NHMFC’S HOUSING LOAN RECEIVABLES PURCHASE PROGRAM (HLRPP) Presentation to the 20 TH CREBA National Convention 6-7October, 2011 Marriot Hotel, Manila
ITEMS FOR DISCUSSION NHMFC CHARTER AND MANDATE A SHORT INTRODUCTION TO SECURITIZATION NHMFC BAHAYBONDS THE NHMFC HOUSING LOANS RECEIVABLE PURCHASE PROGRAM
Charter and Mandate NATIONAL HOME MORTGAGE FINANCE CORPORATION PD No. 1267 (December 21, 1977 ) • Develop and provide for a secondary home mortgage market , charged with the development of a system that will attract private institutional funds into long-term housing mortgages.
INTRODUCTION TO SECURITIZATION 4
What is Securitization? Securitization is the process of legally isolating existing asset pools or future generated assets away from the company originating the receivables (“originator”) Isolation of assets through legal “true sale” SPV simultaneously issues securities to finance the purchase of the asset pool Historical information is essential to analyse the performance of the asset pool Historical data determines the necessary amount of credit enhancement required in respect of the ratings of ABS notes that will be issued Cash flows from the asset pool can be tranched into various classes of debt that have different repayment characteristics Senior, mezzanine and subordinated tranches determine payment priority PRESENTATION ON SECURITIZATION 5
What Can Be Securitized? Any pool of existing assets that has a Assets that are expected to predictable cash flow can be generate future cashflows securitized: can also be securitized: ► Residential Real Estate Loans ► Export Receivables ► Commercial Real Estate Loans ► Real Estate Long Term Leases ► Oil / Gas / Commodity ► Auto Loans and Leases Receivables ► Equipment Loans and Leases ► Student Loans ► Net Telephone Paymnets ► Commercial and Industrial Loans ► Airline Ticket Receivables ► General Consumer Loans ► Trade Account Receivable ► Electricity Bill ► Credit Card Receivables ► Franchise Payments Receivables ► Collateralised Loan / Bond Obligations (CLO / CBO): ► Water Bill Receivables ► Bank Loans
Who Are The Investors? Private Institutions Insurance Companies Pension Funds Asset Management / Fund Management Companies Hedge Funds / Specialty Funds Developers and other Sophisticated Investors Private Individuals with High Net Worth/Investible Cash Government Pension Funds Provident Funds Banks and Other Financial Institutions PRESENTATION ON SECURITIZATION 7
Securitization Structure Credit Portfolio of assets enhancement Principal & interest payments Sell assets Issue securities Originator & Issuing entity Investors (“SPV”) Servicer Proceeds from Proceeds from sale of sale of receivables receivables PRESENTATION ON SECURITIZATION 8
Securitization Structure The Originator sells or transfers the portfolio of assets to an SPV The SPV raises funds from investors by issuing a bond or taking a loan The SPV uses the funds to pay the Originator for the sold assets The SPV separates the credit risk of the asset pool from the Originator During the life of the transaction, the cash flow from the assets is used to make payment of principal and interest to investors for the bond or the loan of the SPV Generally, the Originator will remain as the Servicer of the receivable s PRESENTATION ON SECURITIZATION 9
Tranching a Pool of Assets Ineligible assets 100% 90% 80% AAA Senior Notes 70% 60% Increasing credit quality 50% 40% BBB 30% Subordinated Notes BB 20% 10% Retained Equity 0 PRESENTATION ON SECURITIZATION
Towards a Higher Rating Ring-Fencing Assets Credit Enhancement Bankruptcy Remote Internal Vehicle Excess Spread Protects Investor from Subordination Originator Overcollateralization Reserve Fund Rating Early Amortization/ External Performance Triggers Guarantee Letter of Credit Protects investors Swaps coverage for from adverse credit currency and interest developments rate risks PRESENTATION ON SECURITIZATION 11
Credit Enhancement Excess spread Net income or excess cash flow generated from receivables provides the first level of credit enhancement Subordination Interest and principal that would have otherwise been distributed to a subordinate class is re-directed to more senior classes Overcollateralization Face amount of loans/receivables in the collateral portfolio is greater that the face amount of securities issued Reserve Fund / Spread Account Cash that is deposited and/or captured in a designated account Letter of Credit/Insurance Guaranty A highly rated bank/insurer guarantees principal and interest payments to bondholders PRESENTATION ON SECURITIZATION 12
Benefits of Securitization for Issuers Funding diversification and enhanced liquidity Access new investor base Assets converted into cash enhance liquidity Improve Asset Liability Management Market profile Gateway to international capital markets Increased capacity for origination of new receivables Frees up capacity for new asset origination PRESENTATION ON SECURITIZATION 13
NHMFC BAHAYBONDS
Securitization Process Insurance companies Land Bank Local banks RCBC Trust banking units BDO Private banks b ahay b onds N A T I O N A L H O M E M O R T G A G E F I N A N C E C O R P O R A T I O N
Collection Efficiency of Accounts for Securitization by Region % 100 90 80 70 60 50 Collection Efficiency 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Region 16
Benefits to NHMFC Achieve our corporate goal to operate as an SMI. NHMFC will set benchmark pricing in the secondary mortgage market. Enhance the mortgage loan servicing capabilities of the corporation Align the organization to support all aspects of securitization – collection, reporting, IT, foreclosures etc.
Securitization – fresh funds and liquidity to the housing sector through the capital markets Insurance companies Land Bank Local banks RCBC Trust banking units BDO Private banks b ahay b onds N A T I O N A L H O M E M O R T G A G E F I N A N C E C O R P O R A T I O N
Guidelines on the Housing Loan Receivables Purchase Program NATIONAL HOME MORTGAGE FINANCE CORPORATION
The NHMFC shall purchase valid and quality residential loan receivables with adequate security on the underlying assets; origination process shall follow the standards of NHMFC’s credit criteria.
A. PURPOSE NHMFC shall purchase the following accounts: 1. Existing residential loans to serve as the underlying collaterals eligible for securitization. 2. Loans with Lot only as collateral may be purchased provided lot is fully developed, within a residential area. B. TYPES OF LOANS QUALIFIED FOR PURCHASE 1. REAL ESTATE MORTGAGE (REM) 2. CONTRACT-TO-SELL (CTS)
The residential loans shall have the following equity, OPB to Collateral ratio, insurances and warranties with the corresponding seasoning period: REM TYPE OF LOAN DOWN PAYMENT/EQUITY At least 20% of Total Contract Price OPB-COLLATERAL-RATIO (H/L) Not Over 80% Residential Lot Not Over 70% WARRANTY Without Buy-Back Guaranty SEASONING PERIOD Minimum of 12 Consecutive Monthly Payments INSURANCES* MRI/FAPI
CTS TYPE OF LOAN At least 15% of Total DOWN PAYMENT/EQUITY Contract Price OPB-COLLATERAL-RATIO (H/L) Not Over 85% Not Over 70% Residential Lot With Buy-Back WARRANTY Guaranty up to Full Term of Loan Minimum of 12 SEASONING PERIOD Consecutive Monthly Payments SRI/FAPI INSURANCES* * Enrolment or renewal of MRI/SRI and FAPI shall be done by NHMFC to ensure that the account is fully covered. Originators shall inform the borrower that the insurance premium payments shall be included in the monthly amortization.
C. PURCHASE PRICE OF THE LOAN RECEIVABLE NHMFC shall pay the Outstanding Principal Balance (OPB) as of the cut-off date. D. INTEREST RATE NHMFC maintains ORIGINAL INTEREST RATE. Negotiation for interest rate may be allowed, provided the retained rate for NHMFC is not below the prescribed rate during the purchase.
E. LOAN TERM Maximum of 30 years but not to exceed the difference between present age and 70 th year of the principal borrower. F. BORROWER CREDITWORTHINESS Due diligence shall be done on the loan portfolio to determine the credit risk associated with the purchase. Evaluation on the originator’s credit processes and policies shall be part of the due diligence.
The following documents shall be used to evaluate the Borrower’s credit history: 1. Borrower’s Ledger ( the account is updated as of the purchase date); 2. Originator’s copy of Receipts showing amortization payments. 3. Proof of Income 4. Technical Documents – as guide for site inspection and appraisal of the collateral. 5. Legal documents/agreements can be downloaded at www.nhmfc.gov.ph
PROCESS FLOW: 1. Conduct Due Diligence on Loan Portfolio and Originator - Site Inspection/ Appraisal - Title Verification - Examination of Ledgers - Borrower Interview - Review of Legal Documents
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