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D.Gantugs: Eight percent interest housing loan will continue

Trans. by B.DULGUUN

Lately, rumors have been spreading among the public about the possibility of stopping the housing loans with eight percent interest rate. Executive Director of Mongolian Mortgage Corporation LLC (MMC) D.Gantugs was interviewed for clarification on this matter. 

The Housing Mortgage Program, which issues the eight percent interest housing loan, has been active for some time. How has the program impacted society and economy?

The Housing Mortgage Program, implemented by the government and Mongol Bank since June 2013, has contributed significantly for supplying housing needs of Mongolia. The program has continued for 20 months and commercial banks have newly issued eight percent interest housing loan or reduced interest rates of previously granted housing loans of 48,400 households in total. Mongol Bank has released transparent reports on this every month. The total outstanding mortgage debt had reached 2.24 trillion MNT, according to the February 2015 report.

The program was able to provide a big incentive for residents taking out mortgage loans nationwide. Also, an increasing number of people are becoming interested in buying apartments with medium and long-term loans, so the program has been able to actively support employment of these individuals.

A study showed that over 100,000 people work at commercial, industrial and service sectors that are closely related to the construction sector. Launching the mortgage program has protected their stability of employment, and employer organizations received support for preventing potential financial risks caused by slow economic growth. 

What’s the role of MMC in this program?

Our company is responsible for the issuance of asset-backed securities (ABS). At the end of February 2015, we issued four mortgage-backed bonds, each worth 1.3 trillion MNT, to 36,000 households. The majority of people granted with the eight percent interest loan are people aged up to 45.

It’s important to highlight that compared to practices of other developing countries, Mongolia’s stock market isn’t capable of developing its urbanization and housing markets by issuing asset-backed and long-term securities due to inadequate legal environment and economic resources.

Uncertainty about the continuation of the eight percent interest housing loan program is growing among the public because of lack of information regarding the purpose of bond issuance and financial resources, reliability and perception of risk of bond issuance in the markets.

I believe one of MMC’s major tasks is to eliminate this lack of information, provide more specific and credible promotions and advertisement, and increase public awareness about ABS. Our company is cooperating with professional organizations in providing necessary information to legal structures and investors regularly to improve the ABS market. 

Banks’ lending criteria is being raised and residents are complaining about it. Why are lending criteria being raised?

High lending criteria is not only connected to the housing loan but also directly connected to requirements and conditions for granting good quality loans with low risks. Our company didn’t set new restrictions, regulations or procedures for issuing the eight percent interest loan when the program was launched.

There are three main types of regulations that must be followed by everyone when initially determining these lending criteria. Firstly, requirements in the Regulation on Mortgage Loan Operation approved in 2008, the Regulation on Mortgage Financing approved in June 2013, and the Price Stabilization Program approved through the government resolution have to be consistent. The second set of regulations to follow includes the Laws on Asset-backed Securities Market, Registration, Evaluation, Cash Deposits, Payments and Lending Operations, as well as requirements in Civil, Insurance and Mortgage Laws.

Our company is making timely settlement of securities issued by banks under the Housing Mortgage Loan and providing normal and smooth payments to holders of securities. In 2014, we made a total of 84 billion MNT worth of transactions, and these payments are being used again as another source for the eight percent interest housing loan. MMC is planning to continue ABS, upgrade the program, and execute transactions two times more than those made in 2014.

 How many people from rural settlements are applying for housing mortgage loans?

At the start of February 2015, ABS worth over 1.32 trillion MNT was issued to a total of 31,000 households. Around 32.5 percent of these households were residents from rural settlements. If we account it with the amount of credit, 25.8 percent of the total mortgage loans were granted to rural areas. Lately, construction work of residential buildings in rural areas is expanding rapidly nationwide and the outlook for meeting housing demands of provinces and soums is looking positive.

 A regulation to include eight percent interest loans for apartments in rural areas has been passed. How is this work processing? Have people in rural areas applied for it?

Last year in May, the government made amendments in related regulations. Some infrastructure works, implemented at province centers since November 2014, are now ready for commissioning. The regulation of MMC was amended to include apartments in rural areas, which meet criteria set by Mongol Bank and have adequate solutions for heating and water supply infrastructure, in the housing loan program with eight percent interest rate.

It’s been determined that evaluations for buildings in rural areas that are being purchased by residents with eight percent interest loans will be executed by professional organizations and the organizations have to report to banks on whether the buildings meet lending criteria. In addition, land ownership of apartments must be certified and be valid for up to 20 years. 

The MMC securitizes lending portfolio received from banks and puts it up for the second market. The majority of residents aren’t aware or don’t understand what securitizing is. Can you clarity the term?

MMC was established in 2006 to develop the secondary market for housing investment through securitizing. Since then, our company repeatedly conducted studies and began implementation in 2009. By the end of 2009, we provided securities for a total of over six billion MNT, traded with banks, and bought housing mortgage in package with the revenue secured from banks. We paid securities charges before its deadline in 2013, and closed charges of securities owned by investors.

Our company supervises and buys loans issued to residents from banks and financial organization, as well as financial receivables, and attracts sources from investors by guaranteeing financial assets and issuing bonds. Afterwards, these receivables are actively administrated into the stock market turnover. This process can be understood as securitizing. This process isn’t only executed between MMC and banks but is also dependent on the specifics of transactions, asset type and nature of the securities, as well as related conditions. The Financial Regulatory Committee must be notified and approval of the committee is required.

 Currently, how many securitizations have been made?

The first ABS, a mortgage-backed bond, was issued in December 2013. Since then, we received four approvals from the Financial Regulatory Committee and issued securities worth over 1.32 trillion MNT to date.

 Will the eight percent interest housing loan continue sustainably? Even if the government has changed, what conditions are required for continuing the loan without interruptions?

It’s possible to continue issuing the loan. This issue was raised when the program was first executed. The securities charges, which I mentioned before, are later used for supplying housing needs. Increase in revenue and savings of people after the economic growth are the main factors for finding financial sources for banks. The stock market will see sustainable growth in the future in relation to adoption of many important laws such as the Securities Market Law and Investment Fund Law in 2013. One of the fundamental impetuses for sustainable stock market growth is macro-economic stability and its balanced growth prospects.

 

Source: http://economy.news.mn/content/207871.shtml

 

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Posted by on Mar 30 2015. Filed under Prime Interview. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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