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DC Hous ing Finance Sympos ium
Linking Primary Mortgage Markets - to Capital Markets the Pers pective
of Practitionersby Simon Stockley
20th 2004April
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
R0m
R100m
R200m
R300m
R400m
R500m
R600m
R700m
R800m
04/2
002
06/2
002
08/2
002
10/2
002
12/2
002
02/2
003
04/2
003
06/2
003
08/2
003
10/2
003
12/2
003
02/2
004
0
50
100
150
200
250
300
May
-93
Aug
-94
Aug
-95
Aug
-96
Aug
-97
Aug
-98
Aug
-99
Aug
-00
Aug
-01
Aug
-02
Jul-0
3
Nedcor25%
ABSA30%
SBSA20%
Investec4 %
SAHL3 %Other
2 %
First Rand Bank 16%
Total = R 307 bn Source: SARB DI900
Residential SA mortgage loans by lenders South African Mortgage Market Outstanding balance, R bns
The SA mortgage marketSource: SARB
Source: SAHL
R millions per monthSAHL’s registrations • 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
Source: Standard Bank
SA Home LoansActivities since launch: February 1999 as at April 2004
: Gauteng 30%
: R12billion
: R1.1billion (December 2002)
Number of loans processed : 45 000
Value of loans processed : R15billion
Breakdown by region
Value of loans approved
: KZN 35% : W Cape 35%
Securitised Portfolio
Thekwini Fund I : R1.25billion (December 2001)
Thekwini Fund II
Un-securitised : R6billionThekwini Fund III : R2billion (December 2003)
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
S A Home Loans
• The product• Its positioning• Funding
• 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
The Product
Pos itioning
Control
Public
SpecialPurposeVehicleTrust
LoansTo thePublic
SeniorSecurities
SubordinatedSecurities
PurchaseSecurities
IndependentTrustee
ExternalAuditor
Origination & ManagementFee : 0.5%
JIBAR Rate
Plus 2.1%
1.6% Yield pick up
Securitis ation Structure
InstitutionalInvestors
Public
Loans
JIBAR + 2.1%
Thekweni I
Special
Purpose
Vehicle
R1.25 Billion
A Class
92 %
AAA Rating
JIBAR + 70 Points
B Class
8 %
BBB Rating
JIBAR + 230 Points
C Class
2.5 %
Unrated
Pay away1.6% to investors
SAHL
0.5% Management Fee
Standard Bank
Deloitte & Touche
Standby Administrator
Investment Structure
Schematic Diagram of Structure
SA Home Loans
Redraw Facility
Investors
Bank Funding
Hedge Counterparty
Main Street 65 (Pty) Limited
Home Loan Borrower
The Thekwini Fund 2 Limited
Indemnity and Mortgage first lien over the Home Loan Borrower’s property
Monthly payments
Loan
Servicing
Loan origination
Servicing
Reservefund
Transfer of
mortgages
Purchase of mortgages
Wholesale loanMortgage first
lien
Loan
Hedging
Repayment of the Wholesale loan
Quarterlyobligations
Cashproceeds
Notes issue
Transfer of security
Excess spread Guarantee
Committed loan facility
Guarantee Trust
SecurityTrust
Home Loan Borrower
Public
Public
Public
Public
Public
SPV
SPV
SPV
Senior MBS
Junior MBS
Senior MBS
Junior MBS
Senior MBS
Junior MBS
Short Term Insurer
Life Insurer SAHL
Interim Funder
External Directors
AuditorsMARKET MAKER
INVESTORS
INVESTORS
SECURITIES AND AGREEMENTSTHE PUBLIC SA HOME LOANS SPECIAL
PURPOSE VEHICLES
MORTGAGE BACKED
SECURITIES
INSTITUTIONAL INVESTORS
SAHL Legal Structure
Growth in SA Securitisation Market
0
2
4
6
8
10
12
14
16
18
Pre-2000
2000 2001 2002 2003 2004
R b
illi
on
Public Issuance Volume
2000 2001 2002 2003Kiwane (CDO) - R 450 m Thekwini 1 (RMBS) - R 1 350 m FRESCO (CLO) - R 900 m Cars 1 (Auto) - R 3 000 m
On the Cards (In-store) - R 2 000 m BMW 1 (Auto) - R 1 000 mPROCUL (Auto) - R 1 300 m BMW 2 (Auto) - R 1 000 mPrivate Mortgages (RMBS) - R 1 000 m Private Mortgages - R 1 000 mFintech Receivables (Equipment Lease) - R 700 m Thekwini 3 - R 2 000 mThekwini 2 (RMBS) - R 1 000 m InDWA (Conduit) - R 3 000Blue Titanium (Conduit) - R 500 m Grayson 1 (Conduit)ABCUS (Conduit) - R 250 m Blue Titanium (Conduit) - R 1 500 m
ABCUS (Conduit) - R 1 500 m
Public Issuance Deal List
•SA Home Loans launched the securitisation market in 2001
•Since then issuance volumes have grow to R 14 billion in 2003
Source: Standard Bank
Relative valueRelative Value - Corporate and ABS Spreads
THE3A
THE3B
THE1BTHE2C
THE3C
0
50
100
150
200
250
2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
AAA AA A BBB
OMO1
DC02DC01
AUTO04
THE1APROA21
PROA11
NED2
IPB1
THE2A
bps
FRE1C AB02
THE2B
0
50
100
150
200
250
TH
E1A
TH
E1B
TH
E2A
TH
E2B
TH
E2C
PR
V1A
PR
IV1B
OM
O1
AG
01
EG
L01
AU
TO
3
AU
TO
4
TH
E3A
1
TH
E3A
2
TH
E3A
3
TH
E3B
TH
E3C
CA
R1A
2
CA
R1B
CA
R1C
PR
IV2A
1
PR
IV2A
2
PR
IV2B
bps
AA
BBB
AA/A
AAA
2001-2002 RMBS 2003 RMBS and Selected Deals
•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
Increasing Sophistication
0
0.5
1
1.5
2
2.5
3
Thekwini 1 Thekwini 2 Thekwini 3
% E
qu
ity
0
20
40
60
80
100
120
140
160
180
200
Thekwini 1 Thekwini 2 Thekwini 3
bp
s
WA Margin WA All in cost (incl equity)
Improved Tranching
Spread Compression
Source: Standard Bank
Thekwini 3 Term SheetTransaction Residential Mortgage Backed Securities (RMBS)Issuer The Thekwini Fund 3 (Proprietary) LimitedSole Arranger & Bookrunner SCMB, a Division of the Standard Bank of South Africa LimitedOriginator and Servicer SA Home Loans (Pty) LtdStandby Servicer Standard Bank of South Africa LimitedSubstitution Period 2.5 yearsCollateral First ranking mortgage over residential propertiesTranching of the Notes Class A1 Class A2 Class A3 Class B Class C Reserve FundRatings Moody's Aaa.za Aaa.za Aaa.za A1.za Baa2.za n.a.
Fitch AAA(zaf) AAA(zaf) AAA(zaf) A(zaf) BBB(zaf) n.a.Currency ZAR ZAR ZAR ZAR ZAR ZARSize of Tranche 1,366,000,000 305,000,000 195,000,000 105,000,000 29,000,000 16,000,000Issue Price 100% 100% 100% 100% 100% 100%Type of Note Floating Floating Fixed Floating Floating FloatingInterest Rate Jibar + 0.45% Jibar + 0.49% 9.58% Jibar + 1.15% Jibar + 2.10% n.a.Coupon Frequency Quarterly Quarterly Quarterly Quarterly Quarterly n.a.Legal Maturity Nov 2028 Nov 2028 Nov 2028 Nov 2028 Nov 2028 n.a.Call Date Nov 2008 Nov 2008 Nov 2008 Nov 2008 Nov 2008 n.a.Legal Jurisdiction South Africa South Africa South Africa South Africa South Africa South AfricaListing BESA BESA BESA BESA BESA n.a.ISIN Number ZAG000020777 ZAG000020785 ZAG000020793 ZAG000020801 ZAG000020819 n.a.
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 … … .”
Thank you.
Simon Stockley
CEO - SA Home Loans (Pty) Ltd
Phone : (031) 560 5392
Fax : (031) 562 4266
Cell no : 083 276 0068
e-mail : simons @ sahomeloans .com
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