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Saturday, Jun 29, 2002

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NHB to get mortgage-backed securities listed on NSE

C. Shivkumar

This will be the first batch of mortgage-backed securities to be listed in the country. This year about Rs 200-crore worth of securitised instruments have been issued by the Housing Development Finance Corporation Ltd and Canfin Homes Ltd.


THE National Housing Bank (NHB) has initiated moves to list the mortgage-backed securities (MBS) issued by the housing finance companies (HFC) on the National Stock Exchange.

This will be the first batch of mortgage-backed securities to be listed in the country. This year about Rs 200-crore worth of securitised instruments have been issued by the Housing Development Finance Corporation Ltd and Canfin Homes Ltd. ICICI Home Finance is also in the process of issuing MBS. Issuance of MBS or securitisation is a process of converting outstanding loans or receivables into assignable debt or tradable instruments.

Sources said that the listing is expected to be done in the current year itself in the debt segment of the NSE. With the listing, the sources said, the securitised instruments would have greater liquidity and consequently provide greater depth to the MBS markets.

All the issues that have been issued or in the process of being issued have highest safety rating. They have a yield to maturities in the region of about 9.2 per cent.

The basic structure of the MBS programme this year has been facilitated by the NHB's purchase of retail housing loans. NHBs purchases of these loans are identical to the operations of the Federal Home Loan Mortgage Corporation (Freddie Mac) of the US.

These loans purchased by the NHB are to be issued to investors in the form of pass through securities, but without recourse to the HFCs. This would imply that the investors would have to assume the credit risk of the cash flow streams. The security that is available to the investors is the underlying physical assets against which the housing loans have been provided.

But all the issuers have provided for additional collateralisation of the receivables pool. The additional collateralisation is to enhance the comfort level of the investors. In addition, issuers such as Canfin and HDFC have also provided liquidity support (referred to as a back stop facility in banking jargon) to the instruments as additional covenants. It is these additional cushions that considerably mitigated the investment risks and allowed the MBS issuances to obtain the highest safety rating, sources here said.

Once the liquidity is ensured for the instruments, issue size could also be raised; they said. Most of the issues that have hit the markets have all been small lots, and the largest this year being the HDFC offering, which was in excess of Rs 150 crore. The larger issues would help the HFCs bring down the weighted average cost of working funds. This in turn, the sources said, would translate into lower lending rates for housing loan customers, they added.

The sources said that MBS issuances have been facilitated this year after the reduction in the risk weighting to just 50 per cent. Consequently, so far, for all the small issues, the interest has been exclusively from financial institutions and banks. Insurance companies have also been picking up the instruments especially the LIC, which has a fairly large appetite for high quality debt instruments. But in the absence of good quality instruments, these institutions have preferred to park exclusively in Government securities.

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