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Home Loan Securitisation Receives A Shot In The Arm

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Home Loan Securitisation Receives A Shot In The Arm
Himali Patel - 12 September 2019

In an effort to bring more efficiency and transparency of securitisation transactions, the Reserve Bank of India (RBI), with respect to the Development of Housing Finance Securitisation Market has formed committee headed by Harsh Vardhan, Senior Advisor of Bain & Company as the chairperson. The committee has given their recommendations to the Governor. “The recommendations are divided into three buckets - those related to the originator of the transaction, the investor in the transaction, and some enablers that do not directly impact securitisation but can help it develop,” stated the report. According to the report, India will need between 8 crore to 10 crore additional housing units by 2022. Further the cost of building this units ranges between Rs. 100 lakh crore to Rs. 115 lakh crore.

The ambitious target of ‘Housing For All’ by 2022 also includes issues that relates to finance for housing as well. Given the backdrop of the situation, the recommendation includes developing standards for loan origination, loan documentation, which includes standardised formats for data collection and aggregation. “Separation of regulatory guidelines for direct assignment transactions and transactions involving pass through certificates as well as for mortgage backed securities and asset backed securities,” said report. Also, the report highlighted to set up a government sponsored intermediary, through the National Housing Bank, which would enable market making and standard setting.

Further the committee also opined that home loans should priced should be linked towards external, objectively observable benchmark like repo rate. Also, lenders are required to publicly disclose the external benchmark that is used to price floating rate loans as well as the periodicity of repricing. The reports also mention that loan servicing process should be standardised and should be adapted by all mortgage lenders. “A Master Servicing agreement describing the standardised servicing process should be developed and adhered to by all lenders,” stated the report.

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