation thriving within healthy and diverse funding market – Phoebus
The ongoing three-day Global Asset Backed Securities (ABS) conference in Barcelona has brought a positive outlook on the use of securitisation in boosting mortgage and other types of lending.

 

Although Brexit is still causing some confidence issues, this positive outlook is a far cry from the doom and gloom of the 2009 ABS conference held in London where, I think it could be said, we were all knowingly awaiting the Armageddon of the credit crisis that was slowly looming up on us.

Fast forward to 2019 and what a change in outlook.

Funding is available not only to those originators that have proven themselves as prudent, but also to new entrants that have brought in historically proven management teams that investors fundamentally trust.

 

Upsurge continuing

To be fair, the recovery of the securitisation market has not been without its ups and downs.

One of the major causes of the start of the credit crisis in 2007 is linked to the non-performance of sub-prime loans that were securitised.

I remember working in Seattle around that time and presenting at a meeting where one lender or investor picked up on my accent and pointed out that “You limeys will buy anything that’s going”.

Although the securitisation market started to recover from around 2012, Bank of England figures at that time confirmed that European securitisations dropped from circa $1.2trn in 2008 to circa $322bn in 2012.

Clearly this drop was causing liquidity issues across the continent and late in 2013 the European Central Bank, the Bank of England and the European Commission called for the revival of the securitisation market using stricter standards than previously used.

The Funding for Lending Scheme (FLS), launched in 2012, and the Term Funding Scheme (TFS), launched in 2016, affected the securitisation market as cheap funding became readily available to UK lenders.

But generally, the positive backing of three such major entities caused an upsurge in transactions which continues into today.

 

So what next?

There is a lot of discussion here around how technology can enhance the securitisation process.

The use of Distributed Ledger Technology (DLT) will become more common, a well-known example of which is blockchain.

DLTs provide a common database across multiple locations or participants, effectively meaning that each party can individually sign-off their part of a transaction via a cryptographic signature, fully date and timestamped without the need for a central sign-off point.

One benefit of this is that the initialisation transaction time can be achieved more quickly. Additionally, reporting to investors throughout the life of the securitisation can be achieved more rapidly and in real-time.

Overall, it does look like DLTs can create large scale cost savings within the total securitisation cost.

Finally, it is pleasing to see so many UK specialist and challenger banks here at the conference – a great indication of the recovery of the securitisation market.

The success of these institutions has been testimony to the diversification of the market and has led to a healthy increase in lending products outside of purely prime residential mortgages.

For new entrants, the funding of these loans can be via deposits, but as balance sheets grow, portfolios will be securitised.

It would seem that the market has returned to a healthy mix of funding techniques which can only be of benefit to all.

 

 

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