2004 Finance Forum

1
2004 Finance Forum

• Access to Housing Finance in MENA

2
Common issues constraining access to HF in MENA

• Inefficient macro environment which encourages
  short term horizon
• Lack of access to LT funds by retail lenders
  (including capital market)
• Residual problems from a history of state
  dominated financial systems (i.e., preferential
  treatment of state housing banks, direct
  provision of housing with non-transparent ,
  regressive subsidies)
• Inadequate legal and regulatory infrastructure to
  support housing finance (and the financial sector
  in general)
• Inefficient property registration systems
• Inability to enforce housing collateral for
  social/political reasons

3
Outstanding mortgage debt/GDP lt 1 in many MENA
Countries

• Compared to .
• Russia 0.3
• Mexico 8.8
• South Africa 26
• USA 50
• Denmark 70
• Algeria, Kuwait, Egypt, Jordan, Saudi Arabia,
  WBG

4
Reforms to improve access to LT Funds

• Algeria Creation of a secondary mortgage
  institution (liquidity facility) to provide banks
  with LT refinancing in exchange for the
  collateralization of their refinanced mortgage
  loans.
• Egypt Access of mortgage lenders to longer-term
  funding through market-based vehicles (e.g., a
  liquidity facility is being planned as one
  possible vehicle) and mortgage securities.
• West Bank and Gaza Creation of the Palestine
  Mortgage and Housing Corporation (PMHC) to expand
  market-based HF services and the Palestine
  Housing Finance Corporation (PHFC) a liquidity/
  refinancing facility providing long-term loans to
  retail lenders

5
Reforms to better manage credit risk

• Creation of mortgage insurance or guarantee
  products
• Algeria SGCI established to provide banks with
  insurance, covering risks of death, full
  invalidity, temporary or permanent insolvency of
  the Borrower, and up to 90 of the outstanding
  debt.
• Morocco Establishment of mortgage guarantee
  funds designed to give banks an incentive to
  reach low-income populations
• WBG Palestine Mortgage Insurance Fund (PMIF)
  provides mortgage credit risk insurance to retail
  lenders

6
Reforms to improve efficiency of subsidy programs

• Algeria Creation of a direct demand, up-front
  subsidy mechanism
• Morocco abandon of the main demand-side housing
  subsidy in the form of subsidized interest rates
  on mortgages
• JordanGovernment removed subsidized lending
  programs from the Housing Bank and removed their
  regulatory advantages over other banks. Set up a
  housing fund that grants directly beneficiaries
  an interest rate buy down

7
Reforms to improve the legal/judicial framework
and property registration

• Algeria legal reforms governing ownership, and
  mortgage rights, in particular, property rights,
  and in the different provisions governing
  mortgage law
• Egypt new judicial processes related to
  enforcement of collateral and modernization of
  property registration system

8
The Jordanian experience

• Significant initiatives over the last decade have
  resulted in impressive growth in mortgage
  financing
• Government removed subsidized lending programs
  from the Housing Bank and removed its regulatory
  advantages over other banks
• Established a liquidity facility the Jordan
  Mortgage Refinance Company to provide
  fixed-rate medium-term refinance loans to banks
  making mortgage loans
• Removed old legislation limiting the total amount
  of interest payable on a loan, which had limited
  maturities to approximately 7 years
•  

9
The results in Jordan

•  Market-rate mortgages increased 350 percent
  between 1997 and 2002, and now represent nearly 6
  percent of GDP. Residential mortgages are about
  8 percent of total bank lending.
• At least 10 banks compete to make residential
  mortgage loans, and adjustable rate mortgages are
  now regularly available for 20 year periods and
  for 80 percent of a homes value.
• Catalytic effect of the Jordan Mortgage Refinance
  Company on the primary market (where the
  withdrawal of the State Housing Bank was quickly
  offset by newcomers), as well as on the bond
  market (little volumes, but yet the main issuer
  of fixed income paper over 2 years).