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DC Housing Finance Symposium

DC Housing Finance Symposium Linking Primary Mortgage Markets to Capital Markets - the Perspective of Practitioners by S imon Stockley 20 th April 2004. South African Mortgage Market Overview. Sophisticated mature – R300billion Dichotomous Dominated by Big 4 Banks

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DC Housing Finance Symposium

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  1. DC Housing Finance Symposium Linking Primary Mortgage Markets to Capital Markets - the Perspective of Practitioners by Simon Stockley 20th April 2004

  2. South African Mortgage Market Overview • Sophisticated mature – R300billion • Dichotomous • Dominated by Big 4 Banks • Sound legal structure – title & foreclosure • Wide margins – no real competition • No non bank lending • Banks “cash rich” – no shortage of capital

  3. The SA mortgage market Source: SARB South African Mortgage Market Residential SA mortgage loans by lenders Outstanding balance, R bns Total = R 307 bn Source: SARB DI900 Source: SAHL • The rate of growth of the SA Home Loans book has been exponential • On a monthly basis SA Home Loans now originates up to R 700 million in new mortgages • This represents approximately 15% of monthly originations SAHL’s registrations R millions per month Source: Standard Bank

  4. Number of loans processed : 45 000 Value of loans processed : R15billion Value of loans approved : R12billion Breakdown by region : Gauteng 30% : KZN 35% : W Cape 35% Securitised Portfolio Thekwini Fund I : R1.25billion (December 2001) Thekwini Fund II : R1.1billion (December 2002) Thekwini Fund III : R2billion (December 2003) Un-securitised : R6billion SA Home Loans Activities since launch: February 1999 as at April 2004

  5. Why No Securitisation Prior to December 2001? • Big is best • Rating agencies • Exposure to international markets • Legal framework not securitisation friendly • Little incentive for banks to securitise • No ability to reinsure first loss position

  6. S A Home Loans • The product • Its positioning • Funding

  7. The Product • 20 year, variable rate, reducing term mortgage • No prepayment or redemption penalties • Discounted legal and administrative switch fees • No ongoing administrative charges • Re-advance facility/access bond • Fixed margin above cost of money • Switch re-finance proposition

  8. Positioning

  9. Securitisation Structure Control Independent Trustee External Auditor Senior Securities Special Purpose Vehicle Trust Loans To the Public Institutional Investors Public Subordinated Securities JIBAR Rate Plus 2.1% Purchase Securities 1.6% Yield pick up Origination & Management Fee : 0.5%

  10. A Class 92 % AAA Rating JIBAR + 70 Points Thekweni I Special Purpose Vehicle R1.25 Billion Public B Class 8 % BBB Rating JIBAR + 230 Points C Class 2.5 % Unrated 0.5% Management Fee Loans JIBAR + 2.1% SAHL Pay away 1.6% to investors Standard Bank Deloitte & Touche Standby Administrator Investment Structure

  11. Schematic Diagram of Structure Indemnity and Mortgage first lien over the Home Loan Borrower’s property Guarantee Trust Security Trust Transfer of security SA Home Loans Servicing Excess spread Reservefund Loan origination Servicing Guarantee Cashproceeds Home Loan Borrower The Thekwini Fund 2 Limited Investors Monthly payments Loan Notes issue Quarterlyobligations Transfer of mortgages Purchase of mortgages Repayment of the Wholesale loan Home Loan Borrower Main Street 65 (Pty) Limited Bank Funding Loan Wholesale loan Mortgage firstlien Committed loan facility Hedging Redraw Facility Hedge Counterparty

  12. SECURITIES AND AGREEMENTS THE PUBLIC SA HOME LOANS SPECIAL PURPOSE VEHICLES MORTGAGE BACKED SECURITIES INSTITUTIONAL INVESTORS Public Senior MBS SPV INVESTORS Junior MBS Public Senior MBS Public SPV Junior MBS Public Senior MBS INVESTORS SPV Public Junior MBS Short Term Insurer MARKET MAKER Life Insurer Auditors Interim Funder External Directors SAHL SAHL Legal Structure

  13. Growth in SA Securitisation Market Public Issuance Deal List Public Issuance Volume • SA Home Loans launched the securitisation market in 2001 • Since then issuance volumes have grow to R 14 billion in 2003 Source: Standard Bank

  14. Relative value • South Africa has seen dramatic growth the capital market since the 1st bond issue by Telkom in 1999 • Spreads on each subsequent transaction have improved • SA Home Loans transactions are the benchmark in the securitisation market Source: Standard Bank

  15. Increasing Sophistication Improved Tranching Spread Compression Source: Standard Bank

  16. Thekwini 3 Term Sheet

  17. SecuritisationA Practical Guide – Some Lessons Learned • Size does count • Quality of data • System reporting ability • Time, money, personnel • Timing – Market conditions • Ratings • Pricing • “Build it they will come …….”

  18. Thank you. Simon Stockley (Pty) Ltd CEO - SA Home Loans Phone : (031) 560 5392 Fax : (031) 562 4266 Cell no : 083 276 0068 e-mail : simons @ sahomeloans .com

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