Contractual Savings Schemes for Housing, Minimum Quality Standards in Mortgage Lending, Training for

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Contractual Savings Schemes for Housing, Minimum
Quality Standards in Mortgage Lending, Training
for mortgage lenders

• Dr. Friedemann Roy
• AIPR Workshop in Tsakhkadzor, 29 May 2005

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Objective of Government of Republic of Armenia
Development of fully integrated primary and
secondary markets
Insurers
Borrowers
Secondary Market Operator
Origination, Servicing, Risk Management and
Funding
Funding and Risk mitigation
Loan take-up
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Important elements of a primary mortgage market

• Contractual savings schemes for housing (CSSH)
• Banking operations for mortgage lending process
• Minimum quality standards in mortgage lending
• Legislative infrastructure
• Institutional set-up of secondary mortgage
  operations
• Improvement through suitable training

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Establishment of CSSH in Armenia
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Mechanics of CSSH systems
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Risks of CSSH

• Economic view volatile inflation rates may deter
  customers from saving
• Banking view trust of people in banks for
  longer-term commitments
• Risk management view
• liquidity risk how do we ensure a constant
  inflow of new savings into the scheme?
• interest rate risk how do we anticipate future
  market developments?
• Government view subsidisation is likely to
  distort housing finance market (e.g. crowding-out
  of other saving products)

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Benefits of CSSH

• Economic view CSSH may assist in inducing higher
  savings activities
• Banking view CSSH is applicable to modest loans
  for home improvement
• Risk management view savings period serves as
  pre-screening instrument indicating future
  reliable borrowers
• Government view CSSH may improve access of low
  and middle income groups to mortgage finance

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Minimum quality standards in mortgage lending
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Definition of minimum quality standards (MQS)
MQS set standards in all areas of the mortgage
lending process

• Origination
• Counselling
• Customer application
• Credit assessment
• Property valuation
• Loan offer and completion

• Servicing
• File set up
• Payment processing
• Quality control
• Document control
• Customer service

• Funding and Risk Management
• Management information, IT, account management
• Arrears management
• Funding of mortgage loans
• Deposits
• Bonds
• Liquidity facilities

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Benefits of MQS

• Standards in underwriting, documentation,
  administration and data collection facilitate
  long-term funding in the primary and secondary
  market
• Improve transparency for customers and advances
  interest into this type of loan product
• Increase competition, thus lowering prices for
  mortgage loans and expanding access to mortgage
  loans
• Facilitate supervision, thus reducing overall
  risk in the economy

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Prerequisites for MQS

• Successful implementation requires a broad
  acceptance within financial community
• Good co-ordination between supervisory bodies and
  banks facilitate introduction
• MQS may necessitate further amendments in
  legislation

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Training programmes in mortgage lending
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Objective of training
Training programmes will assist financial
institutions in providing better service to their
customers and improving the risk management of
their mortgage portfolios

• Prerequisites
• Training should focus on practical experiences,
  case studies and interactive teaching
• Training should adapt to changing needs of
  financial community

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Possible outline of training programme

• Introduction to mortgage lending
• Housing market dynamics
• Legislative and regulatory framework
• Loan underwriting and origination procedures
• Servicing and ensuring their repayment (including
  arrears management)
• Monitoring procedures of mortgage loans
• Loan instruments

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Possible outline of training programme

• Introduction to mortgage lending
• Housing market dynamics
• Legislative and regulatory framework
• Loan underwriting and origination procedures
• Servicing and ensuring their repayment (including
  arrears management)
• Monitoring procedures of mortgage loans
• Loan instruments

• Pricing and risk management issues
• Risk management in relation to home mortgages
• Pricing of mortgages
• Refinancing of home mortgages
• Issuance and circulation of mortgage securities
• Formation and functioning of secondary mortgage
  market

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Dr. Friedemann Roy Bankakademie
e.V. Sonnemannstraße 9-11 D-60314 Frankfurt am
Main T 49-69 154008-622 F 49-69
154008-670 E-Mail roy_at_bankakademie.de