Estimation of a conversion factor for binding mortgage offers under the IRB Approach

Is the own estimation of conversion factors for undrawn credit lines considered relevant for binding mortgage offers, with a maturity of less than one year?

It is unclear what is the correct treatment, under the IRB Approach, for the conversion factor of off-balance sheet items for binding mortgage proposals with a maturity less than one year, as it can be either of the following: a. falling under the provisions of Article 166(8)(d) CRR “other credit lines”, where a 75% conversion factor should be applied, or own estimates could be used according to Article 166(8) CRR or b. falling under off-balance sheet items other than those mentioned in Article 166(8) CRR and are to be treated according to the requirements of Article 166(10) CRR We ask EBA to clarify whether the final answer provided on Q&A 3376 only applies under the Standardised Approach or also under the IRB Approach. If treatment (a) is correct, institutions applying the IRB Approach will most likely be required to estimate own conversion factors for binding mortgage offers, with a maturity of less than one year. This may be challenging since the product characteristics of a mortgage offer deviate from the characteristics of a regular credit facility in the sense that a client cannot draw amounts from a mortgage offer. If treatment (b) is correct, binding mortgage offers with a maturity of less than one year will most likely be considered to meet the criteria of Annex 1(3)(b)(i) for a medium/low risk item: “undrawn credit facilities which comprise agreements to lend, .. with an original maturity of up to and including one year which may not be cancelled unconditionally..” resulting in the application of a conversion factor of 20%. Also treatment (b) is consistent with the final answer already provided on Q&A 3376.