EBA Q&A 2015_2306 state that for guarantees issued by entities listed in Article 214(2) to be considered eligible the "credit protection contract does not contain any clause, the fulfilment of which is outside the direct control of the lender[1], that [...] (iii) could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original obligor fails to make any payments due". The expression “timely manner” is clarified in CRR to be considered within 24 months for residential mortgage loans. The answer to Q&A 2015_2306 further clarifies that for such guarantees to be considered eligible, institutions must demonstrate to the satisfaction of the competent authority that the "effects of the guarantee, which shall also cover losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, justify such treatment ".

It follows from this answer that for credit protection contracts for residential mortgage loans, issued by central governments, where the effects of the guarantee can be evidenced to cover losses resulting from the non-payment of interest and other types of payments which the borrower is obliged to make, within 24 months, should qualify for unfunded credit protection treatment.

It is, however, unclear whether this holds true also where the final guaranteed amount is based on the residual value between an executive sale of the underlying residential mortgage collateral and the maxed guaranteed amount (if the executive sales can be evidenced to empirically always have occurred within 24 months)? Does the assessment differ whether the executive sale can be triggered without involvement of the obligor (e.g. via a bankruptcy process following missed credit obligations)?

[1] “Lender” is replaced by “Lending institution” in the updated CRR3 text