Sources for mortgage finance

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Sources for mortgage finance
Nicolas Chitov President CEO CityMortgage Bank
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Content

• Primary mortgage market in Russia and other
  countries
• Secondary mortgage market trends and prospects
• Key issues for mortgage market development in
  Russia
• Prospects for mortgage finance sources
  development in Russia

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Mortgage Lending in Russia Legal Issues
1998 Mortgage Law was adopted in Russia. 2003
Mortgage Backed Securities (MBS) Law was adopted
in Russia. 2004 27 amendments to fundamental
legislation acts including Civil Code, Housing
Code, Bankruptcy Law, Mortgage Law, MBS Law and
some others are expected to be adopted by the end
of 2004. These amendments substantially
strengthen creditors right and protect mortgage
bondholders right and ability to take over
mortgage collateral coverage in the case of the
bond issuer inability to service the mortgage
bonds
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Primary mortgage market
Source European Mortgage Federation, Central Bank
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Primary mortgage market
Source European Mortgage Federation, Central Bank
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Primary mortgage market
Source European Mortgage Federation, Central Bank
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Primary mortgage market factors for growth

• Macro-economic indicators
• GDP Growth in 2003 ?. - 6,5
• Trade balance in 2003 ?. 57.5 bln.
• Direct investements growth in 2003 2,7 times to
  2002 ?. ( 6,5 bln.)
• Gold-value reserve for 10/2004 exceeded 100
  ????.
• Direct investements into sock of capital for 2003
  12.
• Consumption per capita growth 2003 7,5.
• Industrial production growth 2003 7,0.

Source Goskomstat, Central Bank, Troika Dialog
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Primary mortgage market factors for growth
Source REA SAVA

• While prices are growing, mortgage is the most
  profitable way of buying real estate
• Mortgage is getting more affordable because of
  growing competition and refinance expansion
• There are conditions for MBS market development
• Mortgage development is a state priority

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Moscow Real Estate Market Prospects
Opportunities
Population over 15 million (including
suburbs). Migration of qualified workforce,
business, and students from other regions to
Moscow is growing rapidly. New residential
construction is over 5 million sqm per year and
still far from meeting the demand. According to
Knight Frank research study Moscow investment
attractiveness score is 14.5 (greater than for
all other Eastern European, and majority of
Western European capitals). Moscow (including
suburban areas) residential real estate market
has annual turnover of 4.5 billion (according to
Russian Realtors Association).
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Moscow RE Market Pricing Statistics and Trends
Source MIAN (Moscow Investment Real Estate
Agency)
Average price per residential sqm in Moscow as of
September 1, 2004 - 1800
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Primary mortgage market
JP Morgan Chase Bank research shows a great
potential for mortgage market in Russia
Assumption in long-term perspective mortgage
will reach 5 to GDP
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Primary mortgage market

• Key products
• Currency Rbl, USD
• Rates 15 in Rbl, 10,5- 15 in USD
• - Term 10-27 years
• LTV 70-80
• PTI 40
• Pre-payment allowed.
• Key players
• Large state and private banks Vneshtorgbank,
  Sberbank, Raiffeisenbank
• Specialized mortgage banks CityMotgage Bank,
  DeltaCredit

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Product Mix Key Parameters

• Type of loans first financing loans equity
  take out loans.
• Term 10 and 20 years.
• Currency USD.
• Repayment monthly annuity payments.
• Prepayment penalties 5 penalty on prepaid
  amount if prepayment is made within 6 months from
  disbursement, no penalties afterwards.
• Interest rates fixed, from 10.5 to 14.
• Occupancy type always owner (borrower)
  occupied.
• Lien always first lien.
• Up to 80 LTV for first financing loans, if the
  down payment is greater than USD30,000.
• Insurance coverage
• Life and disability policy for the Borrower and
  Co-Borrower, for 110 of the loan outstanding,
  for the whole life of the loan (Bank is
  beneficiary)
• property loss/damage policy
• property title loss policy

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Underwriting Guidelines Key Parameters

• Minimum loan amount 10,000.
• Maximum loan amount 400,000.
• Maximum Payment to Net Income ratio 40.
• Maximum Obligations to Net Income ratio 70.
• Minimum age 21 years.
• Maximum age 55 years.
• Spouse is always a Co-borrower (except if there
  is a wedding contract).
• Obligatory life and disability insurance for the
  life of the loan in the amount of 110 of the
  amount of the loan, for the borrower and the
  co-borrower.
• Higher education.
• Work History Requirements minimum 12 months
  minimum 4 months with the current employer.
• Down payment should not have been borrowed.
• Employment stability and career growth are
  considered positive factors.
• Significant and liquid assets (real estate,
  land, expensive jewelry, expensive car, art
  items, etc) are considered positive factors.

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Secondary mortgage market world-wide practice
MBS issued in 2003 ?.

• MBS share in debt securities 2002-2003
• ?U - 15
• USA - 24
• Nominal volume for mortgage obligations for
  12/2002 ?. 1,5 trillion euro.
• MBS market growth in USA is 1,5 times for the
  last 4 years and it reached 5,13 trillion USD.

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Secondary mortgage market world-wide practice

• Two main sources for mortgage finance
• Lending banks assets (long-term loans, fixed
  capital)
• MBS
• Two main functions for MBS
• Refinancing
• Risk management
• Two types for securutisation
• Balance
• Non-balance

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Refinancing sources

• Secured credit facilities
• Revolving warehouse facilities
• Whole loan sale, servicing released retained
• Corporate bonds
• Covered bonds
• Mortgage Backed Securities (MBS)
• REMIC bonds

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Secondary mortgage market in Russia

• Potential for new financial instruments demand
• Daily deposit for credit organizations in Central
  Bank
• I Q, 2004 7,6 bln
• Pension accumulate funds
• 2003 ?. 2,9 bln. USD.
• 2005 ?. 8,4 bln. USD. (evaluated)

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Secondary mortgage market key issues

• Primary mortgage market development
• Statistics for mortgage market and real estate
  market
• Whole loan sale development
• Joint standards for mortgages
• Mortgage insurance development
• - QUALITATIVE MORTGAGES

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Secondary mortgage market key issues

• Legal and fiscal
• taxation of SPV and bankruptcy remoteness
• meeting TRUE SALE criteria
• selling loans to non-bank institutions
• covered bonds coverage is not included into the
  bankruptcy pool
• MBS taxation
• residential real estate under construction
  mortgage lender is not fully protected
• senior coordinative MBS structures
• currency control issues

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Secondary mortgage market key issues

• Financial and technological
• Demand for MBS development (pension funds,
  insurance companies, banks, investment funds)
• Mortgagee changing borrower informing
• High transaction costs
• Associate risks pension and life insurance
• Credit bureaus

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CityMortgage Bank Background

• Established in 2004 by a management team and
  Rosgosstrakh Insurance Company
• Mono product specialist residential mortgage
  lender
• Holds a universal banking license
• Shareholders have committed 40 million equity
  capital
• Headquartered in Moscow with 3 branches in Saint
  Petersburg, Samara and N-Novgorod
• Key management has more than 4 years experience
  in mortgage origination and servicing in Russia
  (since the inception of mortgage lending in
  Russia)

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CityMortgage Bank Partnership with RGS

• Rosgosstrakh (RGS) is the oldest Russian
  insurance company.
• Established in 1921.
• 2,800 outlets throughout Russia.
• (third branch network after Post of Russia and
  Savings Bank of Russia)
• Over 80 thousand insurance agents.
• Over 30 million existing clients.
• 25 stake belongs to the Russian Federation.
• RGS provides a solid platform for the Bank to
  achieve regional expansion
• and rapid overall business growth.

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CityMortgage Bank Mortgage Lending Capabilities

• Commenced active lending operations in March 2004
• Originates loans in Moscow, Saint Petersburg,
  Nizhniy Novgorod and Samara
• Originated over 900 loans since inception,
  totaling over 45 million
• Average monthly disbursement in 2004 5.5
  million
• Operational capacity (monthly disbursement) for
  2005 10.0 million
• Underwriting guidelines were developed in
  cooperation with Fannie Mae, EBRD and IFC
• Contact us
• Hot Line 7 [phone]
• Office 7 [phone]
• www.gorodskoi.ru