What is Purchase Without Recourse (PWOR)?
- Cagamas purchases conventional loans on a without recourse basis, i.e., Cagamas does not have any recourse to the seller institution and assumes the full credit risk of the customer.
- The seller institution receives proceeds from the sale of the loans up-front and receives a servicer fee as the appointed servicer for servicing and administering such loans on behalf of Cagamas.
Key Features of PWOR
- Outright sale to Cagamas, no recourse for default risk
- Islamic and conventional transaction
- Standardized structure and documentation
- Pricing depending on quality of assets
- Cash purchase and/or settlement by way of issuance of Cagamas bonds to the seller institution
- Seller institution will be paid a servicer fee on a fixed periodic basis post purchase for the services rendered
- Seller institution will be appointed as servicer for loans sold – customer(s) not affected
Benefits of PWOR
- Transfer of credit risk
- Full capital relief
- Management of portfolio concentration risk
- Shift to fee-based income
- Improves Return on Asset / Return on Risk Weighted Capital
- Improves earning stability
- Savings on rating, legal SPV and advisory fees
- Flexible transaction size
- Does not require large transaction size to achieve economies of scale as in the case of Asset-Backed Securities