Domestic credit rating firm Philippine Rating Services Corp. (Philratings) has issued a conditional PRS Aa rating to the proposed maiden issuance by the National Home Mortgage Finance Corp. (NHMFC) of P1.862-billion worth of residential mortgage-backed securities (RMBS).
RMBS are securities issued based on the cash flows from residential home loans. These can serve as a funding source for the residential mortgage market.
Obligations rated PRS Aa are of high quality and are subject to very low credit risk as the obligor’s capacity to meet its financial commitment on the obligation is very strong.
In assigning the rating, Philratings took into account the relatively small and affordable loan monthly amortization amounts.
Philratings said the loans for inclusion in the asset pool are highly seasoned with low loan to value ratio and low default rates. Loans for inclusion in the asset pool have passed selection criteria for credit quality and are considered prime accounts of NHMFC.
The excess spread and subordinated notes from the proposed structure are more than adequate to cover losses from an asset pool with a historically low default rate, Philratings added.
PhilRatings, however, noted that the current global credit crisis is expected to have negative repercussions on the local economy and employment conditions. Job security and payment capacity of borrowers included in the pool may then be adversely affected over the life of the issue.
The issuance of the notes would be the first public residential mortgage-backed transaction in the country and the second major securitization offering under the recent law.
“A successful securitization by a government financial institution such as NHMFC provides diversity and added liquidity to debt capital markets and would provide a significant boost to the Philippine securitization market. By offering a new asset class to investors, NHMFC would be expanding the investment choices to investors that need access to long-dated and high quality holdings,” said Joseph Peter S. Sison, president of NHMFC.
“This securitization would be a major step towards the establishment of the secondary mortgage and housing-related asset-backed securities market. This would provide a much-needed liquidity mechanism to primary mortgage lenders as well as an additional investment opportunity for investors that need to diversify their holdings,” Sison added.
The NHMFC was organized in 1977 primarily to develop a secondary market for home mortgages and provide financing for various low-cost housing projects. – Zinnia Dela Peña