Changes to German Mortgage Bank Act Broaden Scope

The recent amendments in the German Mortgage Bank Act (Hypothekenbankgesetz; HBG), designed to improve the competitive position of German mortgage banks, are ‘a positive step’, according to ratings agency Standards & Poors. ‘The amendments are certainly important for the mortgage banks, and the German Pfandbrief market in general. They increase the range of permitted activities for mortgage banks, allow the inclusion of derivatives in the cover pool, and provide for a calculation of the necessary cover for Pfandbriefe on a net-present-value basis,’ said Michael Zlotnik, a managing director at Standard & Poor’s Financial Services Group. ‘Nevertheless, Standard & Poor’s remains cautious as to whether the recent amendments will significantly enhance the revenue opportunities for German mortgage banks, at least in the short term,’ he added. The act became effective on July 1, 2002, and is part of the Fourth Financial Promotion Act. The new legislation has significantly increased the number of obligors eligible for the public-sector Pfandbrief pool. ‘Standard & Poor’s expects that issuers will only make sensible use of these new opportunities, however, and does not expect to see a major shift in the credit quality of individual pools,’ said Standard & Poor’s credit analyst Christian Esters.


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