MUMBAI, Sept 23:The implementation of recent
recommendations submitted by the RBI’s housing finance
committee will be credit positive for the country’s
residential mortgage-backed securities (RMBS), says a report.
In May this year, the RBI had set up a committee on
the development of housing finance securitisation market to
review the state of the mortgage-securitisation market and
make recommendations to address various issues relating to
originators/investors as well as market micro structure.
The report was submitted to the Governor Shaktikanta
Das on September 9.
After reviewing the existing state of mortgage-backed
securitisation, it gave a host of recommendations on the
legal, tax structures of mortgage backed securitisation
transactions and standardisation of such practices.
The report also recommended specific measures for
facilitating secondary market trading in mortgage
securitisation instruments.
Global rating agency Moody’s in a report said the
recommendations to standardize loan servicing processes
across home loan lenders will make it easier to transfer loan
servicing from one provider to another, if the original
provider fails.
“The recommendation would be credit positive for
Indian RMBS because it will increase the likelihood that a
suitable replacement can step in and take the place of a
failed operator,” the agency’s assistant vice president and
analyst, Dipanshu Rustagi, said.
The committee recommended linking of home loans
pricing to an external, such as the repo rate.
He said such a correlation will mitigate interest rate
risk in RMBS transactions as it will remove the interest rate
mismatch between a lenders own benchmark rate and coupon
rates.
The RBI recommended standardizing loan documentation
criteria and establishing minimum loan eligibility and
disclosure requirements for RMBS deals.
The move will increase transparency in the country’s
mortgage sector, reducing risks in the underlying loans
backing RMBS deals, Rustagi said.
He said the recommendation on the tax treatment of
securitization transactions will remove uncertainty for
originators and investors. (PTI)
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