Do Irish banks sell off their mortgage debts?

[Bronte]

As it's a hot topic at the moment I was wondering if you have a mortgage with a bank and you also have savings in the event of the bank going bust is one offset against the other. I know that if you default on your motgage the bank can take your savings. Also do Irish banks sell on their debts as the American banks do? If yes you could have the scenario of the bank going bust, your saving being zero (or 20K guaranteed)and your debt owned by another instituation. Is this too far fetched? But in the times we live it it's like the Wild West of banking at the minute so nothing seems too crazy.

 

[efm]

Also do Irish banks sell on their debts as the American banks do? If yes you could have the scenario of the bank going bust, your saving being zero (or 20K guaranteed)and your debt owned by another instituation. Is this too far fetched?

Yes and yes I believe - Bank of Ireland had a very successful ACS sale in 2005/2006 where they sold on €10 billion of Asset Covered Securities to the global market - take up was global and not just US banks [link]

 

[Bronte]

Thanks for the EFM, a little light reading for later........ If you are correct I'd best get to the bank and put my savings in the post office or better still under the mattress.

 

[leex]

Are you safe if you have mortgage in 1 bank and savings in another?

 

[efm]

Thanks for the EFM, a little light reading for later........ If you are correct I'd best get to the bank and put my savings in the post office or better still under the mattress.

Nope...you're better off putting your savings into Northern Rock - backed by the Bank of England and a better return than An Post.

And, just to be clear, I am not advocating anyone should move savings just because their bank raised capital through an ACS issue.

 

[Bronte]

Very interesting. I hadn't realised that if I owe say 300K to Bank A and have 50 K in savings that the bank could collapse and I would lose most of my savings but still owe the 300K not to Bank A but to whoever had purchased the mortgage books of Bank A. But conversely if I default on my mortgage payments, Bank A can take all my savings/house etc. The banks win every which way.

 

[skrooge]

Also do Irish banks sell on their debts as the American banks do? If yes you could have the scenario of the bank going bust, your saving being zero (or 20K guaranteed)and your debt owned by another instituation. Is this too far fetched? But in the times we live it it's like the Wild West of banking at the minute so nothing seems too crazy.

There are a number of ways Irish banks can sell on their debts. They can ether issue bonds against it (its not really selling becuase it remains on their balance sheet but they get money for it). An alternative way is to sell their mortgage book to a independent party who issue bonds against that. If you look at the Central Banks monthly statistics bulletin you'll see about 10% of mortgages are sold off in this way (Table A2.2 if anyones interested).

There is no problem using this method for banks to generate funds. Indeed it should be encouraged. The problem, as in the Northern Rock case, is when they are over dependant on one type of funding. Northern Rock relied to heavily on this market and got caught out when no one would buy their loans. It would be silly of Irish banks to stop using this method to generate funds especially with the current difficulty in bank funding seen around the world. Irish banks should just ensure they have well diversified sources of funds.

 

[efm]

Very interesting. I hadn't realised that if I owe say 300K to Bank A and have 50 K in savings that the bank could collapse and I would lose most of my savings but still owe the 300K not to Bank A but to whoever had purchased the mortgage books of Bank A. But conversely if I default on my mortgage payments, Bank A can take all my savings/house etc. The banks win every which way.

I don't know if I understand the complaint really - but maybe I'm missing the point?

If you borrow 300k from Bank A you are due to repay the money regardless, and you are a "creditor" to the bank - if Bank A doesn;t sell on your debt and subsequently collapses, you still owe the bank or the liquidator 300k; - if Bank A does sell on the debt and subsequently collapses you still owe 300k - so you're in the same position.

 

[Bronte]

Sorry for not being clear EFM, just think things are screwed against customers. If a bank goes bust (there was nearly a run on a bank yesterday in the UK) you could end up losing most of your savings but still owe your mortgage - that doesn't seem fair to me.

 

[Croesus]

Bronte, it's not quite as simple as that. Residential Mortgage Backed Securitisaiton (which is the process of selling housing loans to a special purpose company that repackages them into marketable securities) generally involves an 'equitable assignment' of the bank's beneficial interest in the loan, rather than a full legal transfer. Provided you haven't been given notice of the assignment, any right of set-off you have against the bank (e.g. deposit v mortgage) can continue to be exercised by you notwithstanding the securitisation. Even if you have been given notice of the assignment (which would be very rare and would really only be envisaged where the bank got into difficulties), section 40 of the Consumer Credit Act would probably operate to preserve any right of set-off you had against the bank prior to your receiving notice.

You should note though that the situation can depend though on the terms of your loan documentation and it's the type of thing you should discuss with your solicitor before signing up to the loan.