My opening paragraph back then said: “There seems to be a particularly positive outlook this year on the use of securitisation in boosting both 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…”
Since then, the market for securitisations has clearly turned on its head once more and with it the funding for many non-bank lenders, although there now appears to be more positivity and fluidity.
When the scale of the pandemic became clear, we saw first-hand the amount of wholesale funding lines that were withdrawn, affecting many originators who quite rightly had to take drastic and immediate action.
Fingers crossed, most seem to have been able to come back to market, albeit with products and risk appetites seeming to change on a daily basis across the market.
Securitisation has to remain a mainstay of mortgage funding, especially in the specialist mortgage industry which does not always have access to deposit funding.
Turbulent times ahead
Since the return of the securitisation market after the last financial crisis, it has performed well, even when the Funding for Lending (FLS) and Term Funding schemes (TFS) provided cheap government backed funding.
This could well be because only registered banks can benefit from the FLS and TFS schemes, leaving non-bank lenders reliant on securitisation and the wholesale money markets.
While one can still only speculate on the effect that Covid-19 plus Brexit will have on arrears figures, indicators are that we are heading for turbulent times.
Fundamentally, wholesale market investors have to be assured of the underlying quality of mortgages underwritten in the UK.
Undoubtedly this will become harder to justify as the effect of the payment holiday programme, combined with rising mortgage arrears and unemployment, become clear.
Covid-19 can only be described as a “significant event” and in EU Securitisation Regulation, there is a requirement on stakeholders to the securitisation to be transparent on such events that can affect performance on the securitised assets.
If we aren’t over that reporting precipice already, we will be soon.
We are seeing more clients looking towards securitisation data and this is a great indicator that, even if things are challenging, many institutions seem to be hedging that wholesale funding will return as a mainstay in the not too distant future.
UK and EU Regulators have publicly confirmed that securitisation is required as part of a healthily balanced mortgage funding market.
Although it was attributed as one of the main factors of the last credit crisis, today securitisation is a far more regulated process that was gaining great momentum, especially over the last couple of years.
Positively, and perhaps unexpectedly, there have already been a number of successful securitisations since the lockdown reviving confidence in the strength of the UK property market.
We will wait to see how various segments of our industry come out of the Covid-19 crisis and the economic environment that we find ourselves in thereafter.
There will be some winners and losers, but wholesale market funding should return to previous levels meaning that borrowers will continue to have access to the versatile products this type of funding can provide.