Reserve Eases Up On Loan Transfers
Sydney Morning Herald
Wednesday January 22, 1992
The Reserve Bank has relaxed its tough stance on loan transfers and securitisation, making it more commercially viable for banks to use these methods to get assets off their balance sheets.
But in new guidelines, the Reserve also stresses the importance of a "clean sale" - where the bank selling a loan is clearly removed from further risk on it.
In its securitisation guidelines, released yesterday, the Reserve addresses a number of issues raised by the banks following the release of draft regulations in February last year.
Banks were concerned that the draft guidelines were so stringent as to virtually preclude most securitisation proposals.
According to the Reserve's guidelines, the central bank recognises that securitisation can allow banks to improve their liquidity, better manage credit and interest rate risk and lift earnings.
Securitisation involves bundling loan assets - most often home mortgages -together and issuing securities backed by them.
The income stream from the loans services the securities, while in a "clean sale" the bank that originally made the loan no longer has to hold capital against the transferred assets.
Under the new guidelines, the Reserve's criteria for approving loan transfer or securitisation proposals insist that:
* The buyer of the assets has no recourse to the seller for losses.
* (In almost all cases) a selling bank is not obliged to repurchase a loan it has sold.
* A selling bank still servicing loans that have been securitised clearly states there is no "moral recourse" to it, and that it has no responsibility to stand behind these loans.
* The trustee or vehicle through which securitisation is effected has no links with the bank selling the asset.
Concessions made by the Reserve to facilitate securitisation, which assist sellers without compromising its insistence that banks selling loans are completely removed from moral or commercial obligation for those loans, include:
* Permitting banks to repurchase loans they have sold under warranty within 90 days of sale.
* Permitting banks the option of buying back loans they are still servicing, where the principal has fallen to less than 5 per cent of its maximum value and the loan is fully performing.
© 1992 Sydney Morning Herald
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