Bank Risks loss of 50,000 Home Loans after Ratings Move

Ulster Bank is at risk of losing control of almost 50,000 Irish mortgages to bondholders as a result of credit rating downgrades by Moody's.

Individual mortgages would not be affected if the accounts – which were bundled together by the bank to be used to borrow on the markets – were taken over by bondholders acting through trustee Deutsche Bank.

But homeowners would get a letter telling them of the change.

Ulster Bank borrowed against the Irish mortgages during the boom through a process called securitisation.

That process saw as much as €10bn raised by the bank on the market using the mortgages as collateral. As part of that scheme the bank committed to protect the value of the security for the life of the deals – which run until as late as 2047 and 2055 in some cases.

Six separate notices were issued on the Irish Stock Exchange on Friday night warning that Ulster Bank had fallen outside the terms of its securitisation agreements which included to "maintain ratings on its long-term unsecured, unsubordinated, unguaranteed debt obligations equal to or greater than BBB by S&P or Baa2 by Moody's".

That happened after Ulster Bank's parent Royal Bank of Scotland's (RBS) credit rating was cut from A3 to Baa1 in March.

Consequences

However there are strong indications Ulster Bank will remain in control of the loans.

Managers of the Celtic Residential Irish Mortgage Securitisations – the financial structure holding the Ulster Bank home loans – warned that any decision made to try and "perfect" the problem created by the ratings cut – including taking the loans off Ulster Bank – could be disruptive and have adverse consequences.

Fears include that borrowers might stop making payments if they were formally notified that their account had been taken away from the bank.

In a message to bondholders concerns were raised that writing to the 48,423 homeowners whose mortgage is affected would also be likely "to generate unfavourable media attention and comment which could materially impact both the timing and amount of collections on the mortgages".

Even if legal ownership of the mortgages were to be transferred from Ulster Bank to the Celtic vehicles – any movement would not impact on the customer's relationship with Ulster Bank, which would still manage the accounts.

A spokesman for Ulster Bank said the notices issued on Friday were required due to the change in Ulster Banks' credit rating in March 2014.

"Our mortgage customers are not impacted as a result of the issuance of this notice," he added.