Development of rmbs market in India: Issues and Concerns


Exhibit 10: Issuance of Agency Mortgage-Backed Securities



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8.10Exhibit 10: Issuance of Agency Mortgage-Backed Securities




1980 - 2004* (USD Billions)

 

GNMA

FNMA

FHLMC

Total

1980

20.60

-

2.50

23.10

1981

14.30

0.70

3.50

18.50

1982

16.00

14.00

24.20

54.20

1983

50.70

13.30

21.40

85.40


1984

28.10

13.50

20.50

62.10

1985

46.00

23.60

41.50

111.10

1986

101.40

60.60

102.40

264.40

1987

94.90

63.20

75.00

233.10

1988

55.20

54.90

39.80

149.90


1989

57.10

69.80

73.50

200.40

1990

64.40

96.70

73.80

234.90

1991

62.60

112.90

92.50

268.00

1992

81.90

194.00

179.20

455.20

1993

138.00

221.40

208.70

568.10

1994


111.20

130.50

117.10

358.80

1995

72.90

110.40

85.90

269.20

1996

100.90

149.90

119.70

370.50

1997

104.30

149.40

114.30

368.00

1998

150.20

326.10

250.60

726.90

1999


151.50

300.70

233.00

685.20

2000

103.70

211.70

166.90

482.40

2001

174.60

528.40

389.60

1092.60

2002

174.00

723.30

547.10

1444.40

2003

220.00

1198.60

713.30

2131.90

2004*

72.90


297.80

209.77

580.40

*As of June 30, 2004

Sources: GNMA,FNMA,FHLMC


8.11Exhibit 11: Outstanding Securities in Malaysian Debt Market





End of March 2003

Instrument

Amount (RM millions)

Conventional

Islamic

Total

ABS

3623.784

0

3623.78

ABS(CP)

130

0

130

BNB

10000


2000

12000

BONDS

83495.683

56171.1

139667

CAGB

24139

0

24139

CAGN

2205

0

2205

CP

3051.5

6697

9748.5

GII

0

7000

7000

ICAGPAPER

0

954

954

LOANNOTES

1133.1

0


1133.1

LOANSTOCK

5632.229

0

5632.23

MGS

121850

0

121850

MTB

4620

0

4620

MTN

1981

3046

5027


End of March 2002

Instrument

Amount (RM mil)

Conventional

Islamic

Total

ABS

1290.39

0


1290.39

BNB

8000

1000

9000

BONDS

96479.107

42924.1

139403

CAGB

21723

0

21723

CAGN

2960

0

2960

CP

3877.95

4761

8638.95

GII

0

4000

4000

ICAGPAPER

0

194

194


LOANNOTES

1323.1

600

1923.1

LOANSTOCK

3629.492

0

3629.49

MGS

106550

0

106550

MTB

4320

0

4320

MTN

1173

2162

3335

Source: Bank Negara Malaysia; Ringgit Bond Market


1 The co-author is a student at the Indian Institute of Management Bangalore; the co-authori’s inspiration for this article came from a project under Prof P C Narayan on development of secondary mortgage markets in India. In the present article, the co-author’s contribution draws upon the said project work.


2 At 9th Annual Asian Real Estate Society International Conference on August 9, 2004 by HDFC Ltd

3 At 25th Congress of International Union for Housing Finance by HDFC; June 23, 2004

4 Report on trend and progress of housing in India, June 2003 by National Housing Bank

5 In a testimony before the House Financial Services Committee on 17th Feb 2005, Alan Greenspan remarked: “Enabling these companies to increase in size...we are placing the total financial system of the future at a substantial risk”.

6 There are several studies on the impact of securitisation on housing finance costs, to name a few: Black, Deborah G., Kenneth D. Garbade, and William L. Silber. May 1981. “The

Impact of the GNMA Pass-through Program on FHA Mortgage Costs,” Journal of



Finance, xxxvI, 2: 457-469; Greenbaum, S. and A. Thakor. September 1987. “Bank Funding Modes: Securitization versus Deposits.” Journal of Banking Finance. 11: 379-402; Kolari, James W., Donald R. Fraser, and Ali Anari. 1998. “The Effect of Securitization on Mortgage Market Yields: A Cointigration Analysis,” Journal ofReal Estate Economics, 26, 4: 677-693.

7 Pfandbriefes are bonds backed by the security of the underlying mortgage, as also by the mortgage-originator. These are issued under a special legal dispensation, which provides bankruptcy-remoteness features to the bonds. Most of the continental European countries have strong markets in pfandbriefes.


8 See, for instance, Standard and Poor’s rating volatility and default studies, which periodically reports the delinquency and recovery history of non-agency RMBS transactions.

9 Refer Exhibit 1

10 Census 2001

11 Refer Exhibit 2

12 Source: Planning Commission and National Housing Bank

13 Gain on sale is the profit that is booked, upfront, when a portfolio of assets is securitized. In accounting as in legal parlance, securitisation is a sale, and the sale might result into a gain or loss on sale. Usually, securitisation transactions result into a gain on sale, if there is a positive difference between the rate of return inherent in the mortgage pool and that in the issuance of securities – which is obviously expected. Even if the pool is sold at par, but with a contractual right to derive profit in future in form of service fees or any other retained interest, if conditions of off-balance sheet accounting are met, accounting standards will permit profit booking by bringing on books the fair value of the retained interest.

14 See, for example, Vinod Kothari; Securitisation: The Financial Instrument of the New Millennium second edition 2003

15 Ironically enough, though all securitisations, both MBS and ABS, have so far used the pass-through structure, there is no definitive tax rule or clarification that either guarantees a tax-transparent treatment to pass-through vehicles, or lays down conditions of pass-through treatment.


16 National Buildings Organization

17 Cagamas Berhad

18 Source: World Bank; Figures for USA and Malaysia are for 2000; Germany and Denmark for 1999 and Chile for mid 2001.

19 Refer Exhibit 11

20 Refer Exhibit 11

21 Handbook of Statistics on Indian Economy, Reserve Bank of India, 2003

22 Refer Exhibit 3

23 Meaning, computation of the present value of future mortgage instalments at a discounting rate lower than the original rate of interest








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