Brian Hayes MEP questioned ECB President Mario Draghi yesterday regarding the prospect of the ECB purchasing tracker mortgages from Irish banks in its recently announced Asset-backed securities (ABS) purchasing programme.
“Mr. Draghi has said that the ECB intends to purchase residential mortgage based securities. It remains to be seen whether this will include tracker mortgages but the ECB governing council will deliberate on this at one of their upcoming meetings,” said the Dublin MEP.
“Three domestic Irish banks — Bank of Ireland, AIB and Permanent TSB — have just under €50bn of tracker mortgages sitting on their balance sheets.”
“The real problem with tracker mortgages is that their existence is effectively holding back the Irish retail banking sector. They represent a very large proportion of total mortgages. But the question has to be asked, if they can be used as collateral by the ECB, do they really represent a large risk to the ECB? It is really a question of scale. Frankly the bigger task for the ECB and the Irish banking sector must be on lending and investing in the real economy,” said Mr. Hayes.
The ECB will buy senior tranches of mortgage backed securities in the ABS programme which are considered less risky. If the ECB were to buy riskier securities such as tracker mortgages, they may need a government guarantee.
“The ECB will have to consider the issue in light of the developments in the Irish property market with rising house prices making the trackers more attractive,” added Mr. Hayes.
“It could be an important boost to economic growth if Irish banks were able to clear many of these tracker mortgages from their balance sheets as the cost of funding these trackers is very high compared to the returns.”
Further details of the ECB’s Asset-backed securities purchasing programme will be known after the next ECB meeting on October 2nd.