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What mortgage securitization is all about
When agreeing mortgage terms, some clients look no further than the rate of interest charged. However, there are a number of other aspects which should be considered, which if overlooked could place borrowers at a considerable disadvantage. One such aspect concerns the securitization of mortgages.
Within the financial sector, securitization is the conversion of lender’s liabilities into securities which can then be traded on the money market. These lending liabilities may take various forms such as car loans, corporate loans and mortgage loans. More specifically, by securitizing a mortgage, financial institutions thus gain the opportunity to share their mortgage-lending risk more widely across the financial markets.
Mortgage securitization in practice
Mortgage lenders rely on the customer's approval for the securitization of mortgages, and thus they include a transferability clause in the mortgage contract. Such a clause is a rule rather than an exception, and is a common practice among the major Swiss financial institutions.
However, not all financial institutions deal with this clause in the same way. Some lenders regard it as part of their standard contract, and thus will not allow it to be deleted – in fact, in certain circumstances this could lead to a refusal to complete the mortgage contract. Nevertheless other lenders leave it up to their customers to decide whether they will agree to the securitization of the mortgage. Despite this, it remains the customer’s responsibility to approach the lender and request the deletion of the appropriate clause from the contract.
Whether or not the lender actions the clause and proceeds to actually sell securitized mortgages to third parties as a financial product then becomes an open question. So far, the adoption of such measures by Swiss mortgage lenders has only occurred in exceptional circumstances, and the reputation of securitized mortgages suffered considerably during the course of the US mortgage crisis of 2007. So now the insertion of a transferability clause is driven more by the lender’s wish to maximise his liquidity options, though how a lender may choose to deal with the clause in the future remains to be seen. This consideration becomes more relevant in the light of the more stringent liquidity requirements imposed by regulatory authorities.
Potential uncertainties regarding mortgage securitization
Should a securitized mortgage become a commercial asset, the identity of the mortgage creditor would thus be affected. Although this is a far-reaching change, it has no immediate effect on the borrower because a simple change of creditor will not otherwise affect the contents of the mortgage contract. And for all practical purposes, the original lending institution which handled the completion of the mortgage would still remain the borrower’s first point of contact. However, in the event of any default on mortgage payments, one cannot rule out the possibility that the borrower may be confronted with the claims of an investor.
MoneyPark consultants can help you understand the intricate contractual details of a mortgage and respond to them accordingly. MoneyPark clients will be advised by experienced and independent experts with a detailed knowledge of the criteria required by our financing partners, who now number more than 100. Benefit from Switzerland's most advanced mortgage advice by requesting your personal meeting today.
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