GFIs may acquire asset-backed securities

Government financial institutions (GFIs) could be allowed to acquire asset-backed securities under the proposed securitization law.

Sources at the House committee on economic affairs said the committee is still trying to get affected sectors to agree to the proposal that GFIs participate in the market that will be developed once the securitization bill is enacted into law.

Currently, there are two securitization bills being pushed in the House. These are House Bill 2759 entitled An Act to Establish the Legal and Regulatory Framework for Securitization and the Development of Asset-Backed Securities Market authored by Speaker Jose de Venecia and House Bill 2733 or the Securitization Act of 2001 authored by Rep. Ruben Torres.

Sources said Torres and Albay Rep. Joey Salceda reportedly support the proposal to allow GFIs to acquire asset-backed securities, saying these entities have the financial muscle to engage in this kind of investments.

Both solons agreed the participation of GFIs would serve as a catalyst and would be needed to jumpstart the creation of a securities market.

To ensure that GFIs such as the Social Security System (SSS) and Government Service Insurance System (GSIS), including government-owned-and-controlled corporations exercise prudence in their participation, limits should be imposed on these entities.

Salceda proposed a provision that specifies that GFIs’ investments will be limited to just five percent of the asset-backed securities and should not go beyond one percent of their own investment fund.

Both bills being deliberated in the House seek to rationalize the tax, legel and regulatory regime governing asset-backed securities to pave the way for a well-develped and functioning securitization market.

This is expected to provide government with alternative means of generating revenues while developing an active and liquid market. In particular, it will make home mortgages more affordable and accessible.

The proposed bills also mandate the Securities and Exchange Commission to revise rules on securization to recognize the creation of special purpose vehicles and the creation of private-sector led secondary mortgage institutions that will function as a special purpose vehicle.

Both bills call for the removal of taxes such as value-added tax (VAT) and documentary stamp tax (DST) on the transfer to assets from the seller to the SPV.

Securitization is the process of converting bank loans and other assets into marketable Securities for sale to investors. It allows firms or agencies to remove non-performing assets from their balance sheet. It also allows them to make new loans from the proceeds of securities sold to investors.

The securitization bills are being pushed by the Arroyo administration to pave the way for the sale of an estimated P70-billion worth of foreclosed properties by banks to government to support its low-cost, mass-housing program.