Compagnie de Financement Foncier

The Savings and Financial Security Act of June 25, 1999 defines the conditions upon which the sociétés de crédit foncier are authorised to grant or to acquire (article L.515-13):

• secured loans (article L.515-14);
• exposures to or guaranteed by public authorities (articles L.515-14 to L.515-17);
• tranches and debt securities issued by a securitisation fund or a similar entity;
• debt securities and instruments deemed to be sufficiently secured and liquid.

The assets of Compagnie de Financement Foncier originate from three main sources:

• the transfer of the eligible part from Crédit Foncier de France’s balance sheet to Compagnie de Financement Foncier’s in 1999 at its inception;
• the eligible loans bought to Crédit Foncier de France : residential mortgage loans, local authorities or public sector loans;
• the other eligible assets bought on the market since 1999: tranches and debt securities issued by a securitisation fund or a similar entity; loans and securities issued by the public sector and replacement values.

Compagnie de Financement Foncier’s assets are high quality and diversified, in terms of counterparty type but also in terms of geographic breakdown.

They are composed of:

• international and local public sector loans, which represent more than the half of total exposures;
• residential mortgage loans, which constitute a third of the balance sheet;
• replacement values and other assets.

Compagnie de Financement Foncier refrains from buying commercial property assets.

Compagnie de Financement Foncier implements a strict asset selection process, including additional asset purchasing criteria that incorporate purchasing scores and minimum credit ratings by the loan originator, the Crédit Foncier.

Thus, not only the quality of the eligible assets provides Compagnie de Financement Foncier with a high level of security, but the supplemental constraints that it imposes to itself and the internal credit ratings limit its credit risk exposure. 

Selection system and commitment monitoring at Crédit Foncier level are based on a system for assessing the borrower’s creditworthiness.

• Assessment of the creditworthiness of private individuals is based on a systematic rating system at the origination and then on a monthly basis and on decision-making support tools developed by the Group. It aims at crossing data between customer and loan data at origination, loan guarantees, and takes into account the customer’s credit history.
• In the same way public sector loans are subject to a systematic rating system at the origination and then on an annual basis:
  - Those for the French public sector are made through decision-making support tools; and
  - Those for the international public financing are realized thanks to internal credit rating models. These models closely reproduce the models implemented by the three leading rating agencies (S&P, Moody’s and Fitch Ratings) and happen to be on average more conservative than our own.

Compagnie de Financement Foncier then selects the loans on the basis of their rating and, for mortgage loans, on their probability of default and their Basel II credit rating. The selected loans are bought by Compagnie de Financement Foncier at a market price and are covered against interest rate risk. For residential mortgage loans, this filtering system allows the independence of the financing policy of Compagnie de Financement Foncier from commercial policy of Crédit Foncier de France and other grantors. Some eligible loans may be rejected by Compagnie de Financement Foncier and would be eventually bought years later (2 to 4 years) if and only if no payment incident was observed during the period between.

In this business model, Compagnie de Financement Foncier assures the recurrent profitability of its activity: the market price of the assets bought by Compagnie de Financement Foncier takes into account the level of the interest rates, the loss and default probabilities, the credit management fees and define the parameters of profitability.

Thanks to these management rules, Compagnie de Financement Foncier can make durable its AAA/Aaa/AAA rating and collect resources on the markets at the best conditions. Crédit Foncier and Groupe BPCE improve their market share on mortgage and public sector loans.