HOME PURCHASE FINANCE IN EGYPT by Raymond Struyk Egypt Financial Services Project Funded by USAID Ju

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HOME PURCHASE FINANCEIN EGYPTbyRaymond
StruykEgypt Financial Services ProjectFunded by
USAIDJune 2007
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Egypt Financial Services Project

• Working with mortgage lenders and their
  regulators
• Real property registration
• New financial instruments
• Establishing a credit bureau, i-Score

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Home Purchase FinanceLenders and their Regulator
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Real Estate Finance Law

• Passed in 2001, with important amendments to the
  implementing regulations in 2005
• Applies to all mortgage lending
• Offers serviceable basis for lending sensible
  foreclosure procedures but they remain untested
• Set more detailed standards than common (LTV,
  PTY) neglects insurance
• Mandates 3-part loan agreement

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Tripartite Agreement

• Two Party Agreements
• Buyer seller
• Buyer lender
• Tri-Partite Agreement
• buyer, seller, lender

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Tripartite Agreement
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Law 148/2001, Finance Agreement--Important
Points--

• The number and amounts of the installments of the
  balance of the price, and the conditions for
  their settlement, providing they shall be Defined
  until they are fully collected.
• The seller's commitment to register the realty in
  the name of the buyer, clear of any real right
  (in rem) of third parties.
• The buyer's commitment to record the lien on the
  installments which are transferred to the
  financier, as security for their collection.

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Further Notes on the ThreeTypes of Lender
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Installment Sales

• By far the dominant financing form
• No data collected on volume
• Effective interest rate said to be 20
• Purchasers subject to several restrictions
• Unregulated but subject in principle to
  disclosure under
• 2006 Consumer Protection Law

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Commercial Banks

• Mortgages are an attractive new product line to
  the highly liquid banks.
• Account for about 70 of mortgage lending by
  financial institutions.
• Most are just entering the market
• Expect an increase in lending toward the end of
  the year.
• Subject to CBE limit of 5 of assets in total
  real estate assets.

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Mortgage Finance Companies

• Specialized non-depository lenders.
• 2 operating since late 2004 2 more registered
  and starting up operations, one advertising
  Shariaa compliant products.
• Account for 30 of mortgage loan volume from
  regulated lenders.
• Subject to tight liabilitycapital gearing
  ratio.

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Mortgage Finance Authority

• Regulator for
• Mortgage finance companies
• Egypt Mortgage Refinance Company
• Grants licenses for
• Mortgage brokers
• Appraisers
• Foreclosure agents
• Overall Responsibility for mortgage market
  development

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Egyptian Mortgage Refinance Company

• Secondary mortgage facility
• Licensed in June, 2006
• Well capitalized receiving substantial
  international
• support
• Potentially important for risk management.
• Will refinance (not purchase) mortgages
  initially
• Operational in 2007?

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Loan Volume(LE mln)
Definitions are problematic
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Loan Terms
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Challenges

• Professionalism in mortgage origination and
  servicing
• Broaden the range of loan products
• Risk managementmagnitude and complexity increase
  sharply with introduction of long term loans
• Developer installment sales

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Whats Next?

• Based on experience in transition economies in
  Southeastern Europe and CIS, expect sharp
  expansion in lending
• Consumer knowledge and understanding are low
  could affect expected rate negatively
• Strong oversight on origination and servicing is
  critical