Germany’s Pfandbrief Act is to be updated imminently to provide for loan-to-value disclosure, something that is typically reported on a voluntary basis for covered bonds. Fitch said that the move should prove useful, but could have gone further.

The proposed amendment was developed with the co-operation and support of the Association of German Pfandbrief Banks (vdp), and is expected to be passed by the German parliament next Thursday (16 May), according to Otmar Stöcker, managing director at the vdp.

He said that the vdp has been in discussions about introducing LTV disclosure requirements for several years, but had held back from supporting their integration into the Pfandbrief Act given the complexities involved in deciding on how to formulate the calculation of the desired loan-to-value ratio.

“It’s a challenging subject and that is why this has taken some time,” he said. “It was not a question of if but how, and until this was not resolved to our satisfaction we did not want to go ahead with the move.

“In the end we arrived at a result that the vdp is satisfied with. What distinguishes the quality of the Pfandbrief versus covered bonds in other countries is that there will be a legislative duty to report LTVs in a uniform way, which consequently creates a responsibility and right for the supervisory authorities to ensure that this is adhered to.”

According to Fitch, the proposed amendment is for issuers to disclose the weighted average loan-to-mortgage lending value of the mortgage or portion of the mortgage recorded in the cover register.

It said that this would be an improvement that gives investors an additional tool with which to compare mortgage Pfandbrief programmes, but that it would be even more useful if issuers reported the whole loan LTV to give investors a clearer picture of default risk.

“This is a significant addition to the initial proposals made last year,” said the rating agency, “and while LTV disclosure in other jurisdictions is often more comprehensive, it is usually voluntary, while disclosure under the Pfandbrief Act would be mandatory.”

The proposed amendment concerns §28 of the Pfandbrief Act, which sets out issuers’ disclosure obligations, and is in addition to proposals made last year that include new requirements such as the publication of the proportion of fixed rate cover pool assets and covered bonds. One amendment proposed last year will not be retained, however, namely the requirement to disclose ECB-eligible cover assets, said Fitch. (See here for previous coverage.)

The amendments are being proposed and are due to be voted on in the context of a bill transposing the latest Capital Requirements Directive/Regulation (CRD IV package) into national law (Umsetzungsgesetz).

Assuming the proposed updates are passed, the revised Pfandbrief Act would come into effect two quarters after the Umsetzungsgesetz is effective, which in turn depends on when the CRD IV package becomes law. If the regulation and directive are officially translated into all EU languages by June then they will become effective January 2014 and otherwise this will happen in July next year.

The planned amendment could satisfy calls from the German Insurance Association (GDV) for Pfandbrief transparency to be improved – in a position paper on the draft law on the transposition of CRD IV the association last Thursday said that issuers should disclose weighted average LTV information, as well as other information supplementary to prevailing requirements. (See here for yesterday’s coverage on this.)