New NHMFC bonds in the offing for investors, housing developers

ESTABLISHED in 1977 by virtue of Presidential Decree No. 1267, the National Home Mortgage Finance Corp. (NHMFC) performs the crucial task of linking the housing sector, which is in constant need of funds, with the capital market, a long-term funding source.

As a secondary mortgage institution, it purchases mortgages from originators — banks, property developers, government agencies, among others — to relieve these institutions of some of the long-term risks of home lending, and sell them back to the public through the issuance of mortgage-backed financial instruments.

The money generated by trading bonds and other forms of securities enables NHMFC to buy loans from originators. Unburdened, originators are in a better position to lend to more aspiring homeowners. “Our mantra is ‘Every Filipino deserves a home, and it shouldn’t take too long,’” said Dr. Felixberto U. Bustos, Jr., president of NHMFC.

Under its securitization program called “Bahay Bonds,” NHMFC has offered two successful fixed-income security products: Bahay Bonds 1 and Bahay Bonds 2. The former was launched in 2009, becoming the first residential mortgage-backed security (RMBS) to be issued by a Philippine government agency and sold to institutional investors. It was worth more than P2 billion. The latter, consisting of P603.7 million worth of socialized and low-cost housing loans, was issued in 2012. It was the first-ever listed RMBS in the country and made available to both institutional and retail investors.

NHMFC will soon release a successor to Bahay Bonds 2: BALAI Bonds 1. (BALAI is the acronym for Building Adequate Livable Affordable and Inclusive Filipino communities, a broader housing program involving multiple government agencies like NHMFC.) This new offering will be made up of select socialized and low-cost housing loan portfolio estimated to be worth P608.1 million, more or less.

BALAI Bonds 1 will not be that much different from Bahay Bonds 2: It will still be affordable (P5,000 is the minimum investment amount) and accessible to both retail and institutional investors.

But instead of marketing the new set of bonds in key urban areas like Metro Manila, Mr. Bustos said, “We’ll just focus on the provinces,” citing financial exclusion in these places. Mr. Bustos said they are preparing to conduct road shows in Mindanao, particularly in Cagayan de Oro City and Davao City, to emphasize the merits of the new bonds.

In offering BALAI Bonds 1, NHMFC will play the role of a servicer.

Its partners, along with their roles, are: Landbank – Investment Banking Group (arranger and underwriter); Romulo Mabanta Buenaventura Sayoc & de los Angeles (legal and tax counsel); PricewaterhouseCoopers (portfolio auditor); Development Bank of the Philippines-Trust Banking Group (special purpose trust); Philippine National Bank-Trust Banking Group (trustee, account bank); Philippine Rating Agency Corp. (rating agency); Home Guaranty Corp. (guarantor); Philippine Dealing & Exchange Corp. (listing agent); Philippine Depository & Trust Corp. (registrar/paying agent/security agent); and LandBank Investment Sales & Distribution Dept., plus other banks and investment houses (co-underwriters/selling agents).

NHMFC will also roll out BALAI CMP Bonds for housing developers. CMP, short for Community Mortgage Program, is a government-funded undertaking administered by Social Housing Finance Corp. (SHFC), a wholly owned subsidiary of NHMFC, for assisting informal settlers obtain land tenureship.

NHMFC and SHFC are collaborating with private developers to generate funding for socialized housing, officially defined as dwelling places with prices that do not exceed P450,000.

According to Section 18 of the Republic Act No. 10884, or the “Balanced Housing Development Program Amendments,” owners and/or developers of subdivisions and condominiums should develop an area for socialized housing equivalent to at least 15% of total subdivision area or total cost of the project, and to at least 5% of condominium area or project cost.

“It’s going to be a big problem for the big developers,” Mr. Bustos said, adding that socialized housing is not exactly their expertise. NHMFC decided that it would issue BALAI CPM Bond to help them. “If you buy it, then it becomes alternative compliance,” Mr. Bustos said. The Housing and Land Use Regulatory Board has already authorized the purchase of the CMP-backed bonds by private developers as alternative compliance with their balanced housing requirements.

BALAI CPM Bonds, valued at P2.7 billion, will be sold to 19 institutional investors and carry a floating interest rate. NHMFC will act as the financial advisor and program manager in the future issuance of these bonds. It will be joined by Landbank-Investment Banking Group (arranger/underwriter); Romulo Mabanta Buenaventura Sayoc & de los Angeles (legal tax counsel); PricewaterhouseCoopers (portfolio auditor); Development Bank of the Philippines-Trust Banking Group (special purpose trust); Philippine National Bank-Trust Banking Group (trustee, account bank); Philippine Rating Agency Corp. (rating agency); and its own subsidiary, SHFC (servicer).

Both BALAI Bonds 1 and BALAI CPM Bonds are subject to the approval of the regulatory bodies.

Once given the green light, the bonds will follow another successful NHMFC project meant for senior citizens, the Reverse Mortgage Program or the MAginhawang BUhay dahil sa baHAY (MABUHAY) Program. The rationale of the program is that by giving seniors the opportunity to convert a portion of their home equity into cash, they can lead longer, happier, bountiful and worry-free lives. – Francis Anthony T. Valentin