NHMFCS HOUSING LOAN RECEIVABLES PURCHASE PROGRAM (HLRPP) - - PowerPoint PPT Presentation

Presentation to the 20TH CREBA National Convention 6-7October, 2011 Marriot Hotel, Manila

NHMFC’S HOUSING LOAN RECEIVABLES PURCHASE PROGRAM (HLRPP)

ITEMS FOR DISCUSSION

NHMFC CHARTER AND MANDATE A SHORT INTRODUCTION TO SECURITIZATION NHMFC BAHAYBONDS THE NHMFC HOUSING LOANS RECEIVABLE

PURCHASE PROGRAM

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.

Charter and Mandate

NATIONAL HOME MORTGAGE FINANCE CORPORATION

INTRODUCTION TO SECURITIZATION

4

What is Securitization?

5

 Securitization is the process of legally isolating existing asset

pools or future generated assets away from the company

• riginating 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

What Can Be Securitized?

Any pool of existing assets that has a predictable cash flow can be securitized:

Assets that are expected to

generate future cashflows

can also be securitized:

► Residential Real Estate Loans ► Commercial Real Estate Loans ► Real Estate Long Term Leases ► Auto Loans and Leases ► Equipment Loans and Leases ► Student Loans ► Commercial and Industrial Loans ► General Consumer Loans

►

Trade Account Receivable

►

Credit Card Receivables

►

Franchise Payments

►

Collateralised Loan / Bond Obligations (CLO / CBO):

►

Bank Loans

► Export Receivables ► Oil / Gas / Commodity

Receivables

► Net Telephone Paymnets ► Airline Ticket Receivables ► Electricity Bill

Receivables

► Water Bill Receivables

Who Are The Investors?

7

 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

Securitization Structure

8

Portfolio of assets Originator & Servicer Issuing entity (“SPV”) Investors Issue securities Proceeds from sale of receivables Sell assets Principal & interest payments Credit enhancement Proceeds from sale of receivables PRESENTATION ON SECURITIZATION

Securitization Structure

9

 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

receivables

PRESENTATION ON SECURITIZATION

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

AAA BBB BB

Senior Notes Retained Equity Subordinated Notes Increasing credit quality Ineligible assets

Tranching a Pool of Assets

PRESENTATION ON SECURITIZATION

Towards a Higher Rating

11



Bankruptcy Remote Vehicle



Protects Investor from Originator

Ring-Fencing Assets Early Amortization/ Performance Triggers

Rating

Credit Enhancement



Protects investors from adverse credit developments

 Internal  Excess Spread  Subordination  Overcollateralization  Reserve Fund  External  Guarantee  Letter of Credit  Swaps coverage for

currency and interest rate risks PRESENTATION ON SECURITIZATION

Credit Enhancement

12

 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

Benefits of Securitization for Issuers

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 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

NHMFC BAHAYBONDS

Land Bank RCBC BDO Insurance companies Local banks Trust banking units Private banks

bahaybonds

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

Securitization Process

Collection Efficiency of Accounts for Securitization

by Region

16

50 60 70 80 90 100

Collection Efficiency

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Region

%

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

• f 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

Land Bank RCBC BDO Insurance companies Local banks Trust banking units Private banks

bahaybonds

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

• n 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:

TYPE OF LOAN REM 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

TYPE OF LOAN

CTS

DOWN PAYMENT/EQUITY

At least 15% of Total Contract Price

OPB-COLLATERAL-RATIO (H/L) Not Over 85% Residential Lot

Not Over 70%

WARRANTY

With Buy-Back

Guaranty up to Full Term of Loan

SEASONING PERIOD

Minimum of 12

Consecutive Monthly Payments

INSURANCES*

SRI/FAPI

* 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 70th 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
• f 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

PROCESS FLOW:

• 2. Consolidate Reports and Present to

Purchase Executive Committee for approval.

• 3. Submit to the NHMFC President for

final approval.

PROCESS FLOW:

• 4. Process Voucher for Payment (take-out)-

(15 working days) Please download loan documents at www.nhmfc.gov.ph

Thank you!