Westpac has revealed a flaw in its mortgage securitisation process, which resulted in ineligible loans being included in its mortgage securities portfolios.The error has exposed the bank to liability if any of the loans go bad. It also leaves the bank on the wrong side of APRA (re capital relief) and the RBA (for repo eligibility).Westpac Securitisation Management, the manager of WST residential mortgage-backed securities trusts, disclosed that some loans sold into the trusts were loans to borrowers who were not Australian residents at the relevant cut-off date.Loans to borrowers who are not Australian residents at the cut-off date do not meet the eligibility criteria for the WST RMBS trusts. Westpac currently has ten RMBS trusts listed on the Australian Securities Exchange.WSM also revealed that it has no idea who those borrowers are. Its disclosure says: "As borrowers can change their residency status over time, the trust manager is unable to determine which loans the WST RMBS trusts were to non-Australian resident borrowers at the relevant cut-off date."At the end of last year, across all WST RMBS trusts about 600 loans were categorised as being to foreign borrowers. And about 220 loans were to Australian citizens residing overseas.Six of those loans were in arrears by more than 90 days.WSM says: "It is important to note that, in accordance with the transaction documents for the WST RMBS trusts, Westpac Banking Corporation remains liable for any losses incurred by a WST RMBS trust as a result of a loan not meeting the relevant eligibility criteria by reason of the representations and warranties provided at the time of the relevant sale."It says updated information, including current residency status, will be included in line-by-line data that will be available on the Perpetual portal in March.