I propose to take Questions Nos. 39 and 43 to 45, inclusive, together.
If a bank makes a mortgage, the bank may, if the mortgage contract allows, use that legal mortgage as security for funding their balance sheet. It does not alter the nature of the relationship between the bank and its customer. There are two possible routes. If the mortgage is securitised in a Residential Mortgage Backed Security (RMBS), the first (legal) charge to the bank from the customer is pledged to the security pool by virtue of an equitable right. The quality of the performance of the mortgage pool is borne by the purchaser of the securitised bond but the primary bank/customer relationship remains intact, subject to the terms of the securitisation itself. The bank remains, unless it is replaced by the terms of the securitisation, the servicing entity facing the customer and, indeed, the customer will not be aware that their mortgage has been funded in this way. RMBS are, generally, eligible collateral under ECB terms. In the situation where the RMBS is sold to the capital markets, the transaction may be ‘off-balance sheet', however, if the bank retains sufficient levels of investment in the RMBS, it will remain an ‘on-balance sheet' transaction and be recorded in the balance sheet. In the case of an RMBS transaction being completed, there is extensive accounting and legal advice provided to ensure compliance with all relevant rules.Mortgages may also be used for funding via the Central Bank of Ireland using Mortgage Backed Promissory Notes. These Notes are short term funding products that are not full securitisations, but once again, the mortgage charge is pledged to the Central Bank for security purposes. At present, these can be funded using Exceptional Liquidity Assistance (ELA) rather than through eurosystem borrowing via the ECB. However, in both cases, the bank/customer relationship remains paramount and intact.
