(First of two parts)
Many, if not all of us, put on a blank face whenever we hear the word “securitization” used in financial matters. In layman’s term, it means pooling together various types of debt instruments and selling them as bonds to investors to enhance liquidity.
Securitization is actually among the innovative programs being implemented by the National Home Mortgage Finance Corp. (NHMFC), as one of the key shelter agencies (KSAs) of the Department of Human Settlements and Urban Development (DHSUD).
NHMFC’s engagement into securitization is aimed at fueling housing finance, which is among the three core functions of DHSUD—the two others being regulation and production.
It is also in line with the corporation’s mandate, as a major government secondary home mortgage institution, to accelerate the recycling of funds in the housing sector through the purchase of mortgages from originators or developers, banks and other home lending institutions to serve as an asset pool for future securitization.
With this mission, NHMFC has evolved through the years in developing groundbreaking financial instruments that enhance liquidity in the housing sector. These housing finance programs cater to the growing needs of the different segments of our society.
HLRPP 1-HOME Program
In 2009, NHMFC launched the Housing Loan Receivables Purchase Program, which is now called Purchase of Originated Economic/Low-Cost Housing Receivables Program (HLRPP 1-HOME Program). It is a liquidity facility for economic and low-cost housing loans which originators find as more attractive due to fixed interest rate for as low as 4.7 percent for a term of seven years and 6.2 percent for 30 years with no institutional membership requirement.
Added to this is the high loan to value ratio. Housing loan portfolios purchased under this program are pooled and subsequently used by NHMFC for bond issuance under the securitization framework. The securities from the bond issuance are eventually offered to the capital market as alternative investment facility for retail and institutional investors.
Shelter Program (HLRPP-2)
Seven years later, the NHMFC conceptualized and rolled out the HLRPP-2 Socialized Housing Loan Take-out of Receivables Program (HLRPP 2-Shelter Program). This is a take-out window for originators of socialized housing. It encourages developers to continuously produce quality socialized housing projects that NHMFC can eventually purchase for securitization.
Loan amount is up to P750,000 starting at a 3-percent interest rate for the first five years, and 5.5 percent on the remaining years, for a maximum term of 30 years.
Similar with the framework of HLRPP 1-HOME Program, housing receivables from the Shelter Program are pooled for purposes of securitization and securities from bond issuance are offered to housing developers. In essence, the purchase of these securities by developers or originators is deemed as full compliance to the Balanced Housing Development Program, which is a requirement for the issuance of license to sell.
With the introduction of this liquidity mechanism, NHMFC expanded the capital market for asset-backed securities.
With these programs in place, the NHMFC reiterates its commitment to stimulate the capital market by strengthening the operation of the secondary mortgage market to help realize the lifelong dream of some 81 percent of Filipino families to have a house of their own.
(To be continued)
This article is first published in Philippine Daily Inquirer