2013-05-20-奥纬咨询-The_Securities-Backed_Refinance_8页_329kb

报告摘要

Summary of "THE SECURITIES-BACKED REFINANCE"

Core Content

The document outlines a financial product called Securities-backed Refinance, which is designed to help underwater homeowners who are unable to refinance through traditional means. It highlights the opportunity for banks and wealth managers to offer this product and the potential benefits it can bring to both the homeowner and the financial institution.

Main Problem

Over 13.8 million American homeowners (27.5% of all mortgage holders) are underwater on their mortgages, meaning they owe more than their home is worth.
More than 7 million of these homeowners have a CLTV (Loan-to-Value) over 125%, making them ineligible for HARP assistance.
Home prices have not risen rapidly enough to allow homeowners to refinance without significant financial strain.
Low down-payment trends and the absence of a "High-Cost" conforming loan limit in pre-2008 years have left many homeowners unable to access government programs.

Proposed Solution – Securities-backed Refinance

This product allows severely underwater homeowners with significant liquid assets to:

Split their existing mortgage into two parts:
- A new mortgage that meets underwriting criteria (e.g., 80% CLTV).
- A securities-backed loan using their liquid assets (cash and investments) to pay down the mortgage and achieve a lower CLTV.

Key Features of the Securities-backed Loan:

Available as a line of credit or term loan (up to 7 years).
Loan amount is based on the value and type of securities in the portfolio.
Haircuts range from 5% (US Treasuries) to 50% (equities).
Rates vary from 1.5% to 5%, depending on the loan amount.
Interest-only options are available to reduce monthly payments.

Financial Impact

A homeowner in California with a $625,000 mortgage (now worth $400,000) could save $22,000 per year in interest costs.
Over a 7-year period, this could result in $151,000 in savings.
The total impact to net worth is positive compared to other options, such as selling securities and refinancing.
Interest-only options reduce monthly payments to $1,900, but result in $18,200 more in interest over the loan term.

Risks and Considerations

Liquidity risk: The homeowner cannot use the pledged securities for other purposes.
Margin call risk: If the value of the portfolio declines by 30% or more, the homeowner may face a margin call.
Recession risk: A sudden market downturn could make the product less attractive.
The risk is lower if the homeowner borrows less than the maximum allowable amount or continues to pay down the loan.

Why This Product is Attractive

It allows homeowners to refinance at lower rates while preserving their securities portfolio.
It offers significant interest savings without the need to liquidate assets.
It deepens customer relationships for banks and wealth managers.
It is a win-win for both parties: homeowners save money, and financial institutions gain new revenue streams.

What Banks and Wealth Managers Must Do

Design the product with flexible pricing, terms, and structures.
Target outreach to both existing customers and prospects, using internal and external data.
Leverage distribution channels to promote the product and align incentives across stakeholders (e.g., advisors, branch managers).

Market Opportunity

The product could generate up to $80 billion in mortgage refinancing volume and $45 billion in securities-backed loan volume.
Total revenue potential from three streams (mortgage origination, net interest margin, and asset management fees) could exceed $1.3 billion.
It is estimated that up to $90 billion in investable assets could be mobilized if the product is widely adopted.

Methodology for Market Sizing

Based on CoreLogic and Federal Reserve Board's Survey of Consumer Finances (SCF) data.
Used 2007 SCF data for financial assets, as it better reflects the current market conditions compared to 2010 data.
The analysis assumes 100% equities portfolios and 50% LTV on pledged securities.

Conclusion

The Securities-backed Refinance is a novel and valuable solution for underwater homeowners and a strategic opportunity for banks and wealth managers. It leverages the existing liquid assets of homeowners to facilitate lower-rate refinancing and enhances customer relationships. The product is financially beneficial and low-risk for homeowners who can manage the liquidity constraints and market volatility.

Key Points

Underwater homeowners: Over 7 million have CLTV > 125%.
HARP ineligibility: Over 2 million homeowners are unable to refinance due to lack of eligibility.
Securities-backed Refinance:
- Splits mortgage into two parts.
- Allows for 80% CLTV mortgage at lower rates.
- Offers interest savings of $22,000/year.
Revenue potential:
- Up to $80 billion in mortgage refinancing.
- Up to $45 billion in securities-backed loans.
- Total revenue potential: $1.3 billion.
Market sizing:
- Based on 2007 SCF data.
- Assumes 100% equities portfolios.
- No publicly available data links financial assets to home-secured lending.

Authors

Inderpreet Batra: Partner at Oliver Wyman, specializing in Retail and Business Banking, and Wealth and Asset Management.
Tim Taylor: Manager at Oliver Wyman, specializing in Retail and Business Banking.