In: Root » Legal and finance » Loans and mortgages
The South African secondary mortgage markets are clearly orientated towards their European counterparts. However, differences exist. The most distinct ones between South African and European RMBS and CMBS are repeat programmes, exclusively national rating, a high complexity and lack ofstandardization, as well as lacking ofa market for sub-investment grade notes. The South African RMBS market is entering a mature development stage while CMBS is still in its infancy. However, the future development of both markets will be significantly influenced by two factors: an accelerated bank balance sheet securitization and the increased participation off oreign investors. Both the South African RMBS and CMBS markets, are characterized by non-banks' pioneering, that is, non-bank mortgage originators (RMBS) and listed property companies (CMBS). Interestingly, the increasing bank balance sheet securitization in South Africa is mainly due to increased liquidity requirements resulting from a mismatch in asset liability management. A second reason is capital management requirements such as Basel II. The targeting of foreign investors allows South African issuers to broaden their sources ofcapital. The increased foreign investments, however, will lead to international ratings - a shift from the national rating currently practiced in South Africa to a global one. All global ratings provide a measure of expected loss (in the case of Moody's) and probability ofdef ault (in the case ofFitch and Standard & Poor's), which is needed according to the Basel II methodology and calculations. In addition to a global rating, however, targeting international investors requires South African RMBS issuers to improve their reporting, based on US and European standards. Such improved reporting implies, for example, the introduction of structures with a higher degree ofstandardization. The main difference between past CMBS and RMBS bonds is that the former are mortgage-backed bonds, similar to a corporate bond, with the principal repaid at maturity, while the latter are amortizing pay-through bonds backed by mortgages. So far, structures used in more developed mortgage securitization markets, such as synthetic transactions or stripped mortgage-backed securities, have not been introduced in South Africa. South African RMBS are more complex than European RMBS. In comparison to their European counterparts, South African RMBS issuances are over-engineered with regard to characteristics such as triggers. South African CMBS, on the other hand, are less complex than European CMBS. In comparison to their European counterparts, South African CMBS issuances have, for example, no pro-rata payment priority, a low leverage, no servicer advancing, and no disposal plans. As the local RMBS market matures, a higher level of innovation can be expected. Additionally, primary mortgage market innovations, such as Reverse Mortgages introduced by Nedbank in 2006, are likely to lead to innovations in the RMBS market. With regard to the structure oflocal RMBS programmes, the South African market increasingly closes the gap with its more developed counterparts. Deloitte (2005) identified the introduction ofextendable notes in South Africa and their increased prevalence in future issuances as such a step. By introducing extendable notes, that is, liquidity notes, as the Thekwini Conduit has already done, a liquidity facility as 'external credit enhancement' is not required any more (Deloitte, 2005: 5-6). Another indication is the shift from sequential to pro-rata repayment, as is currently observable.
|
|||||||||||||
Disclaimer
1) E-articles is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringement, please read the terms of service and contact us or use the "Report this article" button on this page to investigate the problem.
2) E-articles is not responsible for inaccuracies, falsehoods, or any other types of misinformation this article may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. |
|||||||||||||
