Friday, December 18, 2009

BOE Seeks to Boost Demand for U.K. Mortgage-Backed Securities

Original posted on Bloomberg by Esteban Duarte:

The Bank of England will start talks with issuers of mortgage-backed securities about providing more information on loans backing the transactions as a way to boost demand for the notes.

Consultations on the “regular disclosure” of loan data to make the securities more transparent will start next year, the central bank said in Box 1 of its semi-annual Financial Stability Report today. The BOE in London will also discuss measures including using simpler structures and higher-quality loans in the transactions.

The U.K.’s mortgage-backed bond market, Europe’s largest, has been almost shut since 2007 when securities linked to U.S. subprime loans slumped, causing investors to shun hard-to-value assets. Sales of the notes restarted in September when Lloyds Banking Group Plc issued 4 billion pounds ($6.5 billion) of the debt, followed by a Nationwide Building Society deal in October.

“In order for securitisation to be robust to economic and financial shocks, duration and credit risk needs to be more tractable to manage and transparent to monitor,” the central bank said in the report.

Banks create mortgage-backed notes by packaging property loans into securities of varying credit ratings and returns.

The BOE accepts the notes as collateral for loans. Banks in the U.K. have pledged about 205 billion pounds ($330 billion) of asset-backed securities for BOE financing, according to Barclays Capital estimates.

The central bank’s discussions will take place with the U.K. Treasury and the Financial Services Authority, according to the report.

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