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Europe Ripe For Loan Sales

The whole loan sales market in Europe offers mortgage lenders a viable alternative to securitization, according to a recent report by Standard & Poor's Ratings Services' office here.

"While challenges in as diverse a market as Europe undoubtedly exist, the report claims Europe is poised for significant growth in the whole loan sales market, following in the footsteps of the U.S. experience," S&P said.

"European mortgage lenders are seeking diversified capital market funding sources," said Emily Bradley, a credit analyst in the Structured Finance Ratings group in London, in an S&P press release.

"This comes amidst low levels of mortgage debt relative to the U.S. and sustained growth in property markets," she said.

Ms. Bradley explained that these conditions are providing the impetus for significant growth in the whole loan sales market.

"Growth will be facilitated not only by macroeconomic conditions - an integrated system of credit scoring and continued improvement in the collection and availability of data will increase transparency and help, too, as will the continued sophistication of market participants," she added.

"This market provides a relatively new alternative to securitization funding used by European lenders since the 1990s," credit analyst Brian Kane, a director in the group, said in an S&P press release.

Last year, the European RMBS market recorded a total funded issuance of 140 billion euros (about $172 billion), according to S&P.

"A new breed of balance sheet and cash fund investors fuelled already heady investor demand for paper and these market issuance volumes, together with credit knowledge and liquidity, point to a growing level of commoditization and wider investor understanding of the European RMBS market," the rating agency said.

"This growing market expertise is now lending itself to the development of new markets in the arena of the pricing and sale of mortgage credit risk," Mr. Kane said. "As originators first looked to securitization to diversify away from traditional funding methods, the growing level of knowledge and corresponding higher levels of credit understanding is fuelling the development of a whole loan sale market in Europe."

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