RECEIVABLES PURCHASE PROGRAM (HLRPP) - CREBA

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

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

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


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


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


0

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


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


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


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


NHMFC BAHAYBONDS

Land Bank RCBC BDO

Insurance companies Local banks

Trust banking units Private banks

bahaybonds NATIONAL HOME MORTGAGE FINANCE CORPORATION

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 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

Land Bank RCBC BDO

Insurance companies Local banks

Trust banking units Private banks

bahaybonds NATIONAL HOME MORTGAGE FINANCE CORPORATION

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:

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

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

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!