The evolution of asset securitization by alicejenny

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									ASSET SECURITIZATION
Introduction
The purpose of this lecture is to introduce
- the asset-backed securities market;
- the evolution of asset securitization;
- asset-backed securities deal structures;
- the role of players;
- briefly presents pricing models; and
- real estate securitization
Financial Intermediation
                 money                   money
         saver              commercial                 borrowers
                              bank
                 saving contract         lending contract


Traditionally, banks
1) originate a loan;
2) retain the loan in their portfolio of assets, thereby accepting
   the credit risk associated with the loan;
3) service the loan (collect payments and take legal action if
   payments were not made; and
4) obtain funds from the public with which to finance their
   assets.
Problems
1. Asset/liability mismatching
2. liquidity mismatching
3. institutional mismatching
Asset Securitization
Recently, banks
1) originate a loan;
2) sell the loan to an investment banking firm that creates a
   security backed by the pool of loans;
3) the investment bankers obtain credit risk insurance for the
   pool of loans from an insurance company;
4) the investment banker can sell the right to serve the loan to
   another bank or a company specializing in servicing loans;
   and
5) the investment banking firm can sell the securities to
   individual and institutional investors.
   Asset Securitization
    lending                 money                   money                 money
               originator              trust                underwriter
                            lending            security              security
                            contract
borrowers                              credit                                   investors
                                       enhancement

    payments                                                         payments
                                       server
Defining Asset Securitization
• What is Securitization?
   - the sale of securities backed by the cash flows from a
      pool of financial assets, such as loans or leases
• Three basic requirements for any securitization:
  - a pool of self-liquidating assets that will serve as the
  source of payments on the asset-backed securities.
  - the payment performance of the assets (including the
  likelihood of delays and defaults) must be susceptible to
  evaluation, and
  - the cash flow from the assets and the payments made on
  the securities must be isolated from the risks of a
  bankruptcy or insolvency of the originator.
What sorts of assets are securitized?
 *residential mortgage loans *commercial mortgage loans
 *credit card receivables    *motor vehicle receivables
 *equipment and vehicle lease receivables
 *installment sale contracts *franchise loans
 * insurance loans           *student loans
 *high yield bonds.
The evolution of asset securitization
•   late 1970s and early 1980s
•   1982
•   1983, SEC
•   1984, Secondary Mortgage Market Enhancement Act
•   1986, Real Estate Mortgage Investment Conduits
•   1992
• 1993, Financial Asset Securitization Investment Trust
Real Estate Mortgage Investment
Conduits
• An alternative for pool owners who want to issue a multi-
  class security, but can't take on debt or need to sell the
  mortgages
  - Created in 1986 by Tax Reform Act
  - Separate legal entity for tax purposes
  - Tax-favored entity for issuing CMOs
  - Pool owners sell mortgages to the REMIC
  - Can take many forms - trust, corporation, partnership
  - Can use any type of security - pass-through, debt
  - Investors only pay tax on interest income
The asset-backed securities market
The Secondary Mortgage Market
• Debt markets in U.S.A. in 1990
  mortgages      government securities corporate bond
  $3.5           $1.9                    $1.4 trillion
• Government National Mortgage Association (GNMA,
  Ginnie Mae)
• Federal National Mortgage Association (FNMA, Fannie
  Mae)
• Federal Home Loan Mortgage Corporation (FHLMC,
  Freddie Mac)
The Secondary Mortgage Market
Origination of Passthrough by Agency
        (in million)
Year GNMA            FNMA       FHLMC     Private firms Total
 1984        28,097      18,684    13,546         6,273       68,584
 1985        45,980      38,829    23,649         6,916      117,359
 1986       101,433     100,198    60,566       13,163       277,346
 1987        94,929      75,018    63,229       18,576       253,739
 1988        55,248      39,777    54,878       20,699       172,590
 1989        57,190      73,518    69,764       12,010       214,471
 1990        64,651      73,815    96,695       14,341       251,492
Source: Freddie Mac, Secondary Mortgage
Markets, 1991
 Holdings of Mortgage-Backed Securities
Percentage Distribution of Holdings of Mortgage-Backed Securities by
Institutions
Thrifts                                                       23.40%
Banks                                                          21.0%
Pension Funds                                                    9.7%
Life insurance companies                                       14.4%
Dealers, mutual funds, asset managers, etc.                    31.5%
Asset-Backed Securities Issuance
                         Issuance amount by collateral (in billion)
           Collateral type
    Year Autos           Credit cards Home Others Total
                                        equity
      1985        898.6               0        0    338.3        1236.9
      1986         9473               0        0    617.6       10090.6
      1987       6372.2          2410          0 1208.7          9990.9
      1988       5497.8          7420          0 2276.1         15193.9
      1989       7823.6         11112 2700.2 2912.5             24548.3
      1990      11632.6         22731 5499.9 1963.9             41827.4
                   28%            54%        13%      5%
     *1991      11240.5         16342 8820.5 2928.4             39331.4
    Total       52938.3         60015 17020.6 12245.5 142219.4
    * Through September 1991
    Source: Data supplied by the first Boston Corporation
Benefits to issuers
1) Obtaining a lower cost of funds
2) More efficient use of capital
3) Better asset/liability management
4) Enhancing financial performance
5) Diversification of sources
Benefits to investors and borrowers
• To investors:
   – reduced credit risk.
   a) it is backed by a diversified pools of loans, and
   b) there is credit enhancement.
   – returns are also improved.
• To borrowers: reduce the lending rates.
Mortgage-backed securities
- Mortgage passthrough securities, or simply,
  passthrough
- Collateralized mortgage obligations (CMOs)
- Stripped mortgage-backed securities
Mortgage Passthrough Securities
- Most popular form of mortgage-backed security
- Represents sale of mortgages
- Taxed only at investor level
- Commits to pay P,I, and prepayments each month as
   received
- "Modified" pass through guarantees timely payment
- Greatest volume issued by FNMA, FHLMC and GNMA
   surrogates
- Private entities also issue
- Swap program provided more options to originators
Collateralized Mortgage Obligations
- Debt instrument secured by pool of mortgages
- Appeals to investors who can't tolerate prepayment
- A Derivative: different from the underlying mortgages even
    though CMO distributions are derived from the mortgages
- Issued in multiple maturities or tranches
- Cash flow is distributed in sequential order (A,B,C,Z
    tranches)
- A method for issue debt, reduce prepayment risk and shift
    remaining prepayment risk to the investor
- Quoted with a stated maturity within a range
- Overcollateralized
Stripped mortgage-backed securities

- Issuer retains ownership
- I is paid based on a coupon rate of interest (IO), P is passed
    through as it is received from normal amortization and
    prepayments (PO)
- Some overcollateralization is required
- Prepayment potential important to investor
Features of passthroughs
1) Type of guarantee: fully modified, modified
2) Number of lenders permitted in the pool.
3) Mortgage design of the loans
4) Characteristics of the mortgage loans in the pool
5) Payment procedure
6) Minimum pool size
Cash flows of mortgage-backed
securities
1) interest
2) scheduled principal repayment
3) payments in excess of the regularly scheduled principal
   repayment
Asset-backed securities market - Cards
Asset-backed securities market - Cards
Role of players
a. collateral/borrower
b. origination
c. servicing: often by originator
d. credit-enhancement:
e. Special Purpose Trust:
f. investors
g. underwriters
h. rating agency
i. government
Role of an investment bank
• An investment bank provides consultants to a broad
  spectrum of issues, including corporate, bankruptcy,
  regulatory, securities, and security-interest questions.
• An investment bank serves as an representative of issuers
  and underwriters in the public and private sale of securities
  secured by a variety of nonmortgage assets.
Evaluation of mortgage-backed
securities
Pricing is a function of:
   - interest rate risk
   - default
   - risk of delayed payment
   - prepayment possibilities
       - PSA model
       - FHA prepayment experience
       - empirical models
Measuring price volatility:
  Effective duration
                       price if yield decreases price if yield increases
                                                 
  effective duration     by x basis po int s         by x basis po int s
                                        initial price ( 2x )


  Effective convexity
                        price if yield decreases price if yield increases
                                                                           2 ( initial price )
  effective convexity     by x basis po int s         by x basis po int s
                                                2 ( initial price )( x 2 )
Price/Yield Relationship for a Callable
bond - negative convexity

        price




                          yield
The Option pricing methodology

callable bond price
= noncallable bond price -call option rice
Option-adjusted spread methodology


           S    360                  s
       1                    CFt
p0      
       S s t           t
           1   1
                       (1  r
                      i1
                                 s
                                     i    oas )
Total return framework

                               1
    (    total future dollars ) no . of months in horizon  1
      price of the passthrough


    Then the effective annual yield is

    (1  total monthly return )12  1
定義
• 證券化(securitization)-
  簡言之,凡是以發行證券直接在資本市場上籌措資金的
  叫做證券化.或言,利用發行證券的形式到資本市場籌措
  資金,而投資人對標的資產的未來現金流量具有求償權.
• 不動產證券化(Real Estate Securitization)
  利用發行證券的形式來轉化不動產單一固定性的投資
  為流動性高的證券投資.使得不動產的投資由直接的物
  權關係轉為間接的債權關係.資金得由證券的形式由資
  本市場注入不動產市場.
為何有不動產證券化
• The bringing together of sources and uses of capital is the
  core to the finance function. In a world of costless
  transactions, suppliers of capital would be able to identify
  and meet users in need of debt and equity to carry out their
  investment objectives or development plans.
• However, the world of real estate finance and investment is
  far different from the world described above.
• Financial instruments and other devices have been
  developed by financial intermediaries to facilitate the
  necessary transactions.
Comparing real estate securitization and
mortgage-backed securities

              Real Estate Securitization   Mortgage-backed securities
標的物           不動產本身                        不動產抵押債券
經營主體          REITs, 信託公司                  Banks, financial intermediaries
投資者           一般大眾                         一般大眾
受益者           不動產開發商,不動產經                  疏導 Banks, financial
              營業者                          intermediaries 的資金壓力
對不動產市場的影響     直接                           間接
運作方式          REITs                        Agencies - FNMA,. GNMA.
                                           FHMLC
證券形式          權益形                          債券形
不動產證券化的特性
•投資單位化
•權益可分割
•權益可轉移 - 次級市場存在,流通性高
•以證券形式表彰權益: 投資人權益是以
 證券形式表示而非以物權,即不動產產權
 持分來表彰
不動產證券化的目的
• 導入資本市場資金於不動產市場上
• 促使不動產經營透明化及效率提高
不動產證券化的優點
• To the whole economy
   – 促進不動產開發
   – 促進資金的有效利用
   – 健全不動產市場機能
• To developer
   – 取得資金
   – 提高經營績效
• To investors
   – 多一個投資的管道,分散風險
   – 提高投資的流通性
美國的不動產證券化
•主要(常見)型態
• Real Estate Investment Trusts (REITs)
• Real Estate Limited Partnerships (RELPs)
Forms of ownership germane to
financing real property
I. Individual ownership II. Co-ownership
III. Group ownership                - joint tenancy
     A. Partnerships                - tenancy in common
       1.general, 2.limited         - tenancy by the entirety
     B.Corporations
        1.Ordinary - collapsible, noncollapsible
        2.S corporation
      C. Real estate investment trusts
      D. Joint venture
REITs
Do not pay taxes on their earnings.
Asset requirements:
• At least 75% of the value of a REIT’s assets must consist
  of real assets, cash, and government securities.
• Not more than 5% of the value of the assets may consist of
  the securities of any one issuer if the securities are not
  includable under the 75% test.
• A REIT may not hold more than 10% of the outstanding
  voting securities of any one issuer if those securities are
  not includable under the 75% test.
Income requirements:
• At least 95% of the entity’s gross income must be derived
  from dividends, interest, rents, or gains from the sale of
  certain assets.
• At least 75% of gross income must be derived from rents,
  interest on obligations secured by mortgages, gains from the
  sale of certain assets, or income attributable to investments in
  other REITs.
• Not more than 30% of the entity’s gross income can be
  derived from sales or disposition of stock or securities held
  for less than six months or real property held for less than
  four years other than property involuntarily converted or
  foreclosed on.
Distribution requirements:
• Distributions to shareholders must equal or exceed the sum of
  95% of REIT income.
Types of trusts
• Equity trusts
   –   Blank or “Blind Pool” check trusts
   –   Purchasing, or specified trusts
   –   Mixed trusts
   –   Leveraged REITs versus unleveraged REITs
   –   Finite-life versus nonfinite-life REITs
   –   Closed-end versus open-end REITs
   –   Exchange trusts
   –   Developmental-joint venture equity REITs
   –   Health-care REITs
• Mortgage trusts
• Hybrid trusts
              REIT 實行架構



            投資銀行


              underwriting
                                  購買不動產
投資者                REITs          (equity trusts)
           投資金額              投資   不動產融資
           受益憑證              收益   (mortgage trusts)
                                  Hybrid trusts
      買賣



 次級市場
日本的不動產證券化
• 信託型不動產證券化
1. 由不動產公司將土地建築物分售給投資者
2. 投資者將持有之共同持分權信託給信託銀行,信託銀行
   發給受益憑證
3. 信託銀行委予不動產(經理)公司經營
4. 不動產(經理)公司負責經營管理,出租建築物以收取租
   賃費,再轉給信託銀行
5.信託銀行按持分分錢給投資者
6.最後,信託銀行可出售土地建築物,再將錢分給投資者
• 組合型不動產證券化
 日本信託型不動產證券化實行架構


          不
          動
          產
          公
          司


  繳交投資款       土地建築物分售

          投
          資
          者



發給受益憑證
支付收益          將共有持分權信託
支付出售價款

          信
          託
          銀
          行


支付租賃費         委託經營

          不
          動
          產
          公
          司



支付租賃費         分租

          承
          租
          戶
美日兩國不動產證券化運作之比較
           REITs     Land trust
信託本質       金錢信託      不動產(實物)信託
信託財產       現金        不動產所有權
信託目的       不動產證券投資   不動產開發經營



1) REITs:先募集資金再找不動產投資標的。
 信託型不動產證券化: 先有不動產﹐將所有權細分後﹐
   再以證券型態賣給投資者。
2) REITs: 以REIT方式發行之憑證可在公開市場轉售﹐流
   動性極佳。
 信託型不動產證券化:有價證券之定義中不含不動產信託
   的有價證券﹐故而無法在公開市場轉售﹐流動性差
我國的案例
• 財神酒店
• 太平洋鳳蝶計劃
• 歐洲共同仕場
我們需要不動產證券化嗎?

•   Legislation
•   Banks’ incentive
•   Relative support
•   Government
我國發展不動產證券化之探討
• REIT, land trust, which is better?
• 法令制度的配合
   – 制定信託法,信託業法
   – 修正證券交易法
   – 相關稅法的配合
• 遊戲規則的建立
   –   投資者
   –   信託公司
   –   不動產開發商
   –   不動產經營管理商
   –   Investment bankers

								
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