Thailand's state-owned Secondary Mortgage Corporation (SMC) - established in 1997 to purchase mortgages from financial institutions - looks likely to face criminal charges for fraudulent activity related to its securitization program.
Deputy Finance Minister Chaiyos Sasomsap recently ordered an investigation into allegations that fake documents were used in the acquisition of more than 100 accounts, as well as to scrutinize the relatively high level of irregular and nonperforming loans on SMC's books.
The three-month investigation will come to a close at the end of January. The early indications are that Sasomsap will petition the Attorney General's Office to file criminal charges against financial institutions (FIs), developers, and SMC officials suspected of fraud. Nine SMC officials implicated in the case have already been relieved of their duties.
The main accusation is that officials colluded with private businesses to buy assets at inflated prices on a 30-year securitization deal completed in September 2003. Although five FIs have been implicated, one in particular - Thai Keha Credit Foncier - is facing the most heat.
According to local media, Thai Keha had two roles in the transaction: booking loans to go into the SPV and analyzing credit information of the underlying pool. Late last year, it emerged that at least THB1 billion of the THB3.1 billion ($78.6 million) loans originated by Thai Keha for SMC are nonperforming. That accounts for nearly all of SMC's 32% NPL ratio.
A close examination of why so many assets were now distressed allegedly revealed several cases where the assets booked lacked proper documentation and others where properties were up to 10 times overvalued.
The situation for Thai Keha seems grave, and the credit company's application for bank status has been suspended. SMC, however, seems likely to continue as normal. Senior executives not implicated in the court proceedings insist that the agency should continue operating and focus on building closer ties with another state entity, the National Housing Authority.
SMC has also been linked with a securitization program by the Government Housing Bank, designed to inject long-term funds into the bank to boost its origination program.
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