Speaking at Marcus Evan's 7th Annual Affordable Housing Project Conference in KL.

1. 1
1
Cagamas Berhad
National Mortgage Corporation of Malaysia
7th Annual Affordable Housing Projects
6th – 8th April 2016, Kuala Lumpur, Malaysia
Promoting the Broader Spread of House Ownership and
Growth of the Secondary Mortgage Market
Nora Tahir
Chief Financial Officer

2.  Overview of Malaysia’s Housing Market
 Challenges and Prerequisites to Sustainable Housing System
 Building a Sustainable Housing Finance System
o Calibration of Government Participation
o Active and Efficient Mortgage Market
o Development of Secondary Mortgage Market – Cagamas Berhad
 Cagamas Guarantee Model
o My First Home Scheme
o Youth Housing Scheme
Agenda
2

3. Overview of Malaysia’s Housing Market

4. Source: Department of Statistics, Malaysia, Central Bank of Malaysia, Annual Report (Various years)
Malaysia - 2015 Quick Facts
*Exchange Rate of RM1=USD0.2327 as at 31st Dec 2015
 30.1 million population with 41% of young population
(age 25 – 54) (2014)
 GDP growth of 5% with Real GDP of RM1,063 bil (USD247bil*)
 GDP per capita RM33,091 (USD7,700*) (2014, at constant prices)
 Stable unemployment rate at 3.4%
0
10
20
30
40
50
0
500
1000
1500
2011 2012 2013 2014 2015
%
RM’Bil
Real GDP (RM) Total Housing Loan as % of GDP
Housing Development in Malaysia
• Growth of mortgage as a
significant contributor to
Malaysian GDP - 36% in 2015
4

5. 0
2
4
6
8
10
12
14
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Q22015
%change
HousePriceIndex(2000=100)
House Price Index % change
Malaysian House Price Index
Source: National Property Information Centre
• Growth peaked at 11.8% in 2012 but slowed down thereafter
• Post effect from cooling measures implemented by Government of Malaysia and
Central Bank to curb the increase in property prices
• CAGR of 6.1% from 2003 to Q2 2015
5

6. Housing Finance System in Malaysia
Mortgage Originators
Private Sector
 Commercial banks
(Conventional and Islamic)
 Malaysia Building Society
Berhad (MBSB)
 Other Development Financial
Institutions
Public Sector
 Lembaga Pembiayaan
Perumahan Sektor Awam
(LPPSA), Statutory Body
Over 86% of total mortgage financing
originated by Commercial Banks
Source: Central Bank of Malaysia, Annual Report, various years
* Others inclusive of Bank Kerjasama Rakyat Malaysia Berhad, Borneo Housing Mortgage
Finance Berhad, Bank Simpanan Nasional and Sabah Credit Corporation
-
100
200
300
400
500
600
2011 2012 2013 2014 2015
RM Billion
Commercial Banks
LPPSA
Malaysia Building Society
Others*
Mortgage Outstanding in the Banking
System
6

7. Challenges and Prerequisites to Sustainable
Housing System

8. A sustainable housing finance system would require the optimal mix
of the following:
Sustaining Housing Finance System
Facilitative Government Policies and Initiatives for Housing Finance
Sector
Role of Housing Finance Regulatory Authority
Development of Fundamental Infrastructure for Housing and
Technological Innovations
Distribution of National Capital among Population
Availability of Funds
Land Acquisition cost
8

9. The basic elements that enable a well-functioning housing
finance system include:
Prerequisites of Sustainable Housing Finance System
Enhanced risk
management,
underwriting
standards and
supervision
Calibration of
government
participation
Improved
alignment of
incentives of
participants
using capital
market funding
Sustainable
funding
through
reducing
maturity
mismatch
Low default
rates in the
financial
system
9

10. Building Sustainable Housing Finance Systems:
Malaysia Experience

11. Calibration of government participation
Active and efficient mortgage market
Development of Secondary Mortgage
Market
Establishment
of Cagamas
Berhad in 1986
Building Sustainable Housing Finance System
11

12. Government’s Role in Promoting Housing Finance
 Objective of housing policy
– to increase accessibility to
adequate, affordable and quality
houses
 Actively promote home ownership
since the 1970s
– especially among the lower and
middle income groups
Promote Home
Ownership
Government Policy
• Increase supply of
housing to the market
• Provision of adequate,
affordable and quality
houses
• Enhancing accessibility to
housing finance supply
• Encourage home
ownership
12

13. Measures and Initiatives Introduced by the Government
Year Measures
2008
Monthly withdrawal from Employees Provident Fund (Account 2) for the repayment
of housing loans
2013
• Raising RPGT for local buyers
• After 5th year, no RPGT for local buyers but properties bought by local companies
will be taxed at 5%
• RPGT for foreign buyers raised to 30% for the first 5 years and 5% thereafter
2014
• Prohibition of the Developer Interest Bearing Schemes (DIBS)
• Minimum purchase price for foreigners raised from RM500k to RM1 million
• Four unit limit for bulk purchase by individual – any higher to seek permission
from Controller of Housing
Others
Provision of adequate, affordable and quality houses for all Malaysians :
1. My First Home Scheme (2011)
2. Perumahan Rakyat 1 Malaysia (PR1MA).
3. My Home Scheme (2014)
13
1-3 yr 30%
4 yr 20%
5 yr 15%

14. Schemes Youth Housing Scheme
1Malaysia People's
Housing Project
(PR1MA)
Skim Rumah Pertamaku
(My First Home Scheme)
Target
segment
Married Malaysian citizen
couples aged between 25
to 40 years .
Malaysian citizen and at
least 21 years old at the
time of the application;
Those who currently own
no more than one property
Young adults entering the
workforce with fixed
income. 35 years old or
less (age next birthday is
36 years old or less)
Salary
Range
Combined household
income not exceeding RM
10,000 per month
Open to Individuals or
families (husband and
wife) with an average
monthly household income
of between RM2,500-
RM7,500
Gross income of not more
than RM5k p/m for single
borrower and gross
income of not more than
RM10k per month for joint
borrowers
Service/
Product
Offering
Provision of financing /
loan up to RM500,000 with
a financing tenure up to 35
years or at the age of 65,
whichever is earlier to the
eligible borrower.
RM1.9 billion to be
allocated to build 123,000
affordable housing units in
strategic locations
Guarantees 10% on a “first
loss” on mortgage loans
given by banks
(Guarantees provided by
Cagamas to FIs)
Eligible
Property
Homes ranging from
RM100,000 to RM500,000
Homes ranging from
RM100,000 to RM400,000
Housing valued between
RM100k to RM400k
Home Financing Schemes in Malaysia
14

15. Schemes People-Friendly Home
Housing Loan Fund for
Lower Income Group
My Home Scheme
Salary Range Household gross
income does not exceed
RM1,500
Household gross income
between RM500 and
RM1,200
Household gross income
for MyHome1 (RM3k-
RM4k) and MyHome2
(RM4k-RM6k)
Service/
Product
Offering
- 1/3 funded by Govt
- 2/3 via zero interest
financing
Funding to build a new
house with a cost not
exceeding RM25,000 or
to buy a fully built low
cost house
RM30,000 incentive for
each affordable house
Eligible
Property
1000 sq ft 3 bedroom 2
bathroom single storey
bungalow
Low cost house Housing valued between
(MyHome1 RM80k-
RM120k) (MyHome2
RM120k-RM250k)
Max Loan
Amount
RM76K RM20K MyHome1 (RM90K)
MyHome2 (RM220K)
Lending Rate Zero interest - Zero interest on first
RM10,000
- 4% service charge on
2nd RM10,000
Respective BLR of the
offering FI
Home Financing Schemes in Malaysia… cont
15

16. Strengthening the Housing Finance System
BNM also takes a responsible and measured approach to ensure Malaysia’s
housing market remains strong and stable.
The regulatory measures include:
1. Strengthening of risk management standard and corporate governance practices
of financial market players
Focus accorded towards enhancing capital and liquidity standards of financial
institutions as well as raising their governance and risk management standards.
2. Effective policies in place for development of housing finance system
Strengthened the financial infrastructure in housing finance system including the
development of a Secondary Mortgage Market to help the primary lenders, maintaining
low default rates in the system and effective financial safety net
3. Comprehensive and robust regulatory and supervisory framework and effective
surveillance
Forward looking and focused on addressing the risks to overall financial stability
16

17. The soundness and robustness of the housing finance system lies with the
strong supervision functions by Central Bank of Malaysia which acts as the
main regulator for housing finance.
 Areas of regulations include margin of finance
for the purchase of 3rd house and above,
capital charge on mortgage financing
according to its loan to value and priority
sector lending guidelines which set the
financing terms and condition for the purchase
of low cost house.
 Vested with comprehensive legal powers
under legislation to regulate and supervise
the housing finance. Under the loan/financing
contracts, the financiers generally have the
avenue to:-
 transfer/assign its rights vested in the
property to a third party; and
 Enforce legal action ie; foreclosure
proceedings, bankruptcy upon any event
of default.
CBA
FSA
IFSA
DFIA
MSBA
CBA Central Bank of Malaysia Act 2009
FSA Financial Services Act 2013
IFSA Islamic Financial Services Act 2013
MSBA Money Services Business Act 2011
DFIA Development Financial Institutions Act 2002
Robust Regulatory and Legal Environment
17

18. Prudential Lending Guidelines by Central Bank of Malaysia
• Mandated lending to priority sectors
including affordable housing was
introduced by the Central Bank in 1976.
• Aimed at increasing the access of credit for
affordable housing as well as providing
them with subsidized access to such credit
• Maximum margin of 1.75% above BLR and
maximum profit rate of 9% were imposed
for lending for houses costing not more
than RM100,000 in Peninsula Malaysia
and RM120,000 in Sabah and Sarawak.
• Guidelines were issued by the Central Bank
to the banking system requiring banking
institutions to internally set
lending/financing target for the priority
sectors which include housing loan to low
cost houses.
Other recent measures introduced
by the Central Bank:
Responsible Lending Guidelines
• Impose the loan-to-value (LTV) ratio
of 70% for 3rd house purchased
• Lowering the maximum tenure of
home loans
• All banks to fix their loan-to-value
ratio based on the net selling price
rather than gross selling price.
18

19. Building Sustainable Housing Finance Systems
Development of Secondary Mortgage Market:
Cagamas Berhad

20.  Creation of a secondary mortgage market as a result of a liquidity crunch in the
1980s and public policy objective of a “homeownership democracy”
 Spearhead the development of Private Debt Securities (PDS) market
 The market situation in the mid-1980’s:-
Financial institutions were
not lending to homebuyers
despite demand
Funding mismatch in
financial institutions
resulting in liquidity crunch
Limited funding source in
the market – no bond
market
There was a need in the market for an institution to:-
1. Function as intermediary between primary lenders and investors of long term funds; and
2. Take on role of credible issuer of mortgage securities
Secondary Mortgage Market - Background
20

21. • Commenced operations in 1987 as the National Mortgage Corporation
• Objective
• Cagamas issues local and international debt securities to finance the purchase of
loans/financing assets (mainly mortgage) from financial institutions and non-financial
institutions.
• The provision of liquidity to financial institutions at a competitive cost to the primary
lenders of mortgage encourages further expansion of financing for houses at an affordable
cost and increases home ownership by Malaysians.
• The Cagamas model is well regarded by the World Bank as a successful secondary mortgage
liquidity facility.
• Cagamas’ debt securities continue to be assigned the highest local ratings of AAA by RAM
Rating Services Berhad and Malaysian Rating Corporation Berhad, denoting its strong credit
quality.
• In 2014, Cagamas established its conventional and Islamic EMTN programmes of USD
2.5billion respectively. Cagamas has been internationally rated A3 by Moody’s.
• Sovereign Malaysia rating by international rating agencies are Fitch (A-), Moody’s (A3) and Standard & Poor (A-)
Cagamas Berhad
To promote the broader spread of house ownership and growth of the secondary
mortgage market in Malaysia
21

22. Business Model
Mortgage Originators
Liquidity Model
CAGAMAS
Investors
CAGAMAS
MBS
Sells ABS
Securitisation Model
Sells Cagamas
Bonds/Sukuk
$
Bond/Sukuk
proceeds
Purchase
assets
without
recourse
$
Sales
proceeds
Purchase
assets with
recourse
$
Sales
proceeds
StructureProduct
Purchase with Recourse Programme
(PWR)
Net income FY2015: 10.7%
Purchase without Recourse
Programme (PWOR)/
Securitisation
Net income FY2015: 87.7%
Conduit
for
Liquidity Management
Hedging
Capital Management
Risk Management
Portfolio Management
Asset Warehousing
Guarantee Model
CAGAMAS SRP
Guarantee/
Wakalah Fee
Unfunded
Mortgage Guarantee Programme
/ My First Home Scheme, Youth
Housing Scheme
Net income FY2015: 1.6%
Capital Management
Risk Management
Portfolio Management
Guarantee
Mortgages
Cagamas Berhad
Investors
22

23. Cagamas’ Role in Housing Finance System
 Provide liquidity and hedging to mortgage financier
 Provide lower cost of funds – AAA funding and high demand of Cagamas
Securities.
 Narrow the gap between the maturity structure of the housing loans and the
source of funds
 Link the mortgage market to the capital market securities – development of the
Residential Mortgage Backed Securities (RMBS) market for both conventional
and Islamic
 Develop innovative structures for mortgage financier – mortgage guarantee to
promote home ownership among first-time homebuyers.
Cagamas’ role in supporting sustainable housing finance system in the
primary market
23

24. 0
100,000
200,000
300,000
400,000
500,000
600,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
Commercial Banks & Finance Companies
Treasury Housing Loans Division
Malaysia Building Society Berhad
Others*
Cumulative Housing Loans Purchased by Cagamas
16 years after Cagamas
incorporation
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
RM Million
As at Dec 2015, mortgages make up
33% of banking system loans /
financing
Housing Credit Outstanding – Banking Sector
Cagamas as important source of funding to the mortgage market.
24

25. Cagamas has cumulatively refinanced housing loans in the secondary market equivalent
to RM122 billion (USD28.4 billion*) or around 1.8 million houses
Cumulative Refinanced Housing Loans
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2
4
6
8
10
12
14
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
2013
2014
2015
Houses in MillionRM Billion
Annual Total Purchases CumulativeTotal Loans/Houses
25
* As at December 2015; RM1=USD0.2327

26. Liquidity Provider to the Primary Market
Provided liquidity of about RM289.3 billion (USD67 billion*) to the financial sector to
date
* As at December 2015; RM1=USD0.2327
0
50
100
150
200
250
300
350
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
2013
2014
2015
MYR BillionMYR Billion
Annual Issuances CumulativeIssuances
26

27. Bond Market Development
• Fulfilling role as a provider of competitively-priced liquidity to the financial system
• Addressing the changing needs of financial institutions
• RM5 billion ICP IMTN
• Sukuk Al Amanah Li Al-
Istithmar
• Islamic house
financing
• Sukuk Mudharabah
• Securitisation of
Government staff
housing loans
• Residential Mortgage-
Backed Securities (RMBS)
• Sukuk Musyarakah
RMBS
• Purchases without Recourse
• Synthetic Securitisation of small
medium enterprise loans
• Secured Credit Linked Notes
• RM60 billion CP MTN
Programme
• Mortgage Guarantee
• Sukuk Commodity
Murabahah
1987 2004 2005 2007 2008
• Purchase with
Recourse
2010 2011 2012
• Skim Rumah
Pertamaku (My First
Home Scheme)
• Sukuk Wakalah Bil
Istithmar
1994 2014
• USD2.5bn Conventional
and USD2.5bn Sukuk
Multi-Currency MTN
Programme
2013
• MYR 3.80 billion Multi-
tenor Sukuk
• MYR 2.20 billion Multi-
tenor conventional MTN
2015
27

28. Cagamas Guarantee Model

29. Cagamas: Guarantee Model
My First Home Scheme
 Aimed at assisting young urban adult who have just joined
the workforce to own a home
 For first time homebuyers with gross income not exceeding
RM5,000/month
 Allows homebuyers to obtain 100% financing from financial
institutions, enabling them to own a home without having
the need to pay a 10% down payment
 Cagamas SRP will then guarantee the first 10% on a ‘first-
loss’ basis, whereby the guarantee fee will be borne by the
Government of Malaysia (“GOM”)
Youth Housing Scheme
 Aimed at assisting married youth to own their first home.
 Offers a funding limit for a first home not exceeding
RM500,000 for married youth aged between 25 and 40
years with household income not exceeding RM10,000.
 Allows homebuyers to obtain up to 100% financing from
Bank Simpanan Nasional (“BSN”).
 Cagamas SRP Berhad will then guarantee the first 10% (LTV
>90%) on a ‘first-loss’ basis, or up to a period of 5 years,
whichever comes first. The guarantee fee will be borne by the
Government of Malaysia (“GOM”).
 The Scheme is offered for 20,000 units only on first come
first served basis
Mortgage Originators
Guarantee Model
CAGAMAS SRP
Guarantee/
Wakalah Fee
Mortgage Guarantee Programme
/ My First Home Scheme, Youth
Housing Scheme
Net income FY2015: 1.6%
Capital Management
Risk Management
Portfolio Management
Guarantee
Mortgages
StructureProduct
Conduit
for
29

30. My First Home Scheme: Criteria
• First time home buyer
• Young adults (defined as up to 40
years old)
• Single borrower gross income not
exceeding RM5,000/month and
joint borrowers gross income not
exceeding RM10,000/month
(gross maximum income of
RM5,000/month per borrower)
• Malaysian Citizen
• Repayment of total financing
obligation must not be more than
60% of the net monthly income
or maximum financing limit of the
participating bank, whichever is
lower.
• Proof of Income
Borrower Property
• Residential property valued
between RM100,000 and
RM500,000
• The Property must be for
residential purpose, located in
Malaysia and in compliance with
relevant regulations under the
Malaysia laws
• Compulsory fire insurance
• Bank’s usual underwriting
standards apply
• MRTA / MRTT as per bank’s
requirements
• Amortizing loans only.
Redrawable excluded
• Full documentation
• Salary deduction or Standing
instruction
• Financing tenure not exceeding
years, subject to borrower’s age
not exceeding 65 years at the
end of financing tenure
Loan / Financing
30

31. Youth Housing Scheme: Criteria
• First time home buyer
• Married youth (defined as up to
40 years old)
• Household income not exceeding
RM10,000/month
• Malaysian Citizen
• Repayment of total financing
obligation as per bank’s guideline
and BNM’s measure to promote
sound and sustainable household
sector
Borrower Property
• Residential property valued
between RM100,000 to
RM500,000
• The Property must be for
residential purpose, located in
Malaysia and in compliance with
relevant regulations under the
Malaysia laws
• Compulsory fire insurance
• Bank’s usual underwriting
standards apply
• MRTA / MRTT as per bank’s
requirements
• Amortizing loans only.
Redrawable excluded
• Full documentation
• Guarantor as per bank’s
requirements
• Financing tenure not exceeding
35 years (as per BNM’s measure
to promote sound and
sustainable household sector)
Loan / Financing
31

32. THE END

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Disclaimer

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