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Cagamas Berhad
The National Mortgage Corporation




Presentation to Growing Housing Opportunities in Africa Conference


The Role of Mortgage Liquidity Facility and Mortgage
Guarantee Programme In Housing Finance



Chung Chee Leong
Chief Executive Officer 8 October 2012


Content
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1. Description of Mortgage Liquidity Facility (MLF)
Benefits of MLF

2. Establishment of Cagamas
Cagamas Business Model
Purchase With Recourse (PWR) Structure
Purchase Without Recourse (PWOR) Structure
Residential Mortgage-Backed Securitisation (RMBS)

3. Mortgage Guarantee Programme (MGP)
MGP Illustration
Benefits of MGP
My First Home Scheme (SRP)
Description of Mortgage Liquidity Facility (MLF)
What is the
purpose of MLF?
Act as intermediary between
primary mortgage lenders
and capital market investors
To support long term lending
activities of mortgage
lenders
MLFs Objective
Reducing maturity mismatch between housing
loans and sources of funds
Provide longer term funds to mortgage lenders
To develop the primary mortgage market by
providing funds to mortgage lenders at better
rates and longer tenors, thus facilitating
affordability
Promote keener competition & create a more
level playing field among mortgage originators:
benefits home buyers

3
Benefits of MLF
Lenders Homebuyers Govt and Economy
Hedge interest rate risks

Obtain easy access to
housing loans at reasonable
cost
Helps to achieve its policy of
encouraging home ownership
Obtain liquidity at
competitive costs to originate
more housing loans and
enhance lending operations
Obtain attractive and
affordable housing loan
packages
Potential liquidity policy
tool. 2
nd
lender of last
resort in times of liquidity
crisis*



Price loan products
competitively

Competition can spur more
attractive mortgages offered
by more lenders
Encourages property
development and related spin-
off effects
Improve RWCR if they sell on
without recourse basis
Makes housing loans more
affordable to the lower income
group
Playing field is levelled
whereby mortgage origination
is no longer the exclusive
domain of stronger rated FIs
*
Illustrated further in Cagamas case page 16 & 17
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Establishment of Cagamas
As a direct result of the needs of market, Cagamas was set up in December 1986 as a
national mortgage corporation with 2 main objectives:
1. Accessibility to long-term funds to support home ownership
2. Spearhead development of the private debt securities market
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Function as
intermediary between
primary lenders and
investors of long term
funds
Take on role of credible
issuer of mortgage
securities
Cagamas has entered into its first transaction on 16 October 1987 for the Pilot
Purchase of housing loans totaling RM110 million. Subsequently, the Subscription
Agreement for the first issue of RM100 million unsecured Cagamas bonds was signed.


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Mortgage Originators
Liquidity Model
CAGAMAS
Investors
CAGAMAS
SPV
Sells ABS /
Synthetic
Securitisation
Securitisation Model Guarantee Model
Sells
Cagamas
Bonds
$
Bond
proceed
Purchase
assets
without
recourse
$
Sales
proceed
Purchase
assets with
recourse
$
Sales
proceed
Guarantees
Mortgages
Unfunded
S
T
R
U
C
T
U
R
E

P
R
O
D
U
C
T
S

Mortgage Guarantee
Programme
Purchase With Recourse
Programme
Purchase Without Recourse
Programme / Mortgage
Securitisation
C
O
N
D
U
I
T

F
O
R

Liquidity Management
Hedging
Capital Management
Risk Management
Portfolio Management

Capital Management
Risk Management
Portfolio Management

Cagamas Business Model
Asset Warehousing
Type of Loans / Financing Purchased: Cagamas offers the following tools to the FIs:-












Cagamas purchases both conventional and Islamic loans /
financing and fund the purchases through the issuance of
conventional and Islamic debt securities.
Loans / financing are purchased either on a with recourse to
the originator basis (PWR); or on a without recourse basis
(PWOR)
MGP offers first loss protection on a mortgage portfolio while
the mortgage assets remain on the Originators books
Purchase without Recourse (PWOR)
Conventional Housing Loans
Islamic House Financing
Hire Purchase
Islamic Hire Purchase
Purchase with Recourse (PWR)
Conventional Housing Loans
Islamic House Financing
Industrial Property Loans
Hire Purchase and Leasing
Islamic Hire Purchase
Islamic Personal Financing
Rahn Financing

Liquidity
management
Hedging
Capital
Management
Risk Management
Portfolio
management
PWR PWOR
Cagamas Business Model (cont)
Mortgage Guarantee Programme (MGP)
Conventional Housing Loans
Islamic House Financing
MGP
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Purchase With Recourse (PWR) Structure
Originator CAGAMAS
1
2
4
3
1. Originator sells loans/financing
to Cagamas on a with
recourse basis
2. Cagamas pays cash or bonds
as consideration for
loans/financing
3. Post sale, Originator continues
to service customer and remits
repayments to Cagamas
4. Cagamas pays servicer fee to
Originator upon receipt of
loan/financing collection
5
5. Originator remains responsible
for any losses arising from
defaults by borrower and
obliged to repurchase the
loans/financing upon maturity of
the contract

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In substance, Cagamas funds FI against security of the underlying loans/financing
Purchase Without Recourse (PWOR) Structure
Originator CAGAMAS
1
2
4
3
1. Originator sells loans/debts
to Cagamas on a without
recourse basis
2. Cagamas pays cash or
bonds as consideration for
loans/debts
3. Post sale, Originator
continues to service
customer and remits
repayments to Cagamas
4. Cagamas pays servicer fee
to Originator upon receipt of
loan/debt collection
5
5. Originator saves on Capital
Charge after loans/debts
sold to Cagamas
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Residential Mortgage-Backed Securitisation (RMBS)
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A type of asset-backed security that is secured by a mortgage or
collection of mortgages.

Cagamas MBS Berhad (CMBS), a wholly-owned subsidiary of
Cagamas Holdings Berhad was incorporated as a limited-purpose
entity to solely purchase the Governments staff housing loans and
to issue RMBS

From the perspective of the Seller, the benefits and accounting
treatment of RMBS mirrors that of PWOR
Promotion of home ownership/home accessibility and affordability in Malaysia
Source: BNM Annual Report, various years
* Others inclusive of Bank Kerjasama Rakyat Malaysia Berhad, Borneo Housing Mortgage Finance
Berhad, Bank Simpanan Nasional and Sabah Credit Corporation
Impact of Cagamas on Malaysian Mortgage Market
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0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Commercial Banks & Finance Companies Treasury Housing Loans Division
Malaysia Building Socity Berhad Others*
(RM Million)
2 years after Cagamas
set up
As at July 2012,
mortgages
make up 27% of
banking system
loans
Annual Issuance of Cagamas Bonds

0
.
1
1
.
2
1
.
3
0
.
4
3
.
3
4
.
3
7
.
3
6
.
4
1
0
.
5
1
9
.
1
2
0
.
2
2
5
.
1
2
2
.
7
1
7
.
41
9
.
6
1
7
.
9
1
0
.
9
6
.
77
.
9
1
9
.
0
1
8
.
0
1
1
.
3
7
.
6
2
.
8
1
.
0
0
5
10
15
20
25
30
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(
R
M

b
i
l
l
i
o
n
)
Total Issued
Total bonds issued = RM261.7 billion
Total redemption = RM235 billion
Total outstanding Cagamas bonds as at 30 June 2012
Unsecured :RM19.7 billion
RMBS :RM 6.9 billion
RM26.6 billion
Asian Financial Crisis
Global financial Crisis
Cagamas role is prominent in times of liquidity crisis

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Impact of Setting up Cagamas
Promoting access to longer tenure housing loans
Generating strong competition among FIs to grant housing loans
Providing liquidity to the financial sector
Strengthening the financial sector
Enhancing the quality of the Malaysian capital market
Providing an alternative form of investment in high quality Private Debt
Securities (PDS)
Developing the Islamic Finance and Sukuk market


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MGP offers first loss protection on a mortgage portfolio while
the mortgage assets remain on the Originators books.
By reducing the credit risk on their mortgage loan/financing
portfolio, Originators can improve their Risk Weighted Capital
Ratio (RWCR).



Mortgage Guarantee Programme (MGP)
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Homebuyer
Bank
Down
payment
High LTV
loans/financing
Credit
Risk
MGP Illustration
Pre-MGP Scenario


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Homebuyer
Bank
Down
payment
High LTV
loans/financing
Transfers part
of credit risk
(first loss)
Guarantee
Fee
Credit
Risk
Cagamas HKMC
MGP Illustration
Post-MGP Scenario


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Benefits of MGP
Transfers credit risk
Capital relief is based on BNM Risk Weighted Capital Adequacy
Framework
Facilitates management of portfolio concentration risk
Improves Return on Risk Weighted Capital
Improves earning stability
Limits credit exposure to an acceptable level
Mortgage assets remain on the balance sheet
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My First Home Scheme (SRP) - Background
The Skim Rumah Pertamaku / My First Home Scheme (SRP) was introduced in
January 2011 to assist young urban adults who have just joined the workforce to
own a home
This scheme is meant for first time homebuyers earning less than RM3,000 (or
RM6,000 for joint applicants)
The scheme allow homebuyers to obtain 100% financing from FIs, enabling them
to own a home without having the need to pay a 10% down payment
Cagamas SRP Berhad (CSRP), wholly owned by Cagamas Holdings Berhad, will
then guarantee the first 10% on a first-loss basis, whereby the guarantee fee will
be borne by the Government of Malaysia (GOM)
The provision of the guarantee will be in accordance to MGP which currently being
offered by Cagamas HKMC Berhad (CHKMC) and covers both conventional and
Islamic mortgage financing.



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SRP Guarantee Structure
SRP is also a mortgage guarantee product.
The principle criteria of its applications are the following:-
o Guarantee is on a first loss basis (i.e. first 10%)
o Guarantee will take effect upon full disbursement or upon drawdown of the
final 10%
o Guarantee lapses upon the occurrence of one of the following event:-
The outstanding principal balance of the loan/financing falls below the
90% of the property value
Non-compliance with Representation, Warranty and Eligibility Criteria
Payment of Claim Amount
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Structure of the SRP scheme as follows:-

Government of
Malaysia
FIs
100%
financing
Guarantees
10% on a
first loss
basis
Guarantee
Fee
Cagamas
90% credit
risk
Home Buyer
10%
SRP Scheme Structure
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THE END





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Disclaimer
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