Some boom-era INBS mortgage loan repayments slump amid Covid-19

Monthly collections from borrowers from former subprime lender falls off

Some non-performing mortgages originally issued by Irish Nationwide Building Society (INBS) before the property crash have run into fresh problems as Covid-19 has hit household finances and property sales.

A portfolio of €359 million of former INBS loans and a €518 million pool of mortgages written by the now-defunct society and subprime lender Springboard during the property boom have seen monthly collections of money from borrowers slump 25 per cent between February and April, compared to the preceding six months, according to a new report from debt ratings company DBRS Morningstar.

Both portfolios stemmed from mortgages bought by overseas investment firms following the crash and refinanced in international bond markets in recent years through a process known as residential mortgage-backed securitisation (RBMS).

"Based on the information and performance data available thus far there is no clear evidence on whether the decrease is directly correlated with Covid-19, but according to the feedback provided by the portfolio administrators over the last weeks some form of distress amid Covid-19 had been anticipated," Laura Lombardo, assistant vice president of European Structured Finance at DBRS Morningstar, said in response to questions from The Irish Times.


Cash collections

Separately, industry sources said that a large portion of cash collections from the portfolios come from sales of properties – particularly buy-to-let loans – after distressed borrowers strike deals with the servicers of the RMBS vehicles. There tends to be a higher level of loan sales closing in December than any other period of the year.

“Payment breaks will have impacted collections but that impact was not really seen until May and June,” said one source, who declined to be named. “Property sale activity also paused between April and June, but that has now restarted.”

The proportion of non-performing loans in the €359 million portfolio rose significantly last summer as the vehicle holding the loans – known as European Residential Loan Securitisation 2018-1 DAC – sold on a portion of performing loans that had been in the original portfolio.

The servicers to both vehicles that had seen a slump in collections had signed up alongside with mainstream banks in March to offering temporary payment breaks to borrowers affected by Covid-19.

Collections across wider pools of non-performing mortgages contained in RMBS vehicles in the Republic have been broadly “stable” since the beginning of the year, according to DBRS Morningstar.

“However, we will continue to monitor the amount of actual gross collections recorded on a monthly basis and their sustainability in the medium-long term,” it said.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times