TRUE SALE ACCOUNTING ON SECURITIZATION IN INDONESIA

Asset securitization is one of the financing solutions. One application for the use of asset securitization is in the residential mortgage sector. Securitization in Indonesia so far has been discussed in terms of financial management and legal aspects. This article discusses about securitization in Indonesia in term of accounting perspective. The accounting aspects of securitization transactions are based on the occurrence or non-occurrence of the derecognition of the financial assets securitized (true sale in accounting). Asset securitization in Indonesia is carried out with the issuance of Asset-Backed Securities Collective Investment Contracts (KIK EBA) and Asset-Backed Securities in the form of Participation Certificate (EBA SP) with a total of 15 EBAs which are still traded at present. Eighty percent are residential mortgages backed securities (RMBS), the rest are non-RMBS. The accounting treatment of securitization transactions conducted by the originator and in the event of an accounting true sale and non-true sale are discussed, also the securitization accounting treatment for originator, Special Purpose Vehicle (SPV), and investors. Broader socialization is needed so securitization can be applied in various economic activities to benefit national development in Indonesia

Residential Mortgages

This chapter provides an overview of residential mortgages. Mortgages are loans to households secured by real property. Mortgage banking has historically comprised three functions: origination (the extension of credit), servicing (payment collection), and funding (financing the loans). When extending credit, lenders consider property value, leverage, the borrower’s payment-to-income ratio and the history of repaying debt. Laws regulating the seizure of the home affect the equilibrium provision of credit. Households choose how much to borrow, between fixed- and adjustable-rate mortgages, and an amortization schedule. After origination, households may refinance or default. Recent evidence supports the view that household default is driven by liquidity constraints rather than strategic considerations. Investors value mortgages like any other fixed income security with embedded options. Bank capital regulations seek to align regulatory capital with economic capital. Mortgage credit risk varies widely across mortgage types and is highly correlated with house prices. In several jurisdictions, residential mortgage underwriting standards can now be adjusted over time by the authorities as part of these jurisdictions’ macroprudential policy framework.

Residential mortgages, the real estate market, and economic growth: evidence from Europe

Purpose The purpose of this paper is to evaluate the impact of macroeconomic condition and real estate price trend on the amount of residential loan. Design/methodology/approach The paper using a sample of 16 European Countries for the time period 2007–2015 evaluates the impact of change in the gross domestic product (GDP) growth and the inflation rate on the amount of residential loans. The analysis is performed by using a vector autoregressive (VAR) and generalized VAR approach for the full sample and for each country considered. Findings For a short-term horizon, shocks to mortgages, the house price index (HPI) and the GDP have a positive effect on the GDP, a shock to the amount of mortgages has a positive effect on the mortgage supply and a shock to the GDP has a negative effect on HPI. The main results for the long-term horizon are that a GDP shock has a positive and persistent effect on the amount of mortgages, a shock to HPI has a negative and persistent effect on mortgages and a shock to the amount of mortgages seems to have no persistent effect on the GDP or the HPI. Moreover, the analysis shows that a spillover risk among countries exists and a GDP shock in a European area has an effect on the GDP, real estate prices and residential mortgages in almost all European countries. Practical implications Results obtained show that both macroeconomic and housing prices shocks matter for the real estate lending and the effect are different in the short- and in the medium–long-term horizon. Results are also different country by country and they are affected by the level of financial development of the country. Originality/value The paper studies a lending crisis period and evaluates for the European market the impact of shock on macro-variables for mortgages focusing the attention for the first time only on residential mortgages.