Housing Fin Firms Tie Up First Securitisation Deal

Even as the government and the housing finance industry labour on the nitty-gritty's of the National Housing and Habitat Policy 1998, four housing finance companies (HFIs) are in the process of floating a joint securitisation deal.

The Rs 100 crore deal comprises securitisation of primary mortgage portfolio of HDFC (40 per cent), LIC Housing (25 per cent) Canfin (25 per cent) and Dewan Housing (10 per cent). SBI Caps has been appointed as lead manager for the securitised instruments. According to sources, the instruments will be offered to institutional investors like provident funds, insurance companies and banks.

While industry sources admit that a Rs 100 crore deal is too small compared to the total outstanding housing loans estimated at Rs 12,000 crore, they clarify that it is a pilot project intended to get the ball rolling. With no such deal being struck in the past, the industry is clueless about the structuring securitisation of home finances. The deal is on "as it were" basis, according to sources. "If we wait for the prerequisites to be put in place, we will never be able to finalise a deal," they added. According to a senior official with HDFC, "As other legislative changes fall in place, the market will expand. We expect securitisation to cover atleast 25 per cent of the total outstanding of Rs 12,000 crore".

 

The deal is coordinated by the National Housing Bank (NHB), which will act as the issuer and the trustee for the escrow account created for the purpose. While the instruments issues by NHB will be uniform and carry Crisil's AAA rating, the portfolio to be offloaded by the participating HFIs are different in nature and will therefore be rated separately. One basic problem with securitisation of mortgage backed assets is the heterogeneity of the asset in terms of the quality, tenure, and documentation of loans.

To solve this, Crisil has laid down specific criteria for the pooled assets. Loans qualifying for the pool have a triple A rating, with a balance maturity of 7-8 years and minimum seasoning of two years. The coupon rate is fixed at a minimum of 15 per cent. The cut off for loan-value ratio is pegged at a minimum of 75 per cent. To ensure further safety, only loans which have EMIs of less than 30 per cent of the borrowers monthly salary or income are taken. The pool has picked up assets originating in Maharashtra, Karnataka and Tamil Nadu where stamp duties for asset transfer are relatively low.

According to sources, the deal also involves credit enhancement of Rs 20 crore which will be contributed proportionately by the four HFIs. These will comprise additional mortgage loans of higher maturity than eight years and will be utilised to repay investors in case of defaults. It is also learnt that the package may involve a cash margin of 5-10 per cent. But sources feel that this will find few takers amongst HFIs. While SBI Caps is still giving shape to the final offering,the pass through certificates may carry an interest rate of 13.5 per cent after factoring in service fee of 0.50 BPS for NHB and SBI Caps and margin for the HFIs.