Strengthening Mortgage-Backed Securitization in the Philippines (Part 2)


In our blog yesterday, we presented a position paper written by Ms. Daisy Dulay and Co- 376785_220222881437543_903045807_n Authored by Ms.Marife Ballesteros, on    “Strengthening Mortgage-Backed Securitization” .

Our first part yesterday, we presented, the key factors for the Secondary Mortgage Institution (SMI) such as NHMFC to function efficiently which are: (1) initial capital; (2) extraction rate; and (3) turnover rate.

Today, using the table below shows the sample calculation of Extraction Rate, of the ” Bahay Bonds”

We shall discuss what must be done to keep the momentum going as part of the research written by the expert in securitization, Ms. Daisy Dulay, of NHMFC ,  with Marife Ballesteros, Senior Research Fellow at Philippine Institute for Development Studies.


Sample Calculation of Extraction Rate Bahay Bonds



Portfolio size



Junior bonds



Expenses (Financial advisory fee, rating fee, underwriting fee, legal fee, tax reserve, liquidity reserve, etc.)



Net proceeds



Extraction rate

Net proceeds

Portfolio size




Keeping the Momentum: What Needs To Be Done 

The NHMFC can take the lead in the development of the secondary mortgage market for residential mortgages. The needed interventions for the NHMFC to function effectively are:

NHMFC should be recapitalized and provided with enough funds as seed capital to perform its duties. These may be sourced from:

  • External sources- such as: HDMF and the Department of Budget and Management, and the International Finance Corporation or other multilateral agencies.
  • Internal sources- a recapitalization as may be mandated via a charter amendment or by law; investment participation of the three pension funds (i.e., SSS, GSIS, and HDMF; or other private entities (which should be provided with No or less interest to funders: No or less taxes; No or less dividends)

Improve leverage and extraction rate through adoption of the concept “One Stop Shop” for SMI operations through the following provisions:

  • Exemption of the NHMFC from SEC’s registration and reporting requirements and fees
  • Tax exemption for investor’s yield or income from any low-cost or socialized housing-related ABS issued by the NHMFC or through a special purpose entity under the Securitization Act.
  • Reactivation of the NHMFC guarantee (under its original charter)

It is proposed that the activation of the NHMFC guarantee capacity be initially limited to P10-20 Billion a year (after an initial infusion of additional capital of at least P20 Billion). This amount will allow for a P20 Billion to P40 Billion of new housing per year (assuming 2 issuances in a year). The cap on the sovereign guarantee (a proposed self-imposed limit) for NHMFC issuances also limits the contingent liability exposure of the National Government to a manageable and fixed level while at the same time, forces the NHMFC to perform with utmost due diligence and fiscal prudence.

  • Strengthen/amend NHMFC charter to include (but is not limited to) allowing the Corporation to securitize housing-related receivables/assets aside from just mortgages. NHMFC should also be allowed to accept equity participation from other GFIs through conversion of existing obligations to equity/subscription to unissued shares of stock of the Corporation. In addition, provide NHMFC the capability to do mortgage insurance.
  • Support the development of standardized forms and documents for all housing programs in the country. The creation of standardized forms will simplify the process of getting housing loans (for the borrowers), streamline the review and due diligence process for such loans (for all lending/housing finance institutions), ensure the quality of the mortgages/housing receivables (for the regulatory agencies), as well as facilitate the eventual securitization of these housing loan receivables into investment-grade, housing-backed securities. The standardized documentation for each issue reduces the time required for document preparation and negotiation therefore reducing transaction costs.

Through the standardization of both product structure i.e., 1) for individual housing loan borrowers and 2) for community loans, and documentation, the program provides a platform for the Government Housing agencies, developers, and banks to conveniently convert their illiquid mortgage portfolios into liquid MBS/ABS.

As a final note, the development of the domestic secondary market activities is imperative in the face of the ASEAN financial integration by 2015. The financial services subsectors identified for liberalization by 2015 include the insurance, banking, and capital market.

This implies that the country needs to improve and develop its financial services and institutions to be competitive in the global arena.

Hopefully, Local Government Units can adopt this scheme as proposed by Ms. Daisy Dulay, the Vice President for Operations and Securitizations of the at National Home Mortgage Finance Corporation and President and Executive Director for the Real Estate Research Foundation, and an expert in securitization.

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