Sanlam Home Loans today announced a first in the South African home-loan industry. The company launched a single-seller residential mortgage warehousing conduit, Sanlam Home Loans (Pty) Ltd, a securitisation vehicle aimed at providing Sanlam Home Loans with lower warehouse funding rates through capital and money markets.
Piet van der Walt, chief executive of Sanlam Home Loans, explains that securitisation is essentially an alternative funding mechanism whereby assets are sold to a separate insolvency remote vehicle, which in turn issues notes backed by these assets to the capital or money markets.
“Securitisation forms an integral part of Sanlam Home Loans’ overall funding strategy. The warehouse phase provides us with access to lower funding rates with the ultimate objective of raising long-term funding via a term securitisation. Sanlam Home Loans intends launching a term residential mortgage-backed securitisation when its mortgage book has reached sufficient critical mass,” says Van der Walt.
Sanlam Home Loans already generates approximately R300 million of new home-loan business per month. SHL 102 is set up to provide warehouse funding during the phase where Sanlam Home Loans builds up assets to do a term securitisation transaction. The warehouse provides quicker access to the money markets by way of issuing smaller tranches. Sanlam Home Loans therefore does not have to wait to build tranches of more than a billion rand to do securitisation and get the benefit of lower funding rates.
“This type of financing is very popular internationally,” says Robert Emslie, managing executive of Absa Corporate and Merchant Bank. “In the USA, for example, it is a very popular alternative to traditional bank funding.”
The single-seller residential mortgage warehousing conduit is not only to the advantage of the home-loan company, but consumers also benefit. Van der Walt explains: “The lender, in this case Sanlam Home Loans, does not need a banking licence and does not have to rely on depositors for funding – which means the lender does not need a big or expensive infrastructure to raise funding. The client will benefit because securitisation lowers the barriers to entry for new lenders like Sanlam Home Loans, which increases competition and gives the consumer a bigger choice.
Van der Walt expects that Sanlam Home Loans’ client base will be broadened by this new development. “The fact that we get cheaper funding via the money markets makes it possible to offer very competitive interest rates to clients.”
According to Emslie, given the significant funding benefits the home-loan industry can anticipate that a number of further warehousing conduits and term securitisations will be launched in the coming months.
Fitch Ratings has awarded an F1+(zaf) rating for the commercial paper issued by SHL102. An F1+(zaf) rating is the highest possible short-term rating awarded to commercial paper and reflects Fitch’s opinion of the exceptionally strong capacity of SHL 102 to repay interest and principal on time.
Absa Corporate and Merchant Bank was the lead arranger of the transaction, with Sanlam Capital Markets acting as co-arranger. “This is a good example of how Sanlam and Absa are working together through Sanlam Home Loans by spreading the risk of home-loan lending outside the banking sector, thus allowing for more robust financial markets. The synergies between these two leading brands place Sanlam Home Loans in an extremely strong market position,” says Van der Walt.