BREAKOUT SESSION 3 Why should the housing industry look forward to Asset-Backed Securitization? 22nd SHDA National Developers Convention September 26, 2013 Fairmont, Makati City
DR. FELIXBERTO U. BUSTOS, JR., DBA, CFA, FRM NHMFC President
ďƒŹ
Outline Brief Background on NHMFC Securitization What is Securitization? NHMFC Experience: BB1 and BB2 Key Success Factors for Securitization
Threat Recommendation
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Brief Background on NHMFC Creation
• 1977 (through PD 1267)
Key Policy Roles
• Major secondary government mortgage institution • Mandated to operate a viable housing finance system by enhancing and ensuring liquidity in the housing sector
Key Programs
• Housing Loan Receivables Purchase Program (HLRPP) • Bahay Bonds (Securitization)
Future Projects
• Bahay Bonds 3 • CMP Bonds NATIONAL HOME MORTGAGE FINANCE CORPORATION
What is Securitization? ďƒŹ Securitization is the process of legally
isolating existing asset pools or future generated assets away from the company originating the receivables
Securitization = f (initial capital, extraction rate, no. of turnover per year)
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Process of Securitization SEPARATION • Separate or spin-off some of the assets from the company so that they can stand by themselves
TRANSFORMATION • The separated assets (together with their identifiable future cash flow streams) are now transformed into marketable securities
MULTIPLICATION • Securities can be sold for cash; with the cash, the originators can now lend again to new borrowers HOME MORTGAGE FINANCE CORPORATION Source: Limlingan, V. (2000). “Securitization for the HousingNATIONAL Industry”
NHMFC Experience: BB1 More than 12,000 prime residential mortgage loans Issue Size: P2.06B Tax exempt (Sec 33, Securitization Act of 2004)
Twice oversubscribed Recognized by the Asset Asian Awards 2009 Triple A Award Category 2009 Securitization of the
Year
NATIONAL HOME MORTGAGE FINANCE CORPORATION
NHMFC Experience: BB2 Residential mortgage-backed securitization (RMBS)
of more than 3,300 low-cost and socialized housing loans Issue size: PhP603.74M First ever listed retail RMBS in the country
NHMFC is requesting for a credit rating upgrade
from AA to AAA rating
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Key Success Factors for Securitization FUNDING External Sources HDMF DBM
IFC or other multilateral agencies
Internal Sources No or less interest to funders No or less taxes No or less dividends
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Estimated Available Funds to Cover Personal, Maintenance and Other Operating Expenses and Securitization Activities
Item
Value (in 000 Pesos)
Income from Collection and Other Operations
2,436,542
100%
Deduct Servicing Cost to Funders
1,733,343
71%
Income after Servicing Cost
703,199
29%
Tax (30%) on Income and Other Receipts
135,649
6%
Income after Tax
567,550
23%
Imposed NG Dividends
42,000
2%
Remaining Available Fund
525,550
21%
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Key Success Factors for Securitization EXTRACTION RATE Fund that can be utilized readily for subsequent
securitizations Extraction rate is not recovery rate Grows over time Affected by: Supply of securitizable accounts Quality of accounts Professional market for subordinate tranches
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Sample calculation of Extraction Rate Bahay Bonds 1 Item
Amount
Portfolio Size
2, 060, 898, 053.43
100%
Junior bonds
310, 898, 053.43
15.09%
Expenses (Financial advisory fee, rating fee, underwriting fee, legal fee, Tax reserve, liquidity reserve, commingle reserve, etc.)
318, 447, 220.70
15.45%
Net proceeds
1, 431, 552, 779.30
69.46%
Extraction rate
Net proceeds Portfolio size
69.46%
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Key Success Factors for Securitization LEVERAGE Faster due diligence Uniform forms For the borrowers: Simplified process of applying
for housing loans For lending institutions: Streamlined review and
due diligence process for housing loans For regulatory agencies: Ensured quality of
mortgages Sharing of credit files Sharing of valuation NATIONAL HOME MORTGAGE FINANCE CORPORATION
Key Success Factors for Securitization LEVERAGE One-stop shop NHMFC’s exemption from SEC’s registration and
reporting requirements and fees Tax exemption for investor’s yield or income from any
low-cost or socialized housing-related ABS issued by NHMFC or through a special purpose entity under the Securitization Act Reactivation of NHMFC Guarantee
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Key Success Factors for Securitization LEVERAGE Other Salient Features of the Proposed NHMFC
Charter NHMFC’s mandate is broadened to allow the
Corporation to securitize housing-related receivables/assets aside from mortgages NHMFC may accept equity participation from other
GFIs through conversion of existing obligations to equity/subscription to unissued shares of stock
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Threat: ASEAN Integration by 2015
Financial Services Sub-sectors Identified for Liberalization by 2015 (1)
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Threat: ASEAN Integration by 2015
ďƒŹ
Financial Services Sub-sectors Identified for Liberalization by 2015 (2)
Source: ASEAN Economic Community Blueprint
NATIONAL HOME MORTGAGE FINANCE CORPORATION
Threat: ASEAN Integration by 2015 CAGAMAS National Mortgage Corporation that was responsible
for the development of the secondary market in the country in Malaysia As of end-1Q13, Cagamas is the second largest issuer of local currency corporate bonds in Malaysia* Cagamas as % of Cagamas LCY Corporate Bond
$8.61B
Total LCY Corporate Bond
$131.64B
6.54%
Total LCY Bond Size
$322.0B
2.67%
*Source: Asia Bond Monitor, June 2013
NATIONAL HOME MORTGAGE FINANCE CORPORATION
PH Bond Market, bn pesos Year
Bond market size
Mortgage-related securities
Percentage
2009
2, 596*
1.75
0.08%
2012
4, 100*
0.420
0.02%
2013
4,925
8
0.16%
2014
5,619
13
0.23%
2015
6,412
6.6
0.10%
2016
7,316
9.5
0.13%
2017
8,347
4.9
0.06%
*Source: www.asianbondsonline.adb.org
ďƒ˜ Assuming that NHMFC will get the requested additional funding of PhP8B and PhP1B for 2013 and 2014, respectively. NATIONAL HOME MORTGAGE FINANCE CORPORATION
Recommendation: Where SHDA can help Improve processes relating to the primary mortgage
market Unified forms, computerized database for titles and
valuation, sharing of database
NATIONAL HOME MORTGAGE FINANCE CORPORATION
THANK YOU!