Leading housing finance companies and banks engaged in home finance are looking at the option of tapping the overseas mortgaged-backed securities market, which offers cheaper and sizeable funds.

Large housing finance majors have indicated their desire to target international investors in the United States and the United Kingdom.

However, to wet international investor appetite and to make it a viable proposition, the size of issuances have to be in the region of $500 million.

"There is some talk of international MBS, but this would require domestic housing companies supplying adequate data. Access to overseas investors offers cheaper and diversified funding. It also provides larger size funds for longer maturity periods," said Fitch Ratings senior director head of Asia Pacific structured finance Ben McCarthy.

Anything less than $500 million would prove to be expensive in terms of cost, he added.

At the same time unless domestic originators of MBS provide adequate data and follow best practices, they will find it difficult to tap international investors.

McCarthy said: "Investors need to know how many mortgages default yearly and if defaults take place, how much money is lost. Data is not readily available on prepayment risk."

McCarthy said that the international market was open to investing in Indian paper provided the n of the loans were open to explanation on how the cash flows will work.

"International investors will need to go for currency swaps and political risk covers," he added.

McCarthy was in the country to address a one-day seminar on "Mortgaged Backed Securitisations in India -- Taking Stock," organised by FitchRatings jointly with Citigroup.

The seminar centered upon imparting education to investors and making them more aware of what information ought to be given by issuers in order to bring about best practices in the country.

Domestic housing majors eyeing the international MBS market will need to look into regulations like foreign direct investment and how they need to hedge the funds received in dollars when the same is brought back into the country, said FitchRatings India managing director Amit Tandon.

A primary reason for housing majors to tap international funding stems from the limited size of the Indian MBS market.

More than 46 per cent of housing loans in the US are securitised, against three per cent in India, said industry sources.

While the Indian MBS market has come out with a number of issues in the last couple of years, investor interest has not picked up much in the country.

This is partly because of the lack of proper education, want of adequate data and transparency, said McCarthy.

At the same time, "in a liquid market there is a thirst for assets. Investors are buying everything without adequate due diligence," he added.