Solving home financing via securitization

(National President Chamber of Real Estate and Builders’ Association)

Securitization may well be the long-awaited solution to the problem of financing the country’s housing program.

Essentially, securitization means using future money today. Represented by a document and backed up with a financial asset like the title of a house, this money enables the government to finance priority projects like housing. The document or paper may be in the form of an interest-bearing treasury bill, treasury note or bond with certain period of maturity.

It is of interest to note that in the United States, the bond industry was flourishing in recent years. There was a time when daily trading volume in government bonds alone was over $100 billion. The managing director of Fitch Investor Services, Inc. even described the bond market as "an invisible giant and the stock market as a visible dwarf by comparison."

Generally considered as safe investments, government securities are tools for economic growth. The government’s future income is sold, with the cash spent today for economic recovery and housing projects.

Securitization involves three major players – the originator, the Special Purpose Vehicle (SPV), and the investor. The originator sells the future payments for the loan to an SPV. This asset then becomes a securitized instrument which the SPV circulates among the investing public or capital markets.

Securitizing loan receivables could indeed be the key solution to our financial problems. Consider this: the Social Security System (SSS) alone has loan receivables of P3.5- billion individual housing loans and P36-billion national housing loans. Pag-IBIG Housing, on the other hand, has securitized P630 million of its loan receivables.