Direct investment structure
In a direct investment structure, the mortgage receivables are transferred directly to the investor and thus appear on the investor's balance sheet. In the Dutch market, the transfer is typically made by means of a 'silent assignment' (stille cessie). The originator, a DMPM subsidiary remains the only entity in contact with the borrower. For investors, this means that DMPM protects them from direct exposure to consumers and the related reputational risk and required licenses. All cash flows related to the mortgage receivables are transferred from the originator to the investor after deducting any applicable fees.
Indirect investment structure
In an indirect investment structure, DMPM does not transfer the mortgage receivables to the investor, but to an intermediate entity that holds the assets on behalf of the investor. The investor can choose between an SPV or an FGR (see below), which are funded by the issuance of a note (in the case of an SPV) or a participation purchased by the investor (in the case of an FGR).
- SPV: The intermediate entity can be set up as a regular special purpose vehicle. The transaction documentation dictates how the SPV will be run and DMPM would be appointed to carry out any actual activities, such as cash management, on behalf of the SPV. Through its business partners, DMPM is also able to use existing structures to facilitate indirect investment opportunities through an SPV.
- FGR: The intermediate entity can also be structured as an FGR, 'Fonds voor Gemene Rekening'. The main difference between an SPV and an FGR is the fact that a custodian and a fund manager are appointed to oversee the performance of the FGR. In essence the objective is the same: to hold the mortgage receivables on behalf of the investor.
Depending on the investor's preferences, it either carries the note/participation on its balance sheet or consolidates the intermediary and thus the mortgage receivables it holds. All cash flows related to the mortgage receivables are transferred from the originator to the investment structure. The investor receives these amounts as interest on its note investment or as a return on its participation.
In the platform, we always include a Collection Foundation. This creates a bankruptcy remote solution and secures the cash flow from the consumer to the investor.
