1. GROUP No.2 ASHWINI BALI - 02 ARMINE BHARUCHA - 05 MAYUR SAWANT - 18 SUNIL SHENDE - 32 HEMA SUCHDE - 37 SHRIPAT NAIK - 40 SECURITIZATION OF REAL ESTATE

2. SECURITIZATION ‘Securitization’ is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security. ‘Real Estate Securitization’ is the process of transforming direct ownership of real property such as land and buildings, into indirect ownership through investment in marketable securities, while preserving for the investor the benefits of income and revenues generated from the operation & sale of such real property.

3. PROCESS OF SECURITIZATION

4. WHY REAL ESTATE SECURITIZATION ?? The process of creating a security either an equity or a debt instrument for the purpose of owning a real and/or tangible asset. There are 3 primary type of securitized real estate : 1) Limited Partnerships 2) Real Estate Investment Trusts 3) MBS (Mortgaged Back Securities) - RMBS (Residential MBS) - CMBS (Commercial MBS)

5. PARTICIPANTS Originators/Lending Bank/Housing Finance Company (HFC)/Primary Lenders/Primary Lending Agency SPV/SPE/Trust – National Housing Bank (India) Investors Issue Arrangers – Sometimes Underwriters as well Rating Agency Auditors – Statutory Auditors of Bank/HFC or Chartered Accountancy Firm Servicing and Paying Agents Investing Institutions Registrar & Transfer Agent

6. ENABLING PROVISIONS OF THE NHB ACT NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987. NHB is wholly owned by RBI, which contributed the entire paid-up capital. played a lead role in starting mortgage backed securitization and development of a secondary mortgage market in the country. The National Housing Bank (Amendment) Act, 2000 which provides for creating Special Purpose Vehicle (SPV) Trust by NHB for taking up securitization transactions and issuing MBS in various forms. NHB’s addresses issues relating to mortgage backed securitization and evolve suitable securitization transaction structures and makes the transactions simple and viable to increase acceptability.

7. ENABLING PROVISIONS OF THE NHB ACT NHB is authorised to purchase, sell, or otherwise deal in any loans or advances secured by mortgage or charge on the immovable property relating to Scheduled Banks or Housing Finance Institutions (HFIs); NHB Act allows to create one or more Trusts and transfer loans or advances together with or without securities there for to such Trust(s) for consideration. NHB is authorized to set aside loans or advances, and issue or sell Mortgage Backed Securities (MBS) based on such loans or advances so set aside. NHB Act facilitates the transfer of MBS issued by National Housing Bank in the form of debt obligations, Trust Certificates of beneficial interest and to act as Trustee for the holders of such securities. In order to instill confidence among the investors in the securities issued by NHB, the Bank acting as a trustee or otherwise in the transaction relating to securitization of loans has been authorized to recover the dues.

8. NHB offers investors,Pass Through Certificates (PTCs), acting as Issuer and Trustee. NHB is the issuer of Class A and Class B PTCs. Class A PTCs have been allotted to investors. Class B PTCs are subscribed entirely by the originators. Class B PTCs are subordinated to Class A PTCs and act as a credit enhancement for Class A PTC holders.

9. ROLE OF NHB Credit Enhancement to RMBS of Primary Lending Institutions by way of NHB Guarantee Guarantee the Senior Classes of RMBS issued by NHB to reduce credit enhancement costs, improving viability of RMBS transactions and encouraging the Housing Finance Companies (HFCs) and Banks to take up securitization of their home loan portfolios. NHB offers to provide/furnish an irrevocable Guarantee to the RMBS issues of eligible Primary Lending Institutions (PLIs) viz. HFCs and banks, with the main intent to obtain Rating of investment grade indicating highest safety AAA(So) from an approved Rating Agency. Intent of the scheme is to enable the HFCs to obtain AAA(So) benefits with collaterals equivalent to AA(So) requirements.

10. ELIGIBILITY CRITERIA FOR HOME LOANS FOR SECURITISATION The borrower should be individual(s). The home loans should be current at the time of selection/securitization & have a minimum seasoning of 12 months (excluding moratorium period). Maximum Loan to Value (LTV) Ratio permissible is 85%. Housing loans originally sanctioned with an LTV of more than 85% but where the present outstanding is within 85% of the value of the security, will be eligible. Maximum Installment to (EMI) to Gross Income ratio permissible is 45%. The loan should not have overdue outstanding for more than three months, at any time throughout the period of the loan. Quantum of Principal Outstanding Loan size should be in the range of Rs.0.50 lakh to Rs.1 Crore. The Borrowers have only one loan contract with the Primary Lending Institution (PLI). The loans should be free from any encumbrances/charge on the date of selection/securitization.. The Loan Agreement & security in favor of the PLI. The Bank/HFC has with respect to each of the housing loans valid and enforceable mortgage in the land/building/dwelling unit securing such housing loan and have full and absolute right to transfer and assign the same to NHB.

11. TERMS OF NHB’S GUARANTEE TO RMBS (i) Eligible Primary Lending Institutions: (a) Housing Finance Companies registered with NHB (b) Scheduled Banks Eligibility Criteria for HFCs for being eligible for NHB’s Guarantee: a. HFC should be registered with NHB b. HFC should provide long-term finance for construction/purchase/repair/ upgradation of dwelling units by home-seekers. b. should have been in active business continuously for the preceding 5 years. c. The Gross Non Performing Assets (GNPA) of the HFC < 5% of the Gross Advances. d. should secure a minimum rating of 4-Star under the Internal Credit rating Mechanism. Eligibility Criteria for Scheduled Banks: a. GNPA of the Bank as percentage of the Gross Advances < 10% for the entire portfolio of the bank. b. Should be active business continuously for the preceding 5 years.

12. (ii) Eligible Structure of RMBS NHB’s Guarantee shall be provided only in respect of senior RMBS and not for subordinated RMBS (iii) Limit of the Guarantee NHB’s Guarantee shall be limited to least of the following: 100%of the Size of the Senior Class of RMBS; A sum of Rs.100.00 crores per RMBS issue TERMS OF NHB’S GUARANTEE TO RMBS

13. Assignment and Transfer of a pool of housing loans along with the underlying mortgages, from the primary lending institution to NHB. Securitization of Mortgage Debt: On acquiring the pool along with the underlying mortgages, an express declaration of trust will be made by NHB in respect of the mortgage debt, appointing itself as the trustee for the benefit of the investors. Once the assets have been declared property in trust (“the Trust”), the Trust will issue PTCs to investors. TRANSACTION PROCESS

14. STEP NO. 1 Authorization for securitization by originator Intimation to NHB (Letter & Board Resolution) STEP NO. 2 SELECTION OF POOL OF LOANS AS PER NHB SELECTION CRITERIA TIME FRAME: AS PER ORIGINATOR’S CONVENIENCE Supply of Initial Pool Information to NHB STEP NO. 3 DUE DILIGENCE & RATING OF THE MORTGAGE POOL (may be done simultaneously) (a) Appointment of Rating Agency by Originator (for AAA(So) Rating) (in consultation with NHB) (b) Appointment of Auditors for Due Diligence Audit of Mortgage Pool (with consultations between NHB and Originator) TRANSACTION PROCESS

15. STEP NO. 4 Appointment of Issue Arranger(s) by NHB – (On consultations between NHB and Originator) Preparation of Offer Document by Issue Arrangers STEP No. 5 EXECUTION OF MEMORANDUM OF AGREEMENT WITH NHB STEP NO. 6 ISSUE OPENS RECEIPT OF APPLICATION MONEY BY NHB ISSUE CLOSES FINALIZATION OF ALLOTMENT BY NHB AND ISSUE ARRANGERS ISSUE OF ALLOTTMENT LETTER TO INVESTORS BY NHB PAYMENT OF CONSIDERATION BY NHB TO ORIGINATORS STEP No. 7 PAY-OUTS TO INVESTORS ON STIPULATED PAY-OUT DATE(S) STEP No. 8 DOCUMENTATION Execution of: Deed of Assignment, Deed of Declaration of Trust, Servicing and Paying Agency Agreement. Registration of Documents

16. VALUATION OF THE POOL & CONSIDERATION OF ASSIGNMENT NHB will consider making payment of purchase consideration to the Primary Lending Agency under the following methodology, (i) Par Pricing Methodology: The consideration payable to the Primary Lender for transferring the pool would be equal to the total future outstanding principal balances of the individual loans on a Cut-Off Date. (ii) Premium Pricing Methodology: The consideration paid to the Primary Lender for transferring the pool would be decided and paid on the basis of discounting of future stream of net cashflows relating to the pool. It shall normally be higher than the total outstanding principal balances of the individual loans on a Cut-Off Date as the discounting rate used shall be lower than the weighted average coupon of the pool. (iii) Discount Pricing Methodology: The consideration paid to the Primary Lender for transferring the pool would be lower than the total outstanding principal balances of the individual loans on a Cut-Off Date as the discounting rate used shall be higher than the weighted average coupon of the pool due to higher risk perception.

17. WAC & WAM Calculation WAM = (22.22% × 300) + (44.44% × 260) + (33.33% × 280) = 66.66 + 115.55 + 93.33 = 275.55 months WAC = (22.22% × 6.00%) + (44.44% × 6.25%) + (33.33% × 6.50%) = 1.33% + 2.77% + 2.166% = 6.277%

18. STATUS OF SECURITIZATION IN INDIA NHB has so far completed 14 residential mortgage backed securitization (RMBS) transactions. These involve 38,809 individual housing loans of six Housing Finance Companies (HFCs) and one Scheduled Commercial Bank, amounting to 862.20 crore. During the financial year 2010-11, the Class 'A' PTCs of one of the residential mortgage backed securitization transaction of 77.16 crore have been fully redeemed. Incorporation Of Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI).

19. STATUS OF SECURIZATION – US & EUROPE Upgrade/Downgrade by Collateral

20. STATUS OF SECURIZATION – UK & US

21. UK SECURITIZATION – PRODUCT SHARE

22. OUTSTANDING – BY COMPANY OF COLLATERAL

23. SECURITIZATION - ISSUES  Country specific Tax and Legal challenges  Achievement of bankruptcy remotness of SPV  New Accounting rules (IAS and US GAAP)  Cost (legal,structuring,issuing,administrative) > Benefits  Size limitations not cost efficient for medium, small transactions.  Structural Risk  Difficulty in mortgage enforcement

24. SECURITIZATION - POTENTIALS Provided a means to better understanding and addressing the various legal, regulatory, fiscal, accounting and other capital market related issues relating to such transactions as also various policy issues for a conducive environment for such issuances. The amended structure of NHB's RMBS issues under the provisions of NHB amendment Act 2000, authorize the Bank to carry out securitization transactions and issue mortgage backed securities as trust certificates of beneficial interest and act as Trustee for the holders of such securities.

25.  NHB has appointed the respective originators as Servicing and Paying Agents to ensure that collections in respect of each of the pool of securitized loans are distributed to the respective PTC holders and Service providers. The yields to Class A PTC holders have been consistent with that indicated at the time of issuances.  As the development of this product has only just started, this method of real estate financing will become increasingly important for the property industry. RE ABS are an emerging market with a huge potential.  With more real estate companies making use of this technique of financing real estate assets, there will be more innovative structures evolving that will be tailored to the specific originators’ needs. SECURITIZATION - POTENTIALS

26.  The market has not yet seen securitisations of proceeds from real estate project developments. However, since there is a need for real estate developers to finance their developments and due to the fact that banks will have difficulties under Basel II to finance project developments, it will only be a matter of time until a specific securitisation product for project developments will be introduced to the market. SECURITIZATION - POTENTIALS

27. BENEFITS Liquidity measure Returns above payables on the comparable bonds Stable Asset base and good reputation in the market No administration or management of property Offers a viable and sustainable market oriented sourcing mechanism with the potential of integrating housing market with the domestic as well as the international capital markets Brings in a range of specializations, resulting in efficient and cost effective structures and practices Improves Capital Adequacy Ratio (CAR) through transfer of risk weighted assets Aids Asset Liabilities Management and helps long term source for deployment in housing sector Enables new source of fee based income

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