BANK OF IRELAND MORTGAGE-BACKED SECURITIES, APRIL 1988
Sep 6th, 2012 by Conor McCabe
This is the earliest notice I can find of an Irish bank engaging in mortgage-backed securities.
It’s from 1988 and it’s the Bank of Ireland’s UK operation.
It allowed BOI to move the loans off-balance sheet and to enhance its ‘gearing’ or leverage business model. Other Irish financial institutions followed BOI’s lead in the 1990s.
The fall-out from this 20-yr run of mortgage-backed security gearing is now part of our national debt.
I had always thought that mortgage-backed securities was an exclusively American phenomenon until my brother put me right a couple of months ago. It’s certainly the least talked about business activity of the Celtic Tiger *vomit-a-bit-in-my-mouth* Years, and deserves a big big spotlight in its face.
In your book Sins Of The Father you argue the construction in the 1990’s was a by-product of tax breaks for investors, much in the same way that journalist and screenwriter Joan Didion argues that films are a by-product of Hollywood’s deal-making business. It’s clear from the activities of sub-prime mortgage brokers in the US (pushing loans hard, hiding the true costs of repayment, in some cases even forging documents) that, in the same way, mortgage lending was a by-product of the securitization business. I didn’t know until recently it was an Irish phenomenon too.
Was it a driver for Irish lending in the same way, or to anything like the same extent?
It was. Irish banks raised somewhere in the region of €75 billion on the back of securitization - and that’s just what’s listed on the Irish stock exchange.
It really takes off in Ireland in 1995 - about the same time that house prices lose their link with wages. The extra credit was used to fund the house price bubble.