The Housing Financing Fund has reached an agreement with Arion Bank to reinvest about ISK 50 billion of the Fund's liquid funds by acquiring a portfolio of indexed mortgage loans from the Bank. Arion Bank will continue to service and collect the loans. The funds are for the most part a payment which the Fund will receive when Arion Bank settles a covered bond series later this fall. It is extremely important for the Fund to reinvest its liquid assets in this way in comparable secured investment categories that secure the Fund an adequate long-term return.
The aforementioned purchase is an important step in the Fund's financial management, which aims to minimize its loss on granted loan prepayments and to finance the payment of interest and repayments of the Fund's previous issued bonds. The largest portion of the Fund's assets are indexed mortgage loans, but the significant amount of prepayments of these loans has resulted in a considerable accumulation of liquid funds. The Fund is expected to maintain a balance between assets and liabilities and it is therefore important for the Fund to be able to invest funds in indexed assets over the long term. The Fund's opportunities for investment in the market have been limited due to limited supply and high demand for indexed assets in recent quarters. It is therefore advantageous for the Fund, from treasury and risk management perspective, to have secured a significant amount of interest-bearing indexed loans in one transaction. The purchase is expected to be successful as soon as all the conditions have been met and the relevant regulators have given their approval.