Cat­alo­nian law on hous­ing emer­gen­cies may de­ter buy­ers of NPL pools

Financial Mirror (Cyprus) - - FRONT PAGE -

Po­ten­tial buy­ers of non-per­form­ing Span­ish mort­gage loan pools will likely be de­terred by the Cat­alo­nian law 24/2015, which ad­dresses hous­ing emer­gen­cies, ac­cord­ing to Moody’s In­vestors Ser­vice.

“Un­der the new law, pri­vate equity firms and hedge funds that buy NPL pools at high dis­counts could lose their ben­e­fit. If a bank sells the loan to a third party at a lower price than the loan’s cur­rent bal­ance, the bor­rower can be re­leased from their debt by pay­ing the third party the very same price,” said Al­berto Bar­bachano at Moody’s.

“Even if the sub­se­quent trans­fer of the loan to a se­cu­ri­ti­sa­tion is made at par value, there is a risk that the bor­rower could pay back the debt for the same price that the third party paid. This would re­sult in part of the mort­gage be­ing ef­fec­tively writ­ten off, it can no longer be col­lected from the bor­rower, and would en­tail a loss for the SPV,” added Juan Miguel Martin-Abde, an an­a­lyst at Moody’s.

“Even though

there

ex­ists

a

sim­i­lar pro­vi­sion in the Span­ish Civil code, the new Cat­alo­nian law is wider in scope and less bur­den­some in terms of cri­te­ria for the ex­er­cise of this right by the bor­rower,” both Al­berto and Juan Miguel con­cluded.

Moody’s said the in­clu­sion of Cat­alo­nian as­sets trans­ferred below par in Span­ish res­i­den­tial mort­gage-backed se­cu­ri­ties (RMBS) might be ad­versely af­fected by this law. How­ever, the law’s pro­vi­sion will not af­fect out­stand­ing or new trans­ac­tions, where the seller in ques­tion di­rectly orig­i­nated the port­fo­lio, or where the sale and the sub­se­quent trans­fer to the spe­cialpur­pose ve­hi­cle are made at par value.

In ad­di­tion, Moody’s con­sid­ers that the law’s ef­fec­tive­ness might be jeop­ar­dised be­cause of the prac­ti­cal­i­ties re­quired. If there were no con­trac­tual pro­vi­sions in the loan re­quir­ing the con­sent of, or com­mu­ni­ca­tion with the un­der­ly­ing loan’s bor­rower, it may be dif­fi­cult for the bor­rower to find out that the loan has been sold, or the rel­e­vant terms and price.

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