Secured loan: what is it? The concrete effects
A securitized mortgage is a financial product that the bank transfers to an intermediary company in exchange for the issuance of an obligation linked to it. This is one of the ways in which banks seek liquidity on the markets. When a loan is granted, the credit institution exposes itself to a sudden outflow of liquidity that occurs in a single solution: to remedy this problem and continue to finance its activities, the bank resorts to securitization, that is, sells credit to a special purpose vehicle (SPV), which in turn will issue bonds to be placed on the market.
Now let’s see in detail what a securitized mortgage
How this procedure works with mortgages and how it affects the borrower. First of all, it is good to know that it is the mortgages that are often the subject of this financial operation because, unlike other loans, they usually provide very onerous figures to pay, given that they finance high value assets like a property. Thus the bank exposes itself to a considerable loss of liquidity, which among other things it would receive back from the borrower over a very long period of time , given the duration of many such loans.
Thus, the credit institution can immediately repay the disbursement by transferring the credit to an intermediary company , which will then make the appropriate use on the bond market.
What effect does this have on the borrower?
On a contractual level, nothing changes . The relationship with the bank of those who received the loan remains unchanged and the installments provided for must be paid regularly. The installments therefore do not have to be paid to the new owners of the credit, whether they are the SPV or other investors. However, the bank must communicate the securitization to its client in writing.
Where one could encounter some more difficulties is in the case of ancillary operations on the mortgage , such as subrogation or renegotiation of the loan. Both transactions in fact provide for a change in the conditions of the relationship between the bank and the borrower, but given that the credit is now held by a third party, action should also be taken on the agreement between the latter and the bank. Usually, however, the agreement cannot be changed. In Italy, however, an agreement between the ABI and the Council of the Notariat has assured since 2007 that even a securitized loan can provide for these changes.