AUGUST 2014

The ECB has cut the interest rate to 0.05%

Asset trading has hit €27 billion so far in Ireland this year, with

HML launching a new service in Ireland

Banks in Ireland have seen a more positive first half of 2014,

compared to the same period in 2013

HML News

HML has launched an asset

trading solutions service in

Ireland.

The company‟s integrated asset trading

solutions service is aimed at investors and

banks that are looking to acquire, manage or

sell a performing or distressed mortgage

portfolio and maximise its value.

In addition, advisory firms that are looking to

connect their investors with an outsourced

servicing solution can benefit from HML‟s long-

standing success in the mortgage

administration market.

Treating customers fairly and in-line with

regulation

HML can assist with the entire process of

asset trading, from sourcing assets and

analysing any associated risks to migrating

portfolios and servicing customers effectively

and in-line with changing regulation. HML has

a proven track record in ensuring customers

are treated fairly and in-line with regulations

such as the Code of Conduct on Mortgage

Arrears (CCMA) and the Consumer Protection

Code.

.

David Kelly, managing director at HML

Ireland, said: “HML‟s 25 years in the mortgage

administration market means we have extensive

experience in analysing, migrating and servicing

portfolios, maximising the value of assets for

investors.

“In the last three years alone, we have experienced

a 100% successful transition of more than 100,000

accounts from a variety of clients, servicers and

platforms. Asset purchasers already either use HML

to service assets or have mapped from our

iCONNECT system. This makes assets serviced by

HML significantly more marketable. Investors can

also take confidence from HML‟s robust Fitch and

Standard & Poor‟s ratings.”

Visit the HML website to view a short video on the

newly launched Asset Trading Solutions service.

HML News

HML has been shortlisted

for two National Outsourcing

Association (NOA) Awards.

It has been shortlisted in the Best Contribution

to the Reputation of Outsourcing category for

Destination 100%, as well as the IT

Outsourcing Project of the Year for the SEPA

project.

SEPA - which stands for Single Euro

Payments Area - is regulation that was

adopted in 2012 and had an initial deadline of

February 1st 2014 when European banks had

to ensure direct debits and credit transfers

adhered to it. As a European Union (EU)

member, using the euro , any Republic of

Ireland direct debit transactions must comply

with SEPA regulation as defined by the

European Payments Council and the Irish

Payment Services Organisation. However,

due to delays in some member states of

implementing the new system, the deadline

was pushed back until August 1st 2014.

HML exceeded the initial February deadline for

its Irish clients by three months.

The NOA Awards ceremony will be held on

November 20th in London.

Lower securitisation costs

could result in several new

lenders entering the market.

This is according to Steve Rogers, HML‟s

director of securitisation services, in this

exclusive article for Mortgage Strategy:

Over the next 12 months, I envisage several

new lenders will come into the mortgage

market. There are many reasons why I believe

this to be the case – including increasing

house prices and improved economic

sentiment – but one of the other major driving

forces is lower securitisation costs.

Securitisation funding costs are coming down

due to demand for these types of deals

increasing. You only need to flick through

previous 2014 editions of Mortgage Strategy to

see how many different deals have taken

place this year alone. One of the most recent

ones was by Skipton Building Society.

Skipton Building Society

The building society issued its third

securitisation transaction in April this year,

which raised £400 million (€505 million) of

funding. The transaction was well received by

the market, with an oversubscribed order book

and a large proportion of interest from other

banks and building societies.

Anthony Chapman, group treasurer

at Skipton Building Society, said: “As

a mutual building society, our focus is raising

funding through retail savings which then

largely supports our mortgage lending. It is

important, though, to have a diverse funding

platform to strengthen our overall balance

sheet and provide safety to our savers, as well

as increasing our ability to lend to our

mortgage customers. As such, for the society,

securitisation is an effective additional funding

tool which complements our key retail

savings.”

Continued over the page

HML News

Lender competition is increasing

The securitisation market has certainly been

kick-started, and will continue to flourish,

attracting an increasing number of new

entrants. Indeed, for those lenders that choose

securitisation as a funding tool, there has been

a significant decrease in costs over the past 12

months, however the standard variable rate of

mortgages hasn‟t followed suit. As such,

margins for lenders that securitise are

improving, making the business model more

attractive.

We shouldn‟t also forget that aside from

origination, better prices could be achieved by

lenders looking to sell legacy books, with

potential buyers benefitting from the lower

funding costs in the market and then achieving

the instant scale that a portfolio purchase can

provide. Current activity amongst „buy side‟

market participants - such as private equity

and hedge funds - is high, and interest in

potential portfolio sales is significant.

In line with increasing homebuyer demand and

higher house prices, it looks as though the

Council of Mortgage Lender‟s initial forecast of

£195 billion (€246 billion) of mortgage lending

in 2014 will certainly be realised, if not

surpassed. Director-general Paul Smee did

caveat in a blog for HML that 2015 lending

growth is expected to be “really quite muted”

due to expenditure constraints for consumers,

but I expect the securitisation market will

continue to grow in readiness for buoyant

demand thereafter.

When asked whether he thought new lenders

will come on to the market as a result of

cheaper securitisation costs, Mr Chapman

added: “There are certainly greater

opportunities for institutions to access the

securitisation market at much more attractive

levels than we have seen for a long time. For

the society, it is important to make decisions

that are in the best interests of our members

and support our savers, as well as our

mortgage customers, and as such

securitisation is a tool to support and enhance

this model.”

Securitisation – no longer a foe?

Following the global economic crash,

securitisation did get a lot of bad press.

However, carried out correctly, it can be a vital

tool to help boost the economy by increasing

the supply of credit. Indeed, over in the UK,

the Financial Conduct Authority and Bank of

England support securitisation for these very

purposes, but only where deal structures are

transparent and there is extensive ongoing

reporting.

This is where securitisation fell down in the

past. In some cases, deals structures were

unclear and the quality of the ongoing

reporting was poor, but this has vastly

improved. In recent years the improvement in

the quality of deals, driven in part by the

regulators and central banks, is why they are

much more comfortable with the concept of

raising money this way again.

Now, investors are typically provided with a

regular loan-by-loan data tape and detailed

reporting on the performance of the deal. This

did not always happen in the past, hence why

many within the market lost confidence in

securitisation. Thankfully, the industry has

moved into a new era, and it is this renewed

confidence that is attracting more lenders to

the market.

HML Ireland Update

Date reflects what the statistic was during that period, rather than when the statistic was published

* Since revised down to 11.3%

Consumer Price Index (Central

Statistics Office)

JULY ‘14

0.3%

JUNE ‘14

0.4%

MAY ‘14

0.4%

European Central Bank (ECB)

Base Rate

SEP ‘14

0.05%

AUG ‘14

0.15%

JULY ‘14

0.15%

Unemployment Rate (Central

Statistics Office)

AUGUST ‘14

11.2%

JULY ‘14

11.5%*

JUNE ‘14

11.6%

Average National House Prices

(Myhome.ie)

Q2 ‘14

Up 1.3% from Q1

€190,216

Q1 ’14

Down 0.7% from Q4

€187,736

Q4 ’13

Down 0.9% from Q3

€189,086

Arrears

(Central Bank of Ireland - CBI)

PDH – total

PDH – 90 days+

BTL – total

BTL – 90 days+

Q2 ’14

126,005

90,343

39.669

31,749

Q1 ’14

132,217

93,106

39,361

31,048

Q4 ’13

136,564

96,474

39,250

30,706

Home Repossessions (CBI)

PDH

BTL

Q1 ‘14

1,116

568

Q4 ‘13

1,014

503

Q3 ‘13

1,050

516

Industry Statistics

Consumer Price Index

The CPI in July was 0.3% higher than July

2013, down 0.1% on June. Notable upward

pressures came from the education (4.5%),

alcoholic beverages and tobacco (3.7%) and

miscellaneous goods and services (2.8%)

sectors.

This was partially offset by declines in

communications (-5.1%) and clothing and

footwear (-3.6%).

ECB Interest Rate

The ECB base rate has been slashed by ten

basis points to 0.05% in September, a historic

low. Mario Draghi, president of the

ECB, said: “Following four quarters of

moderate expansion, euro area real GDP

remained unchanged in the second quarter of

this year compared with the previous quarter.

While it partly reflected one-off factors, this

outcome was weaker than expected.”

Unemployment Rate

The unemployment rate stood at 11.2% in

August 2014, down from 12.7% in the same

month in 2013. There were 380,100

unemployed individuals in August, a monthly

fall of 2,900 people.

House Prices

The national average house price in Ireland

stood at €190,216 in Q2 2014, a 1.3%

increase on the previous quarter, according to

Myhome.ie‟s analysis of asking prices.

This is the first positive price growth in almost

eight years.

Commenting, Angela Keegan,

managing director of Myhome.ie,

said: "It‟s heartening to see asking prices

nationally rise for the first time in eight years.

While this is an important landmark on the

road to recovery, we are still much closer to

the start of that journey then the finish.

“The average mix-adjusted asking price in

Dublin is now 34% higher than the national

figure. This is on a par with trends seen at the

height of the boom when the difference stood at

35%, albeit prices are at a much lower base.”

Arrears

Principal Dwelling Houses (PDH)

The number of PDH mortgage accounts in

arrears declined by 4.7% between Q1 2014 and

Q2 2014. Out of the total mortgage accounts,

16.5% were in arrears, representing 126,005.

The number of PDH mortgage accounts in over

90 days of arrears also declined during Q2,

falling by 3%. These accounts totalled 90,343,

11.8% of all the PDH mortgages in arrears.

However, accounts in arrears of more than 720

days increased by 5% during Q2 and currently

account for almost 5% of total PDH mortgage

accounts. The outstanding balance of such

accounts was just under €8 billion at the end of

June.

Buy-to-let (BTL)

The number of BTL mortgage accounts in

arrears increased between Q1 and Q2 2014 to

39,669 (27.5% of the total accounts) from

39,361 (27.2% of the total accounts).

Home Repossessions

At the end of Q1 2014, there were 1,116 PDHs

and 568 BTLs in lenders‟ possession. Of the

PDHs, 281 were taken into possession during

the quarter, 54 of which were the result of a

court order, while 227 were abandoned or

voluntarily surrendered.

Top News Stories

Banks in Ireland have

experienced improved

financial results during the

first half of 2014. permanent tsb posted underlying operating

profit of €4 million for the group and €13

million for the core bank. Operating loss also

declined over the first half of the year by 62%

to €171 million. In the same period in 2013,

this figure stood at €449 million.

The bank‟s mortgage market share has

reached 13%, with lending climbing by 362%

to €180 million.

There has also been a 14% decline in the

number of customers in arrears of more than

90 days, with more than 24,000 treatments

offered. Over 80% of the bank‟s mortgage

customers in arrears are engaging with the

lender.

Commenting on the figures, permanent

tsb‟s group chief executive Jeremy

Masding said: “These results show our

strategy is working. We‟re building a

successful group that will be well placed to exit

state ownership and recoup money for the

Irish taxpayer. We‟re also bringing real

competition to Irish consumers with innovative

and attractive deposit, loan and current

account products. We still face considerable

challenges, but we are confident we will

deliver real results for our shareholders and

the taxpayer.”

AIB revealed pre-tax profit of €437 million to

30 June 2014, a €1.3 billion improvement in

performance compared to the first half of 2013.

Since December 2013, total impaired loans

have fallen by 10% (€2.9 billion), while the

total number of accounts in arrears in its Irish

residential mortgage portfolio fell by 6% over

the first half of the year.

Bank of Ireland has also enjoyed a positive first

half of 2014. Underlying profit before tax

reached €327 million, up by more than €700

million compared to the same period in 2013.

Owner-occupier default arrears of more than 90

days stood at 9.5% at 30 June 2014, a

decrease from 10.52% from the same date last

year.

BTL default arrears of more than 90 days have,

however, increased, from 26.01% at 30 June

2013 to 29.40% at the same date in 2014.

Bank of Ireland said this increase is as a result

of many BTL borrowers being impacted by an

increase in monthly repayments as interest-only

periods come to an end.

Richie Boucher, group chief executive

officer, said: “We have continued to make

good progress against our strategic objectives

in the first half of 2014. We are profitable and

generating capital. In Ireland, we continue to

support and benefit from the accelerating

economic recovery; our new lending in 2014

makes us the largest lender to the Irish

economy. The favourable economic outlook and

the strength of and momentum in our Irish and

international businesses gives us confidence in

our ability to deliver attractive and sustainable

returns for our shareholders.”

Top News Stories

The ECB has signalled a

move away from a focus on

austerity. President Mario Draghi made the comments

as the region continues to struggle with high

unemployment, weak prices and stagnant

economies.

He was speaking at the Federal Reserve Bank

of Kansas City‟s annual conference when he

made the comments, adding that European

politicians and central bankers play an

important part in bringing down unemployment

and increasing demand. In addition, the ECB

would deploy further stimulus measures if

required.

Mr Draghi said: “Without higher aggregate

demand, we risk higher structural

unemployment, and governments that

introduce structural reforms could end up

running just to stand still.

“But without determined structural reforms,

aggregate demand measures will quickly run

out of steam and may ultimately become less

effective. The way back to higher employment,

in other words, is a policy mix that combines

monetary, fiscal and structural measures at the

union level and at the national level. This will

allow each member of our union to achieve a

sustainably high level of employment.”

Irish manufacturing has

reached a 15-year high. The Investec Manufacturing Purchasing

Managers‟ Index hit 57.3 in August, up from

55.4 in July. The 50 benchmark separates

expansion from contraction, with the index

returning the 15th consecutive month of

growth.

Philip O‟Sullivan, Investec Ireland

chief economist, said: “This is a strong

outcome, particularly when framed against the

backdrop of weakening signs from some

Eurozone trading partners of late. With

manufacturing firms in Ireland stepping up their

purchasing and hiring activity, it is clear that

they are optimistic of a strong finish to the year.”

Tax revenue is almost €1

billion above target,

Exchequer figures reveal. Between January 1st and August 31st 2014, tax

revenue stood at €24.9 billion, due to stronger

returns from VAT and income tax. This is 8.4%

higher than the same period last year.

“The Exchequer figures to the end of August

and in particular the strong performance of

income and consumption taxes are further

evidence that the recovery is strengthening as

the year progresses,” said minister for

finance Michael Noonan.

House sales have climbed by

almost 40%. An average €300 million was spent on

residential property in Dublin every month

during the first six months of 2014, new data

from Myhome.ie shows.

In the first half of the year, the level of

transactions across Ireland increased by almost

40% compared to the same period in 2013.

Dublin had the most active six months, with a

32 per cent year-on-year increase in sales to

5,240.