Central and Eastern European Mortgage Finance
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Mortgage Market Laws & Tools

The Urban Institute

Institute for Market Economics (IME)

USAID

Template for Mortgage Market Assessments


Contents

I. Overview of the Primary Mortgage Market
II. Legal Issues in the Mortgage Market
III. Secondary Market and Funding Issues


I. Overview of the Primary Mortgage Market: Residential Purchase and Residential Construction Lending

A. Profile of Mortgage Lenders

1. Type: Bank, Non-bank, Universal Bank, Mortgage Bank, Private, Public
2. Ownership Structure and National/International Links
3. Market Share, Degree of competition


B. Estimated Value and Number of Residential Mortgage Loans and Loan Size

1. Annual Originations
2. Total Value of Loans Outstanding
3. Mortgage Portfolio as % of assets, % of consumer lending
4. Average Loan Size, Typical Smaller and Larger Mortgage Loans
5. Bank Servicing and IT systems for Mortgage Finance


C. Type of Housing Loans

1. Purchase of New Housing
2. Purchase of Existing Housing
3. Rehabilitation Lending


D. Loan Products

1. Loan Types: Fixed, Variable,
2. Typical Term by Loan Type
3. Interest Rate: Typical Range by Loan type and Term
4. Indexation, Caps, Rules for Variable Rate Loans
5. Currency Denomination and Foreign Exchange Issues


E. Underwriting Criteria for Home Purchase Loans

1. Type of customers being underwritten (income level, market penetration, etc.)
2. LTV (loan-to-value ratio)
3. Employment requirements
4. Guarantor requirements
5. Payment to income ratio
6. Gross Debt Ratio: Residual income requirement after ALL debt payments
7. Source of Downpayment
8. Other Underwriting criteria the bank considers important for mortgage loans


F. Delinquencies and Defaults.

1. Delinquencies: Over 30, 60, and 90 days late
2. Defaults: % of number of loans and % of value of loans
3. Primary causes of Delinquencies and Defaults


G. Foreclosure

1. Incidence of Foreclosure on defaulted loans
2. The foreclosure process, including any major problems.
      a) Typical length of the foreclosure process
      b) Costs involved in foreclosure
      c) Major problems in foreclosure
      d) Auction process


I. Appraisal Policies

1. Role of Bank and Independent Appraisers
2. Appraisal Methodologies
3. Accreditation Standards
4. European and International Associations of Appraiser


J. Credit Enhancement Policies

1. Credit Bureau
2. Property/Hazard Insurance
3. Title Insurance
4. Mortgage Life Insurance
5. Mortgage Default Insurance


K. Expected Growth and Development Profile of Mortgage Lending

1. Expected Market Size: 5 years, 10 years
2. Expected Customer Profiles
3. Key Obstacles to Mortgage Market Development
4. Gaps in Coverage: region, income, ethnicity, etc.


L. Construction Lending

1. Value of Outstanding Portfolio
2. Number of Loans
3. Issues in Construction Lending


M. Government Housing and Mortgage Market Policies

1. Reform Agendas in Mortgage Finance
2. Low Income Housing Policies and Subsidies
3. Subsidy Policy and Mortgage Finance: Compatibility, Integration
4. Contract Savings Systems


N. Real Estate Industry

1. Status of Realtor Activity
2. Real Estate Databases


II. Legal Issues in the Mortgage Market

A. Basic Enabling Laws

1. Title and ownership rights in real property
2. Law on use of real estate as collateral for loan (e.g., Property Law or Mortgage Law)


B. Property Registration Law


C. Law on Enforcement or Execution of Loan Contracts (law on seizing and selling collateral)


D. Fees/Expenses

1. Costs of transaction (esp. notary fees)
2. Transfer and registration fees


E. Tax Treatment of Transaction Fees, Mortgage Interest


F. Financial Market Legal Issues

1. Legal restrictions on investors/investment; Pension Fund asset allocation rules
2. Reporting and disclosure requirements
3. Capitalization requirements
4. Separation of mortgage collateral from other assets
5. Bondholder's priority rights in the event of bankruptcy of issuer


G. Specific Mortgage Market Laws

1. Law on Bankruptcy; Creditor's Rights
2. Law on Banking Supervision
3. Law on Pension or Insurance Funds
4. Law on Mortgage Banking and Mortgage Bonds (or other MBS)
Securitization Law


H. Regulation of auxiliary activities (auditors, accountants, notaries, execution officers, rating agencies, credit bureaus, etc.)


III. Secondary Market, Funding and Regulatory Issues

A. Bank Funding Strategies and Issues

1. Depository and Capital Market Funding
2. Adequacy of Funding relative to Potential Market Demand
3. Estimated Spreads
4. Bank A/L profile


B. Capital Market Profile

1.Market Structure and Depth
2. Maturity Structure
3. Role of Government Debt, "crowding out" phenomenon
4. Government Policies
5. Non-governmental Issuers
6. Buy and Hold versus Trading


C. Bank Risk Management

1. Issues of mismatch: currencies, interest rates, maturities
2. Bank risk management methodologies and systems
3. Internal guidelines and targets


C. Potential Investors: Pension Funds and Insurance Companies

1. Estimated present and future purchasing power
2. Asset Allocation Rules
3. Quota for Govt. Securities
4. Diversification requirements
5. How much can be invested abroad?
6. Restrictions on holding securities from a single issuer


D. Central Bank Regulatory Policy

1. Regulatory Parameters, Risk Weights
2. Attitudes towards asset securitization
3. Views about the mortgage market
3. Concerns about mismatches
4. Overview of the domestic debt market, government policies


E. European and Regional Issues in Funding and Standardization

1. EU Regulations
2. EU Standardization Issues
3. Regional Mortgage Bond or MBS Development