IFC rppmd presentation by lifemate


									International Finance Corporation

     Russia Primary Mortgage
      Market Development

         Primary Market
     Standards & Unification
         Working Group

• Project rationale

• Project strategic vision

• Key Project directions

• Project expertise and services

• Project activities update and roadmap
        Project rationale

• Russian mortgage industry completes
  the formative phase
• The need to increase production
• Key industry issues
• Structural changes
What’s wrong with this?

 1913 – 25%

 2005 – 0.4%
                 Formative phase
• Mortgage industry exists
      >USD4B bank outstanding portfolio as of 6/2006

• Lenders and borrowers are aware of the product
      >200 lenders/>200K borrowers

• Basic legal and regulatory infrastructure in place
      Federal Laws, banking regulation, personal and corporate taxation

• Nationwide presence, sizeable mortgage loan portfolios
      >10 players with >USD50M in loans outstanding

• Secondary market starting
      whole loan transactions, mutual funds, offshore issues

• Main domestic and international players
      Major Russian and international banks

• Organizational structure - universal producer
      ¾ of the industry – universal banks
    Need to scale up production
•   40M households in Russia            145M population, 3 person family
•   25M homeowners           2/3 households

•   25M units dilapidated         2/3 households

•   USD 650B medium term market capacity
          •   25M*52m2*USD500 – new housing needs

•   USD 160B medium term borrower down payment capacity
          •   25M*50%*52m2*USD250 – collateral value

•   USD 375B (short term) - USD 455B (med term) lending opportunity
          •   Short term – collateral value is used as downpayment
          •   Medium term – 70% of housing needs

•   USD 20B Banks’ mortgage lending capacity
          •   capitalization USD 95B * 20% LT lending limit
•   <1/3% market penetration
•   Supply 20 times less than demand

Sources – CBRF, Rosstroy, Rosstat, WorldFacts
             Key industry issues
• Universal producer      Low operational efficiency
  organizational model    High transaction costs
• No functional           Risks concentration
                          Low territorial unification and liquidity
• Localized markets
                          Ineffective capital utilization
• Regulatory and legal
  infrastructure issues   Low funding volumes and margins
• Fragmented              High payment and data flow risk
  standards               Construction finance issues
• No volume business      Assignability and transferability issues
  management tools
                          Poor analytics and risk management
• Low technological       No data standards
                          No marketing data
• Macroeconomic
  issues                  High liquidity and refinancing risks
                          Poor collateral quality
             Need to change
• The existing universal production system is not capable
  of meeting the demand
• Need to improve investment quality of the market
   •    Product and functional standards
   •    Risk reduction and spread
   •    Payment and information flow quality
   •    Pipeline predictability, diversification, quality
• 3 possible production intensification methods
   •    Cooperative
   •    Organizational
   •    Technological
           Project strategic vision
• Structural industry change required
• Cooperative intensification not feasible
• Legal and regulatory infrastructure improvement
       • Innovative legal constructs
       • Existing environment perfection
• Organizational intensification
       • Standardization of products, processes, terminology
       • Specialization by function, role
       • Risk management
       • Product development
• Technological intensification
       • Payment and data flow process improvement
       • Transaction and periodic event process improvement
       • Analytical data management
    Key Project activity vectors
•   Legal and regulatory infrastructure improvement
         • Introduction of escrow accounts and mortgage insurance legislature
         • Property Title creation and transfer registration regulatory improvement
         • Regulation on process participants’ corporate form
         • Construction finance legal issues
         • Regulatory environment of mortgage and derivative instruments
•   Organizational intensification
         • Specialized participants’ business plan and policies
         • Standardization of procedures, terminology, methodology
         • Personnel training
•   Technological intensification
         • Standardization of data description, content, analytics, management
         • Process automation and mechanization
         • Intra- and extra-industry data exchange format, process, guidelines
         • Standard legal documents and forms
           Organizational and technological
                                                      • Review credit
 • Develop standardized                    Credit
   mortgage products                       Policy
                                                                Under-        • Establish standardized
   suitable to the local Mortgage                                               mortgage underwriting
   environment           Products                                               procedures

                                                                           Insurance • Introduce custodial,
• Develop        Mortgage                                                   Products   insurance, and risk-
  standardized   Servicing                                                             management
  mortgage                                                                             procedures
                                         Pilot Banks                     Network • Assess distribution
                      Back &
                      Middle                                                        network
                      Office                                Internal                effectiveness
                                                            Audits &
   • Develop appropriate               Business
     back and middle office              Plan
     procedures                                                         • Review internal
                                                                          audits and controls
                             • Review business plan
                               for mortgage lending
Project expertise and services
•   Project Team
         •   Seasoned Russian and internationally trained mortgage professionals
         •   ‘just from’ the industry, areas of expertise:
              •       Tax and accountancy, Legal, regulatory
              •       Operational procedures and strategy
              •       Analytics and risk management
•   Regional focus
         •   2-3 regional offices
         •   3-5 regional Partner Banks
•   Project Services
         •   Full-scale consulting on residential mortgage lending to Partner Banks
         •   Discrete training events to a wider professional audience
         •   Strategic and operational consulting to specialized operators
         •   Legislative initiatives, consulting and expertise
         •   Consumer education initiatives
•   Project Technical Partner
         •   International mortgage full-cycle operator
         •   Practicing residential mortgage lender, broker, etc.
                    Project activities
                  update and roadmap
•   Regional selection process
         •   Regional information-gathering visits to continue thru 2005
              •      Saint-Petersburgh metro and region
              •      Greater Volga region
              •      Urals/Western Siberia
              •      Moscow metro and region
         •   2 regional offices to open in Q1 2006
•   Partner Bank selection process
         •   Linked to the regional selection
         •   Work started with 2 banks in Moscow metro already
         •   Consultations with candidates daily
         •   To finalize by year-end 2005
•   Technical Partner selection process
         •   RFP stage, shortlist to appear by 11/2005
         •   Candidates from Holland, UK, US, Germany, Switzerland, Canada
         •   Work to start by year-end 2005
                  Project activities
                update and roadmap
•   Legislative and regulatory initiatives
         •   Consultations on amending current residential construction finance law
         •   Consultations on amending current law on mortgages and mortgage derivatives
         •   Consultations on mortgage derivative instrument regulation
         •   Plans to draft the law on escrow accounts
         •   Plans to draft the law on mortgage insurance
         •   Plans to participate in real estate title registration reform

•   Standardization vector
         •   Draft of the standard residential mortgage documentation – zakladnaya and loan
             agreement to be presented by 11/2005
         •   Loan and property level data points standard to be introduced in 2005
         •   Origination procedures, policies and guidelines consulting already begun
         •   Analytics guidelines to be introduced in 2005
                 Working Group SUPER
                  Standards and Unification of Primary Market
•   Over 70 major industry players
         •   Main mortgage banks – private, international, state
         •   Legislative and regulatory think tanks
         •   Federal Agency – AHML
•   Subject-based commitees
         •   Legal and legislative initiatives and standards
         •   Tax and accountancy standards
         •   Data management, analytics and risk management
         •   Borrower education and PR
         •   Mortgage insurance (PMI)
•   Main activity vectors to date
         •   Construction finance regulation and legislature
         •   Standard mortgage transaction documents (zakladnaya and loan agreement)
•   Near term roadmap
         •   Loan and property level data standards
         •   Analytical and reporting methodology guidelines and standards
         •   Title registration reform work
         •   Escrow accounts legislation
         •   Consumer education/popularization initiatives
• Andrey Milyutin
   •   495 410 36 60
   •   amilyutin@ifc.org

• Lydia Golikova (media relations)
   •   495 761 6343
   •   lgolikova@ifc.org


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