1. Mortgage Legislative Package Presentation to Real Estate Forum 4 May 2004 Financial Market Reform in Romania

2. 2 Mortgage Roundtable - June 2003 Financial Market Reform project identified need for technical assistance to mortgage market 70+ participants – major banks, mortgage companies, regulatory agencies, legislature, law firms, investors, service providers, donor agencies Concept paper – discussed major issues Formation of Mortgage Task Force

3. 3 Task Force Road Map – Focus Areas Increase market awareness Improve loan origination process Design suitable securitization process Participate in legislative/regulatory process Encourage issuance of mortgage instruments

4. 4 Major Issues… Asset origination Needs standardization Revision of legal framework Continued lending under banking law Borrower education & protection Tax incentives Asset transfer Optimize land registration process Banking & privacy laws restrict loan transfer Foreclosure is untested

5. 5 Major Issues, cont… Securitisation Incomplete / non-existent legal regime Needs critical mass Security issuance, listing & trading High transaction costs – VAT, transfer taxes, etc. Needs further regulations Training & development for regulators, issuers, intermediaries & investors

6. 6 Formulated Next Steps/Activities Revise legal/regulatory framework Standard mortgage documents Market survey – supply & demand Reporting statistics Market participant training & education Borrower education

7. 7 Status of Mortgage Legal Regime Current primary market legal framework is functional but needed improvement: Mortgage Loan Law 190/1999 EGO 200 & 201/2002 CNVM Regulation 2/2000 NBR & CNVM Methodological Norms 3/2000 Secondary market legal framework is virtually non- existent = Lack of refinancing alternatives for lenders Ancillary laws need changes & harmonisation Regulatory/supervisory regime is unclear & incomplete – NBR, CNVM & Exchanges

8. 8 Mortgage Legislative Package Task Force Motivation Strong will to adopt legal framework for secondary market - market driven, donor assisted Goal - submit complete legislative package to the GOR before the 2004 summer holiday Proposed Legal Structure Amended Mortgage Loan Law nr. 190/1999 (“MLL”) Mortgage Bond (“MB”) Securitisation Law - Special Purpose Vehicles (“SPV”) Suggested changes to ancillary laws – land book, securities, etc.

9. 9 A debt instrument secured against a pool of specifically-identified, eligible mortgage assets (cover pool) Priority of bondholders over cover pool in the event of bankruptcy of the issuer High quality first rank mortgage assets secured by residential or commercial real estate Cover pool - at least nominal value of bonds in circulation, often overcollateralised Dynamic – cover pool may substitute assets Dynamic – cover pool may substitute assets Qualified trustee for cover pool Qualified trustee for cover pool Matching of assets and liabilities Matching of assets and liabilities Additional special supervision Additional special supervision On balance sheet treatment On balance sheet treatment What is a Covered Mortgage Bond?

10. 10 Mortgage Bonds Borrowers: Private Commercial Mortgage credit institution Investors: Institutional Private Supervisory Office, Trustee Extends loans First rank mortgage Issues mortgage bonds bonds Grants capital

11. 11 What is Securitization? Structured financing that converts assets or cash flows into a capital market instrument/security Examples: Mortgages, home equity loans, car loans, credit card receivables, student loans, corporate debt, commercial paper, tax liens, intellectual property, future flows, etc. Investor has legal and structural preference over the asset Unbundles the mortgage process  lower funding costs

12. 12 Special Purpose Vehicle - SPV Bankruptcy remote entity – only purpose is to hold assets and perform related activities Isolates assets from insolvency of seller Requires tax neutrality May be a trust, partnership, or joint stock company Originator sells assets to the SPV “true sale” ensures removal from bankruptcy estate “Off balance sheet” treatment May retain some components – servicing or subordinated tranches SPV issues securities – may be debt or equity interests

13. 13 MBS Securitization Process

14. 14 Next Steps - Mortgage Legislation Present Mortgage Legislative Package to GOR and regulators For further information please contact: Pamela Hedstrom phedstrom@deloittece.comphedstrom@deloittece.com Andrei Burz Pinzaru aburzpinzaru@deloittece.comaburzpinzaru@deloittece.com Cristiana Stoica sca@stoica-associatii.rosca@stoica-associatii.ro Adriana Gaspar adriana.gaspar@nnkp.roadriana.gaspar@nnkp.ro