Case study: Diversification of the investment portfolio through Dutch mortgages

LOW RISK, RELIABLE RETURNS

Dutch mortgages presented a compelling solution due to their perceived low risk and relatively high interest rates in the European context. "Dutch mortgages are a low-risk asset class that still offers good returns," says Ivo. "The infrastructure of the Dutch market, with several Originate to Distribute lenders (regiepartijen), allow investors to build exposure relatively easily. This platform-based approach enabled us to build our own business in Dutch mortgages without significant investment in resources.’’

 

FINANCIAL STABILITY KEY FACTOR IN CHOOSING DMPM

MeDirect entered into discussions with several parties, but ultimately found that DMPM was the best fit. ‘’The financial stability of DMPM, as part of the Blauwtrust Group, compared to other market players, was a key factor in our choice for DMPM,'' explains Ivo. ‘’The good reputation of DMPM and its sister organisations in the Blauwtrust chain, including mortgage servicer Quion, was also important to us.’’

 

SOLID IMPLEMENTATION AND SET-UP

The entire process, from orientation to the first origination, took about a year. The time to market could have been shorter, but it took longer, partly because MeDirect had to coordinate with its regulators for approval. "Since the bank sees the activity as material outsourcing, we needed to get appropriate approvals from the regulators," explains Ivo. In addition to preparing legal documents, the bank also wanted to take sufficient time to set up regulatory reporting processes to ensure full compliance from the very start.

 

PIONEERING A MULTI-INVESTOR PLATFORM

MeDirect was the first investor to invest in HollandWoont, one of the multi-investor platforms developed and managed by DMPM. As the first investor, the bank took an active role in both the financial reporting and the mortgage offering. As a result of this pioneering role, it played an important part in the development of the platform, participating in decisions on product conditions, documentation, etc. 

Now that the multi funder platform is in place, it is relatively quick and easy for new investors to join.

 

CONTINUOUS MONITORING 

MeDirect's investments in Dutch mortgages have de-risked and reshaped its balance sheet. Communication with DMPM is efficient and smooth, according to Ivo. ‘’In addition to our scheduled meetings, we have easy daily access to our portfolio manager Schalko. We value the formal and informal lines of communication with him and others within DMPM.’’

‘’DMPM provides us with the data we need on the underlying portfolio,'' he continues. ‘’We receive daily reports at loan level and convert them into our own reports. To keep internal stakeholders informed on both portfolio and market developments, we use DMPM's publicly available quarterly report and market insights tool.’’

‘’We also receive a quarterly investor update where our portfolio manager personally updates us on current issues and key developments, both in our portfolio and in the market. The nice thing about these meetings is that we can dig a little deeper and discuss the implications for our specific portfolio.’’ 

 

FLEXIBILITY THROUGH SECURITISATION

Initially, MeDirect aimed for rapid growth, supported by favourable market conditions. ‘’At some point after we started working with DMPM, we required additional liquidity to continue our growth in mortgages," explains Ivo. ‘’With DMPM's help, we set up a securitisation program, and successfully completed three transactions using HollandWoont's NHG mortgages as collateral. Each time the process was quick and smooth: DMPM assisted operationally, taking all the administration out of our hands. The success of these securitisation transactions helped us to take advantage of periods that spreads were beneficial. For us, this flexibility is very important.’’

One of the challenges the bank faced in the first transaction was the lack of historical data. Rating agencies need historical data to properly assess the credit risks in the portfolio. At the time of the first transaction, this data was not available as they had only been investing in mortgages for a year. ‘’Fortunately, DMPM was able to help by gathering data on other comparable portfolios to create a data package that was useful to the rating agencies," says Ivo.

 

WANT TO LEARN MORE?

Through strategic investment in Dutch mortgages and a successful partnership with DMPM, MeDirect effectively diversified its portfolio. Would you like to learn more about how DMPM can help your organisation to achieve its investment goals? Read more about our services and investment solutions, or get in touch.