Finance Ireland plans €290m mortgage securitisation to fund new lending

Non-bank lender offers 1,400 home loans in residential-mortgage-backed securities

Finance Ireland chief executive Billy Kane, pictured at its head office in Dublin.  Photograph: Bryan James Brophy

Finance Ireland chief executive Billy Kane, pictured at its head office in Dublin. Photograph: Bryan James Brophy

 

Non-bank lender Finance Ireland is offering €290 million worth of mortgages for sale to international investors to fund further growth.

Finance Ireland bought €200 million in mortgages from financial services group Pepper Money last December while it has been lending money to home buyers through brokers since then.

Chief executive Billy Kane confirmed yesterday that it is offering about 1,400 home loans on which the borrowers owe €290 million for sale in bonds known as residential-mortgage-backed securities.

The transaction will be the first time that Finance Ireland has sold mortgage-backed bonds. Mr Kane said it planned similar offers for the future, subject to market conditions.

Mr Kane, a former chief executive of bank Permanent TSB, said the lender would sell the bonds to institutional investors, such as pension funds and insurers, to which the money due on the mortgages will then be repaid.

He explained that Pepper Money, which collects the repayments and manages the mortgages, would continue to do this, with the result that nothing will change from the borrowers’ point of view, as they will repay the money in the same way as before.

The mortgages are mainly loans given to owner-occupiers to buy their own homes, but around 10 per cent are buy-to-let, that is due from people who borrowed the cash to buy properties to rent out.

Finance Ireland will use the cash raised to grow the home-loan business it began last year. Mr Kane noted that Finance Ireland’s mortgages had been “well received” by brokers and borrowers.

He was unable to say how much buyers would pay for the company’s mortgage-backed bonds but predicted that the sale would take two to three weeks.

Finance Ireland has hired Bank of America Merrill Lynch, BNP Paribas and Citi to manage the sale.

The company’s chief executive was optimistic that the offer would be well received. “Institutional investors’ view of Ireland is positive, we have a strong economy and full employment,” he said.

He believes any risk from Brexit to jobs is unlikely to hit this bond sale, but could potentially affect such offers in the future.

None of the borrowers are in arrears and two international ratings agencies, which Mr Kane said he could not name, have ranked many of the mortgages as “triple A” which means that there is a very low risk that the borrowers will default.

Mortgage-backed bonds sold by US banks played a central role in crashing the global financial system and sending the developed world, including the Republic, into a deep recession in 2008.

Mr Kane argued that tougher rules now regulate such financial instruments, which European regulators police thoroughly.

He explained that the bonds which helped trigger the financial collapse included large numbers of loans whose borrowers were unlikely to repay their debts.

“There were no controls in place,” Mr Kane said. “Today it’s very different, there’s a huge amount of European regulations that control the way the bonds are structured. These have all been approved as being within those guidelines.”