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Republic of the Philippines Sve neSEy>
HOUSE OF REPRESENTATIVES >

Quezon City

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SEVENTEENTH CONGRESS,
First Regular Session

HOUSE BILL NO. 4834

Introduced by Honorable Michael L. Romero and Enrico A. Pineda

EXPLANATORY NOTE

The state shall provide the option to develop mortgage-backed securitization
(MBS) to strengthen the private securities market and the capital market. So far,
the Philippine mortgage loans-to-GDP ratio is only about ten (10%) percent,
which is considered small based on standards of existing mortgage systems. In
advanced economies, housing mortgage depth is between thirty (30) and
sevenly five (75%) percent. This Policy Note discusses the role of the National
Home Mortgage Finance Corporation (NHMFC} in developing securitization in
the country.

The NHMFC is the major government corporation created to operate as a
secondary mortgage institution but this mandate has not been fully
implemented in the past 30 years as NHMFC operations have been diverted to
loan origination. With the approval of the Securitization Act of 2004 and
improvements in the financial sector, opportunities to engage in securitization
have opened up.

The NHMFC has taken this opportunity to undertake securitization as a sirategy
to expand home finance. The NHMFC was created in 1977 by virtue of
Presidential Decree 1267 that gave it the mandate to develop and operate a
secondary market for home mortgages.

This House Bill seeks 10 promote home finance securitization. To foster the
mandate of buying home mortgages originating from privale financial

i)
RECEIVED


institutions and eventually selling them to the public as Housing Participation
Certificates.

Ve
Earnest approval ofMhis bill is hereby requested.

MICHAEL. ROMERO Ph.D. ee . PINEDA
/


Republic of the Philippines
HOUSE OF REPRESENTATIVES.
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

4834

HOUSE BILL NO.

Introduced by Honorable Michael L. Romero and Enrico A. Pineda

AN ACT

TO PROVIDE ADDITIONAL CAPITALIZATION TO THE NATIONAL
HOME MORTGAGE FINANCE CORPORATION (NHMFC), TO
RATIONALIZE ITS FUNCTIONS, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives in Congress
Assembled:

SECTION 1. Declaration of Policy — It shall be the policy of the sate to
provide an efficient Framework for a. good securitization process. (Securitization
is the process of legallly isolating existing asset pools or fufure-generated assets

away from the company where the receivables originale)

The state shall promote the equity capital infusion necessary for the
NHMFC to undertake and grow its business. The funds will be used to meet start-
up costs and operational activities. Initial capitalization requirement is usually

substantial given the role of the central refinancing platform.


The state shall promote an ideal and liquidity facility, that would be a
stand-alone institution but its long-term future should be with the private sector,

that is, future funding should be raised through the market.

SECTION 2. Implementing Rules and Regulations - The key factors for the
National Home Mortgage Finance Corporation (NHMFC) to function efficiently
are:

(a) initial capital;
(b) extraction rate; and

(c) turnover rate.

The slate shall provide stricter risk management for banks and_ financial
institutions and the need to address the housing gap of nearly three million
(3,000,000) units annually, strategies that will provide long-term funds and
expand home finance specifically to the low- and moderate-income

households are essential to ensure the sustainability of housing finance.

SECTION 3. Funding - The stale shall hereby provide an authorize
capitalization of Two billion pesos (P2,000,000,000.00) io promote urgent related
measures to modemize the home financing securitization process. The Authority
is hereby authorized to re-align its appropriations, along with its supplemental
and additional funding in the current year of the date of the effectivity of this

Act to conform with its mandate and requirements.

SECTION 4. Continuing Appropriation. - The Deparlment of Budget and
Management (DBM) is hereby mandated to include annually in the next five (5)

years, in the President's Program of expenditures for submission to Congress, and


release, an amount of Five hundred million pesos (PS00,000,000.00) for the
implementation of this Act.

SECTION 5. Extraction Rate - The state shall provide the necessary amount
or value that has been generated from a securitization transaction less and all
transaction or friction costs. (These are the funds that can be readily utilized for
future/subsequent securitizations. Extraction rate is not the same as recovery

rate as this fund grows over time and ensures sustainability in housing finance).

The extraction rate is affected by:

(1) the supply of securitizable accounts (or the asset pool);
(2) the quality of the asset pool/accounts; and

(3) the creation/availability of investors, particularly the
development of a professional market for subordinate
tranches.

SECTION 6. Turnover Rate - The NHMFC shall provide the abilily lo use its
secttitized instruments or its operations as a support mechanism for financial

capital fo ensure continuous liquidity in the market (for the investing public).

This necessitates the existence or development of the following

(1) faster due diligence processes (this includes the presence
of standardized and simplified forms for borrowers, originators, and
lending institutions) and

(2) streamlined review and due diligence processes for the
lending institutions, The aforementioned measures would ensure the
quality of the assets/mortgages originated and included in the asset
pool for securitization


The state shall promote other processes that are essential to include the
sharing of credit files, and standardization and sharing of valuation

parameters/siandards and data.

SECTION 7. Periodic Reports - The NHMFC shall submit periodic reports on
its findings and make recommendations on actions to be taken by Congress
and Senate and the appropriate department, and in order to cary out the
objectives and mandates of this Act

SECTION 8. Automatic Review - Every three (3) years after the effectivily
of this Act, an independent review panel composed of experts to be appointed
by the President shall review the policies and programs in the National Home
Mortgage Finance Corporation and shall make recommendations, based on its

findings, to the President and to both Houses of Congress.

SECTION 9. Repealing Clause. All laws, executive orders, issuances, rules
and regulations inconsistent with this Act are hereby amended, repealed or

modified accordingly.

SECTION 10. Separability Clause. If, for any reason or reasons, any portion
or provision of this Act shall be held unconstitutional or invalid, the remaining

provisions not affected thereby shall continue to be in full force and effect,

SECTION 11. Effectivity Clause. This Act shall lake effect fifteen (15) days

after its publication in any newspaper of general circulation.

Approved