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Russia’s Answer to Fannie Mae And Freddie Mac Aims for Mortgage-Market Boost

This is a syndicated repost published with the permission of Confounded Interest. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Russia wants to create a secondary market for mortgage-backed securities (MBS). Of course, the devil is in the details.

(Bloomberg) — Russia plans to create a secondary market for mortgage-based securities to increase the availability of housing loans and the number of lenders that can provide them.

The Agency for Housing Mortgage Lending OJSC is in talks with several banks to issue mortgage-backed bonds that are protected against default, following the example of its American counterparts Fannie Mae and Freddie Mac, according to Artem Fedorko, deputy chief executive officer of the state-run organization. A debut 50 billion ruble ($630 million) deal may be signed with Sberbank PJSC in the first half of the year, he said in an interview in Moscow.

“The aim is to create a liquid secondary market for mortgage securities,” Fedorko said. The “ultimate goal” is to create a market for quasi-sovereign debt in Russia that is second only to trading in government debt, he said.

Under the plan, the agency will shield investors from the risk of default by purchasing the underlying assets if borrowers fall behind on their payments, he said.

Russia’s housing-loan market is dominated by Sberbank and VTB Group, which together command an 85 percent share, according to the agency’s data. Active mortgage-bonds trading would bring in more players and deepen the market, Fedorko said.

Low Popularity

However, mortgage bonds do not enjoy wide investor demand because of low liquidity and yields. They are also not popular with banks because their risk weightings don’t allow them to be used to meet capital ratios. As a result, there are only 400 billion rubles of mortgage securities outstanding, while the Bank of Russia estimates the government debt market at 4.94 trillion rubles as at Dec. 1.

The agency is in discussions with the central bank on lowering risk weightings for the securities in capital buffer calculations, Fedorko said. Policy makers are “studying this issue,” the Bank of Russia’s press service said in an e-mailed response to questions.

“This is the key condition for this idea to succeed,” said Sberbank Deputy Chief Executive Officer Alexander Morozov.

Ah, those pesky details. Yes, adjusting the risk weightings used for capital ratios would help improve the popularity of mortgages for Russian banks.

Russia, in their current state, are facing their own affordable housing crisis. Russia Real Monthly Wages YoY fell 10.4% in the latest reading as new home prices in Moscow continue to rise.

russuahome

Might I suggest that Russia promote securitization (and strict underwriting) of multifamily loans? Fannie Mae and Freddie Mac have had an excellent experience with apartment loans. Even at the height of the financial crisis, multifamily serious delinquencies rates remained under 1%.

FFMFSEWR

Nostrovia Comrade!

angry-russian-man-drink-vodka-studio-portrait-isolated-white-background-40561654

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