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Opinion

RMBS and coronavirus: Holidays from hell

Most European residential mortgage-backed securities deals can absorb the hit from payment moratoria for now, but junior notes are at risk if the crisis persists.

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Many European governments quickly announced mortgage payment holidays as the scale of the impact that Covid-19 will have on economies across the region became clear in mid March.

Italy announced a payment holiday of up to 18 months for mortgage borrowers on March 16, followed by UK banks offering a three-month non-mandatory moratorium a day later. Ireland announced a moratorium of between three and six months on March 18, the same day as Spain announced similar measures and Canada’s six largest banks announced a six-month deferral scheme.

Many Nordic countries already have standing arrangements for payment holidays of up to three months, as does Australia. The Dutch government has also announced very strong support for mortgage borrowers.

Such schemes – along with parallel arrangements for small and medium-sized enterprise borrowers – have been a key component in quelling panic among a widely quarantined European population. For now at least.

Some of the schemes are government-led, such as Italy’s (which is now a decree), and others are bank-led.




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