DC Housing Finance Symposium

Linking Primary Mortgage Markets to Capital Markets -

the Perspective of Practitioners

bySimon Stockley

20th April 2004

South African Mortgage Market Overview

• Sophisticated mature – R300billion• Dichotomous • Dominated by Big 4 Banks• Sound legal structure – title & foreclosure• Wide margins – no real competition• No non bank lending• Banks “cash rich” – no shortage of capital

R0m

R100m

R200m

R300m

R400m

R500m

R600m

R700m

R800m

0

50

100

150

200

250

300

May

-93

Aug

-94

Aug

-95

Aug

-96

Aug

-97

Aug

-98

Aug

-99

Aug

-00

Aug

-01

Aug

-02

Jul-0

3

Nedcor25%

ABSA30%

SBSA20%

Investec4 %

SAHL3 %Other

2 %

First Rand Bank 16%

Total = R 307 bn Source: SARB DI900

Residential SA mortgage loans by lenders South African Mortgage Market Outstanding balance, R bns

The SA mortgage market

Source: SARB

Source: SAHL

R millions per monthSAHL’s registrations • The rate of growth of the SA Home Loans

book has been exponential

• On a monthly basis SA Home Loans now

originates up to R 700 million in new

mortgages

• This represents approximately 15% of

monthly originations

Source: Standard Bank

SA Home LoansActivities since launch: February 1999 as at April 2004

: Gauteng 30%

: R12billion

: R1.1billion (December 2002)

Number of loans processed : 45 000

Value of loans processed : R15billion

Breakdown by region

Value of loans approved

: KZN 35% : W Cape 35%

Securitised Portfolio

Thekwini Fund I : R1.25billion (December 2001)

Thekwini Fund II

Un-securitised : R6billionThekwini Fund III : R2billion (December 2003)

Why No Securitisation Prior to December 2001?

• Big is best• Rating agencies• Exposure to international markets• Legal framework not securitisation

friendly• Little incentive for banks to securitise• No ability to reinsure first loss position

S A Home Loans

• The product• Its positioning• Funding

• 20 year, variable rate, reducing term mortgage• No prepayment or redemption penalties• Discounted legal and administrative switch fees• No ongoing administrative charges• Re-advance facility/access bond• Fixed margin above cost of money• Switch re-finance proposition

The Product

Positioning

Control

Public

SpecialPurposeVehicleTrust

LoansTo thePublic

SeniorSecurities

SubordinatedSecurities

PurchaseSecurities

IndependentTrustee

ExternalAuditor

Origination & ManagementFee : 0.5%

JIBAR Rate

Plus 2.1%

1.6% Yield pick up

Securitisation Structure

InstitutionalInvestors

Public

Loans

JIBAR + 2.1%

Thekweni I

Special

Purpose

Vehicle

R1.25 Billion

A Class

92 %

AAA Rating

JIBAR + 70 Points

B Class

8 %

BBB Rating

JIBAR + 230 Points

C Class

2.5 %

Unrated

Pay away1.6% to investors

SAHL

0.5% Management Fee

Standard Bank

Deloitte & Touche

Standby Administrator

Investment Structure

Schematic Diagram of Structure

SA Home Loans

Redraw Facility

Investors

Bank Funding

Hedge Counterparty

Main Street 65 (Pty) Limited

Home Loan Borrower

The Thekwini Fund 2 Limited

Indemnity and Mortgage first lien over the Home Loan Borrower’s property

Monthly payments

Loan

Servicing

Loan origination

Servicing

Reservefund

Transfer of mortgages

Purchase of mortgages

Wholesale loanMortgage first

lien

Loan

Hedging

Repayment of the Wholesale loan

Quarterlyobligations

Cashproceeds

Notes issue

Transfer of security

Excess spread Guarantee

Committed loan facility

Guarantee Trust

SecurityTrust

Home Loan Borrower

Public

Public

Public

Public

Public

SPV

SPV

SPV

Senior MBS

Junior MBS

Senior MBS

Junior MBS

Senior MBS

Junior MBS

Short Term

Insurer

Life Insurer SAHL

Interim Funder

External Directors

AuditorsMARKET MAKER

INVESTORS

INVESTORS

SECURITIES AND AGREEMENTSTHE PUBLIC SA HOME LOANS SPECIAL PURPOSE

VEHICLESMORTGAGE

BACKED SECURITIES

INSTITUTIONAL INVESTORS

SAHL Legal Structure

Growth in SA Securitisation Market

0

2

4

6

8

10

12

14

16

18

Pre-2000

2000 2001 2002 2003 2004

R b

illi

on

Public Issuance Volume

2000 2001 2002 2003Kiwane (CDO) - R 450 m Thekwini 1 (RMBS) - R 1 350 m FRESCO (CLO) - R 900 m Cars 1 (Auto) - R 3 000 m

On the Cards (In-store) - R 2 000 m BMW 1 (Auto) - R 1 000 mPROCUL (Auto) - R 1 300 m BMW 2 (Auto) - R 1 000 mPrivate Mortgages (RMBS) - R 1 000 m Private Mortgages - R 1 000 mFintech Receivables (Equipment Lease) - R 700 m Thekwini 3 - R 2 000 mThekwini 2 (RMBS) - R 1 000 m InDWA (Conduit) - R 3 000Blue Titanium (Conduit) - R 500 m Grayson 1 (Conduit)ABCUS (Conduit) - R 250 m Blue Titanium (Conduit) - R 1 500 m

ABCUS (Conduit) - R 1 500 m

Public Issuance Deal List

• SA Home Loans launched the securitisation market in 2001

• Since then issuance volumes have grow to R 14 billion in 2003

Source: Standard Bank

Relative valueRelative Value - Corporate and ABS Spreads

THE3A

THE3B

THE1BTHE2C

THE3C

0

50

100

150

200

250

2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

AAA AA A BBB

OMO1

DC02DC01

AUTO04

THE1APROA21

PROA11

NED2

IPB1

THE2A

bps

FRE1C AB02

THE2B

0

50

100

150

200

250

TH

E1A

TH

E1B

TH

E2A

TH

E2B

TH

E2C

PR

V1A

PR

IV1B

OM

O1

AG

01

EG

L01

AU

TO

3

AU

TO

4

TH

E3A

1

TH

E3A

2

TH

E3A

3

TH

E3B

TH

E3C

CA

R1A

2

CA

R1B

CA

R1C

PR

IV2A

1

PR

IV2A

2

PR

IV2B

bps

AA

BBB

AA/A

AAA

2001-2002 RMBS 2003 RMBS and Selected Deals

• South Africa has seen dramatic growth the capital market since the 1st bond issue by Telkom in 1999

• Spreads on each subsequent transaction have improved

• SA Home Loans transactions are the benchmark in the securitisation market

Source: Standard Bank

Increasing Sophistication

0

0.5

1

1.5

2

2.5

3

Thekwini 1 Thekwini 2 Thekwini 3

% E

qu

ity

0

20

40

60

80

100

120

140

160

180

200

Thekwini 1 Thekwini 2 Thekwini 3

bp

s

WA Margin WA All in cost (incl equity)

Improved Tranching

Spread Compression

Source: Standard Bank

Thekwini 3 Term SheetTransaction Residential Mortgage Backed Securities (RMBS)Issuer The Thekwini Fund 3 (Proprietary) LimitedSole Arranger & Bookrunner SCMB, a Division of the Standard Bank of South Africa LimitedOriginator and Servicer SA Home Loans (Pty) LtdStandby Servicer Standard Bank of South Africa LimitedSubstitution Period 2.5 yearsCollateral First ranking mortgage over residential propertiesTranching of the Notes Class A1 Class A2 Class A3 Class B Class C Reserve FundRatings Moody's Aaa.za Aaa.za Aaa.za A1.za Baa2.za n.a.

Fitch AAA(zaf) AAA(zaf) AAA(zaf) A(zaf) BBB(zaf) n.a.Currency ZAR ZAR ZAR ZAR ZAR ZARSize of Tranche 1,366,000,000 305,000,000 195,000,000 105,000,000 29,000,000 16,000,000Issue Price 100% 100% 100% 100% 100% 100%Type of Note Floating Floating Fixed Floating Floating FloatingInterest Rate Jibar + 0.45% Jibar + 0.49% 9.58% Jibar + 1.15% Jibar + 2.10% n.a.Coupon Frequency Quarterly Quarterly Quarterly Quarterly Quarterly n.a.Legal Maturity Nov 2028 Nov 2028 Nov 2028 Nov 2028 Nov 2028 n.a.Call Date Nov 2008 Nov 2008 Nov 2008 Nov 2008 Nov 2008 n.a.Legal Jurisdiction South Africa South Africa South Africa South Africa South Africa South AfricaListing BESA BESA BESA BESA BESA n.a.ISIN Number ZAG000020777 ZAG000020785 ZAG000020793 ZAG000020801 ZAG000020819 n.a.

SecuritisationA Practical Guide – Some Lessons

Learned• Size does count• Quality of data• System reporting ability• Time, money, personnel• Timing – Market conditions• Ratings• Pricing• “Build it they will come …….”

Thank you.

Simon Stockley

CEO - SA Home Loans (Pty) Ltd

Phone : (031) 560 5392

Fax : (031) 562 4266

Cell no : 083 276 0068

e-mail : simons @sahomeloans.com