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Announcement:

Moody's: Negative Equity a Key Driver of Default in Irish RMBS Pools in 2013

19 Sep 2012

London, 19 September 2012 -- High levels of negative equity will drive losses in Irish residential mortgage-backed securities (RMBS) to 9.5% based on defaults peaking around 20% in early 2013, according to a new report published today by Moody's Investors Service. However, uncertainty over the full extent of losses remains as a result of the growing effect of moral hazard. Unlike most of the servicers we spoke to, we expect defaults on unsustainable mortgage debt to typically result in debt forgiveness rather than repossession.

The new report titled "Key Drivers of Default in Irish RMBS Pools Will Persist in 2013" is now available to Moody's subscribers in the link at the end of this announcement.

"The key driver of future defaults in Irish RMBS pools will be loans originated with high loan-to-value ratios (LTVs) in the run-up to the crisis, which are now in the deepest negative equity. In our previous report in 2010, LTVs were not yet a driver for mortgage loan defaults although we did predict they would ultimately become one of the key default drivers, a pattern which is now starting to emerge," notes Anthony Parry, Moody's Vice President and co-author of the report. "Higher LTV loans which we estimate are now in negative equity, have a default rate of 21.7%, 1.7 times the rate observed for loans not in negative equity" adds Mr. Parry.

However, moral hazard is also having a growing effect on loan defaults. Without the strictest of controls in place, moral hazard will drive default rates even higher and increase losses on Irish mortgage loans. The current dearth of repossessions and the recently proposed personal insolvency legislation is starting to result in higher defaults due to moral hazard. Obligors with loans in negative equity are more likely to default even when they have the financial capacity to pay because they stand to benefit most from the legislation. Unemployment has been broadly flat since 2010 and is therefore less of a key driver of recent defaults.

"We spoke to a number of servicers to get their views on current market trends. They had mixed opinions on the effect of moral hazard on default levels to date," adds Steven Becker, Moody's analyst and co-author of the report. "We received estimates from only negligible levels up to as much as 40% of current arrears are attributable to borrowers who are not truly unable to pay."

While Moody's notes that other characteristics will persist as key default drivers, these will be outweighed by the impact of negative equity on future defaults. These key default drivers to date include (1) self-employed borrowers; (2) loans taken out for the purpose of a buy-to-let (BTL) investment; and (3) loans originated outside of Dublin and Cork.

Moody's report on "Key Drivers of Default in Irish RMBS Pools Will Persist in 2013" is now available on www.moodys.com. http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_SF297320

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Anthony Parry
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Neal Shah
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Steven Becker
Associate Analyst
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: Negative Equity a Key Driver of Default in Irish RMBS Pools in 2013
No Related Data.
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