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									                                         HOUSING FINANCE PRACTICES IN TURKEY

    Housing Finance Practices and Development
     of a Secondary Mortgage Market in Turkey
                                By Onur Özsan, Director, Oyak Konut1 and
                                    Cem Karakas, EVP, Oyak Konut2

                                                 Population Distribution by Age, 2003
Turkey, being one of the largest economies       (Source SIS)
                                                                                       70+; 3%
of the World, still lacks an appropriately
functioning housing finance system. In the
last couple of years there has been                          50-69;
increased awareness in the public and                        12%
private circles for the urgent need of
cultivating a system that would alleviate the
shortfalls in the Turkish economy in the
housing finance front. Nonetheless, Turkey
has to act swiftly to reverse the opportunity
costs it has incurred to date due to the lack
of such a system.

Inadequate urban planning, illegal
urbanization, and chronic shortage of
metropolitan residential units have                                                                                      0-29;
                                                         30-49;                                                          59%
produced the dominant conundrum in the
Turkish real estate market. The policy
choices adapted to date have been ill
advised; consequently more than half of the
dwelling stock in Turkey is not properly        Recent developments in the Turkish           appropriate regulatory environment for such
licensed. A chronic shortage of funds           economy have created a better environment    a market, the government has drafted a bill
channeled to the housing finance market         for longer-term debt and investment tools.   which would amend certain laws in order to
left about 40% of the existing housing stock    As the government’s domestic debt            minimize the regulatory impediments
in need of renovation. These are all            requirement diminishes, investors are        against a robust mortgage market in Turkey.
inhibiting factors for an appropriately         seeking alternative tools with reasonable    Although regulatory developments are very
functioning housing finance system, yet         risk grades. Mortgage backed investment      important, they should be coupled with low
they also create an immense demand for          instruments have gained significant          inflation and interest rates and a stable
such. Given the market characteristics and      popularity in Turkey within the last 10      macroeconomic environment.
existing infrastructure, Turkey is set to be    months. These instruments will also foster
one of the largest housing finance markets      home ownership rates among the less-         This paper discusses the existing primary
among the emerging economies.                   served households. In order to create the    home loan market practices, the regulatory

 Mr. Onur Ozsan is the Director of Housing Finance of Oyak Konut Insaat A.S., a fully owned real estate project development subsidiary of
OYAK (Armed Forces Pension Fund). Mr. Ozsan holds a B.Sc. Degree in Engineering from Middle East Technical University and an MBA
degree from University of Illinois at Springfield.
 Mr. Cem Karakas is the Executive Vice President of Oyak Konut Insaat A.S., a fully owned real estate project development subsidiary of
OYAK (Armed Forces Pension Fund). Mr. Karakas holds a B.A. Degree in Management from Middle East Technical University and an MBA
degree from Massachusetts Institute of Technology.

                                        HOUSING FINANCE INTERNATIONAL – March 2005                                                    19
                                          HOUSING FINANCE PRACTICES IN TURKEY

infrastructure, the need for a secondary           production has significantly declined. There    is disturbed towards tenancy mainly due to
market and the impediments, and the                were two main reasons for the sharp drop in     the lack of adequate financial structures to
developments in housing finance market in          housing production figures; first of all the    foster homeownership.
Turkey.                                            government temporarily ceased issuing
                                                   construction and occupancy permits and
                                                   secondly purchasing power of nearly 80%         3. PRIMARY MARKET PRACTICES
2. DEMOGRAPHICS                                    of the population diminished significantly.
                                                                                                   Mortgage lending in Turkey has been mainly
a. Population Characteristics                      The total number of housing units as of         limited through a chronically high inflation
As per 2003, the population of Turkey              2004 June is estimated to be above 17           rate and resulting high real interest rates.
amounts to 72 million with an annual growth        million. This number, however, includes         The high domestic debt requirement of the
rate of 1.8%. The age distribution of the          summer homes, second homes, and                 Turkish Treasury and adversely high interest
population signals a significant future need       shantytowns. Hence, when analyzed in            rates offered by domestic debt instruments
for new housing that would vastly surpass          conjunction with the demographic data,          causes a crowding out effect in the
the levels required in the past.                   there appears to be growing demand for          secondary bond market. This phenomenon
Approximately 60% of the population is             quality housing units at an affordable price    indirectly affects the cost of funds available
below the age of 30. The trend towards             that will continue well into the future. This   for mortgage lending and inhibits growth of
diminishing household sizes is yet another         would add up to the existing metropolitan       retail banking in general.
factor that further imbalances the supply-         housing shortage of approximately 1.5
demand equilibrium.                                million units.                                  There is a need to provide predictable take-
                                                                                                   out financing to help spur housing
b. Household Income and Affordability              d. Home Ownership                               production. An unintended effect of an
    of Housing                                     In 2003, there were 16,070,093 households       inadequately functioning primary mortgage
Income is distributed relatively unequally in      in Turkey. The most updated statistic (2000     market is that it affects the willingness of
Turkey where the wealthiest 20% of                 census data) suggests that 68.2% of the         developers to construct homeownership
households receive over 50% of the income          total households are homeowners                 units, which over time, can lead to a
generated in Turkey. Urban households              (10,959,803 households). 23.9% of them          shortage of housing units, particularly at the
constitute only about half of the population,      are leaseholders, 2.1% of them live in          more affordable price points. Construction
but earn nearly 75% of the income. This            government housing and 4.9% of them are         companies and developers build housing
uneven income distribution signifies the fact      neither leaseholders nor own their houses.      units that they know they can sell. Having a
that Turkey, being a large country in terms of     Culturally, home ownership is the most          predictable source of mortgage finance,
population, is inhabited by a segment that is      adopted means of investment. Socially,          which potential homebuyers can access to
as wealthy and as large as many developed          Turkish families tend to be homeowners          purchase new units from homebuilders,
countries around the world.            Annual      rather than being tenants.            Since     helps homebuilders to construct housing.
household incomes per quintiles are given          institutional housing finance mechanisms
below in Table 1.                                  do not exist, home ownership is financed        Most homeowners in Turkey had to procure
                                                   mainly through family resources. Both           their home without resorting to mortgage
c. Dwelling Stock                                  these similar longitudinal data and other       lending. Less than 1% of the households
Due to the earthquake in 1999 and                  demographic analyses indicate that the          had an outstanding mortgage balance.
economic crises in 2000 and 2001, housing          typical tendency towards home ownership         Mortgage debt outstanding was a mere

                              Table 1 Annual Household Income by Quintiles, 2002/03 (Source: SIS)
            Quintiles                            Turkey                              Urban                                Rural
                                      2002                2003               2002              2003              2002                2003
     Total                            100.0               100.0              100.0             100.0             100.0               100.0
     1st                               5.3                 6.0                5.5               6.1               5.2                 6.4
     2nd                               9.8                10.3                9.7              10.3              10.3                11.0
     3rd                               14.0               14.5               13.9              14.5              14.7                15.0
     4th                               20.8                20.9              20.5              20.8              21.7                21.2
     5th                               50.1                48.3              50.4              48.3              48.0                46.3
     GINI Coefficient                  0.44                0.42               0.44              0.42              0.42                0.39

20                                       HOUSING FINANCE INTERNATIONAL – March 2005
                                               HOUSING FINANCE PRACTICES IN TURKEY

0.224% of the GDP in 2003, a record for the            persons are mainly upper level income            take the application, conduct the real estate
Turkish mortgage lending industry. This                families. In other words, families with some     appraisal, check for borrower risk and
compares to 71% in the US and 45.7% in                 amount of wealth accumulated for                 underwrite the loan. Servicing could be
EU.1                                                   downpayment can receive adequate funds           done by any other branch of the same bank
                                                       towards home ownership. The families in          regardless of having done the origination or
A McKinsey and Company study claims that               need of funds for home ownership are not         underwriting.
the mortgage market in Turkey could reach              able to participate in the demand side of the
USD $20-$30 billion over time: based on a              market as they are seldomly capable of           a. Products
top down comparison, if Turkey’s                       getting involved in housing transactions. As     Lenders extend loans to borrowers who
mortgages/GDP reaches 4 to 5 percent                   mentioned above, such families are either        wish to purchase a single-family
similar to other emerging countries, the               tenants, live in a family-financed dwelling or   detached/semi-detached/apartment style
mortgage market could reach US $20 -$25                in illegal dwellings.                            home. The lenders generally rely on the
billion, or alternatively based on a bottom-                                                            appraisal company’s determination of the
up estimation, if the private rental ratio             Since lenders have to bear high risks            eligibility of the property subject to
drops to European levels through mortgage              caused by duration mismatch and do not           transaction. Some lenders have their own
financing, the size of the market could reach          have the means of hedging it properly, they      staff to do the appraisal.
US $25-$30 billion.”2                                  target families with lower risk profiles. This
                                                       behaviour leaves a wide segment of families      The lenders offer a combination of Turkish
The mortgage lending activity through the              underserved. This group is targeted by           Lira (TL) – denominated, and either dollar, or,
retail banks is illustrated in Table 2 below.          governmental agencies to a very limited          Euro denominated home loans. The most
                                                       extent but this approach is far from being       popular products are fully-amortizing 36-
Although the target market for mortgage                adequate.                                        month and 60-month loan products,
lending activities is assumed to be middle                                                              although lenders will utilize pricing as a way
income families, outstanding mortgage loan             Lenders, mainly commercial banks,                to discourage the use of the 60-months.
amount per person suggests that these                  disburse loans at branch level. Branches         The average life of a typical mortgage loan

                                      Table 2 Mortgage Lending Through Retail Banks (Source TBA)
        Years        Currency Denomination              Number of Home Loans            Extended Loans (US$)          Outstanding Loans (US$)
        1998                   TL                              16,591                        166,008,071                    107,652,583
                               FX                               2,001                         97,833,177                    88,185,452
                              Total                            18,592                        263,841,249                    195,838,035
        1999                   TL                               9,941                         70,375,791                    67,687,305
                               FX                                645                          40,668,731                    73,100,092
                              Total                            10,586                        111,044,522                    140,787,397
        2000                   TL                              55,859                        828,907,297                    737,521,548
                               FX                               2,756                        245,605,886                    172,589,861
                              Total                            58,615                       1,074,513,184                   910,111,409
        2001                   TL                               2,457                         12,231,509                    190,936,807
                               FX                                454                          21,015,410                    53,080,172
                              Total                             2,911                         33,246,918                    244,016,979
        2002                   TL                               9,767                         80,697,328                    104,490,789
                               FX                               1,148                         76,402,961                    82,309,618
                              Total                            10,915                        157,100,288                    186,800,407
        2003                   TL                              23,305                        371,117,673                    384,126,263
                               FX                               2,694                        200,710,287                    188,287,412
                              Total                            25,999                        571,827,960                    572,413,675
        2004                   TL                              96,678                       1,658,601,341                  1,477,227,273
                               FX                               3,771                        362,733,234                    340,280,924
                              Total                           100,449                       2,021,334,575                  1,817,508,197

    European Mortgage Federation, 2003
    “Residential Construction Report-2002.” McKinsey Global Institute

                                              HOUSING FINANCE INTERNATIONAL – March 2005                                                           21
                                                      HOUSING FINANCE PRACTICES IN TURKEY

                                                                   Amount of Home Loans Extended


          millions of USD




                                                               ◆                                     ◆
                                 0                                                      ◆
                                               1998       1999            2000         2001         2002     2003          2004
      ◆                     mio USD             264        111            1,074         33           157      572          2,021

                                                                     Number of Loans Extended

                                                                                  FX           TL






                                      1998             1999              2000          2001           2002          2003           2004
                     FX               2,001            645              2,756           454          1,148        2,694            3,771
                     TL               16,591           9,941            55,859         2,457         9,767        23,305           96,678

22                                                    HOUSING FINANCE INTERNATIONAL – March 2005
                                                      HOUSING FINANCE PRACTICES IN TURKEY

                                                                 Outstanding Home Loans



              millions of USD



                                  600                                                                                  ◆

                                  200         ◆           ◆                                           ◆

                                            1998         1999          2000            2001          2002             2003          2004
             ◆                  mio USD      196          141           910             244           187              572          1,818

is as short as 24-36 months due to                        contribute to a high default rate when rates      exchange denominated loans are quite
prepayments.                                              rise, particularly with lower-income              welcome by upper level families, given a
                                                          borrowers who cannot absorb the payment           generally higher level of financial
Mortgage lending has been limited for a                   shock, ARMs are often used in economies           sophistication, but are not ideal for those of
number of reasons. First, lenders are                     like Turkey, which have had high-inflation        lower income who may not be as financially
limited to providing only fixed-rate                      rates. In an effort to meet market demand         sophisticated.
mortgages under the Consumer Law, which                   for ARMs, Turkish banks have been
requires a lender to provide a borrower with              extending foreign exchange denominated            Macroeconomic conditions, such as those
the exact amount of monthly loan                          loans with longer terms and better interest       resulting from the 2000 and 2001 crises,
installments through the life of the                      rates, simply because they are not allowed        have had a limiting effect on mortgage
mortgage. This requirement, in effect,                    to extend ARMs in TL; however, this results       originations, as can be seen in Table 3
prohibits the origination of adjustable-rate              in sizable foreign exchange liabilities being     below. High inflation rates during those
mortgages (ARMs). While such loans can                    carried on their balance sheets. Foreign          crises resulted in the purchasing power of

           Table 3 Current Monthly Mortgage Interest Rates (Source: Akbank, Oyakbank, HSBC, Garanti, Isbank)

             Akbank                            Oyakbank               HSBC                                  Garanti                   Isbank
  Term       FX                      TL        FX       TL            FX*         TL                        FX             TL         FX           TL
  1          0.70                    1.60      0.70       1.55        0.74        1.95                      0.70           1.65       0.70         1.55
  2          0.70                    1.60      0.70       1.70        0.74        1.85                      0.70           1.65       0.75         1.55
  3          0.70                    1.60      0.75       1.70        0.74        1.65                      0.70           1.65       0.75         1.55
  4          0.75                    1.60      0.75       1.70        0.74        1.65                      0.75           1.65       0.80         1.55
  5          0.75                    1.60      0.75       1.70        0.74        1.59                      0.75           1.65       0.80         1.55
  5+         0.75                    1.60      0.80       1.65        0.74        1.59-1.55-1.49            0.75           1.60       0.80         1.55

* There is no constant data for FX loans disbursed by HSBC. It is stated that the rate varies according to the loan amount. 0.74 is the average.

                                                   HOUSING FINANCE INTERNATIONAL – March 2005                                                             23
                                          HOUSING FINANCE PRACTICES IN TURKEY

nearly 80% of the population being               Bank of Turkey and Consumer Credit                 Loan to value ratios (LTVs) are applied to the
diminished significantly. And, because           Bureau (KKB). Independent of the data              appraised value of the real estate property.
lenders are limited to originating fixed rate    acquired from these institutions, most of the      Some lenders have their in-house appraisal
mortgages, they will only originate short-       lenders utilize their internal credit scoring      staff and some outsource this service. In
term mortgages only. Terms have very             systems.                                           the case of in-house appraisal services, the
recently extended to 8-10 years (table 3).                                                          valuation is done quite conservatively.
Lenders still seem to be serving the             Lenders also utilize certain ratios to ensure      However, LTVs in these cases go as high as
mortgage needs of upper income                   that a loan applicant’s income is enough to        85-90%, where the in-house appraisal value
households, as families of lower income          pay the mortgage.                                  is lower than the market levels. On the
need longer repayment periods to make a                                                             other hand, the majority of lenders
mortgage affordable.                             If the Consumer Credit Bureau/Central Bank         outsource this service to certified real estate
                                                 reports are negative, the borrower has             appraisal companies. In these cases, LTVs
Mortgage lending has also been limited           insufficient income or insufficient funds for      are around 60-75% depending on the
because there is no source of liquidity.         down payment, the applicant may be                 lender.
Lenders are funding mortgage loans from          denied. The Central Bank is a provider of
their deposit base, and have a fundamental       bad credit information, where KKB offers a         iii. Insurance Services
mis-match between assets and liabilities.        range of products including good and bad           Hazard and Earthquake Insurance is
Without a functioning secondary mortgage         data of the consumer.                              required by all lenders. This has been a
market, mortgage lenders limit their                                                                requirement since 1999 and is provided by
mortgage lending.                                According to the KKB, all major banking            Turkish Catastrophe Insurance Pool (TCIP).
                                                 institutions are members of the KKB. The           TCIP takes the first loss position and private
                                                 proof of this is the fact that 95% of all          insurers take the second loss position. The
Although the maturities promoted by              consumer lending in Turkey is originated           annual premiums due to TCIP are collected
lenders are quite similar, there is a            using the KKB’s services. Currently, there         by private insurance companies from the
significant difference in interest rates. The    are approximately 45 million records in the        home owners and then forwarded to TCIP.
interest rates on home loans of the largest      KKB’s database                                     Earthquake insurance rates are not fixed.
mortgage lenders at the time of writing are                                                         They are determined according to the type
provided in Table 3. Mortgage loan rates in      ii. Real Estate Appraisal Services                 of dwelling and the earthquake zone it is in.
Turkey are quoted on a monthly basis.            The real estate appraisal industry within
                                                 Turkey is growing. There are currently more        Most of the lenders require that the
b. Servicing                                     than 100 licensed appraisers in Turkey. The        borrower have in place a life insurance
There are multiple ways that home                role of an appraiser is to provide a reliable      policy that would remain in effect over the
mortgage borrowers may repay their               estimate of the value of a property that           term of the mortgage. Such a policy would
mortgages: via a branch, via a direct debit      serves as the loan’s collateral. However,          help to cover the full repayment of the loan
to their bank account, or other electronic       there is not much available data for an            in the event of borrower’s death. Such
means. At time of closing, the borrower          appraiser in Turkey to work with, as there is      policies seem to be available for only one-
receives a repayment schedule from the           currently no computerized database of real         year time horizons, even though most
lender. It is important to note that the         estate sales prices. An appraiser inspects         mortgages terms exceed one year. Hence,
default history throughout many lenders is       and investigates the subject property (for         borrowers must renew their policy annually
minimal, i.e. less than 1%. They sustain         example, outstanding liens; other debt             (at least during the term of the loan).
minimal losses to date on their mortgage         owed, such as water, sewer, or real estate
lending operations, even during the crises.      taxes; and zoning issues), as well as derives      Private mortgage insurance services are not
                                                 valuation information from a wide variety of       prevalent in Turkey. Extensive studies
c. Auxiliary Elements                            sources, including their own data files,           already conducted suggest that there is no
For an effective mortgage market, there          property listings, and brokers or agents who       urgent need for mortgage insurance as this
must     be    well-developed        support     are specialized in specific areas, districts, or   will increase the cost of funds for borrowers.
professions that provide reliable third-party    neighbourhoods.         Historical data is
information and services to the lenders and      generally not reliable - depending upon the        Title registry offices are by far the most
potential homebuyers, as well as well-           neighbourhood and the economic climate,            robust governmental institutions in Turkey.
formed information networks, such as             (e.g. three month old data may be                  Studies conducted by banks suggest that
associations.                                    considered to be “old”). As a result,              over the last thirty years there had been only
                                                 approximately 80% of an appraiser’s work           a few cases of faulty registrations, and
i. Consumer Risk                                 is “done on the street” because there are no       those were due to fraud. In addition, most
There are two main external sources of           computerized records.                              of the lenders re-check the building and
credit risk information in Turkey: The Central                                                      land registries before closing on a mortgage

24                                       HOUSING FINANCE INTERNATIONAL – March 2005
                                          HOUSING FINANCE PRACTICES IN TURKEY

loan. Therefore, there is no need for title      The real estate transaction is first recorded       shore placement practices.          If the
insurance.                                       in the log journal, which keeps records of          conditions were in favour of such domestic
                                                 the date of the transaction. In this context,       placements, there would still be certain
d. Key Government Participants in                the Title Registry Office directory is the          restrictions on the sale or transfer of
    Housing Finance                              official file of the transaction. Since the         mortgage loans from one bank to another.
In Turkey, there are a number of                 transfer of the ownership and recording of          This situation tends to favour the use of
governmental agencies that have roles in         the lien is done simultaneously at the title        mortgage bonds over off-balance sheet
the housing finance system. The key              registration office, there is very little room      methods such as mortgage-backed
agencies are the Housing Development             left for human error. If any, the state is liable   securities. At present the stock market is
Administration (“HDA”) and the Capital           for mistakes made – it is responsible for           more developed than bond and fixed-
Markets Board (“CMB”).         Additional        recovery of losses of an owner that have            income markets.
regulatory agencies that have also an            resulted from mistakes made by the State.
impact on the housing finance system
include the Banking Regulation and               b. Loss Mitigation and Foreclosure                  4. EVOLUTION OF A SECONDARY
Supervision Agency (“BRSA”), the Ministry        “Loss mitigation” is the process a lender              MORTGAGE MARKET IN
of Finance, the Treasury, and the Central        undertakes to work with a borrower to find             TURKEY
Bank.                                            alternative payment solutions to cure a
                                                 delinquency.                                        There are a number of reasons why a
Currently there is a draft being discussed at                                                        secondary mortgage market has not yet
the parliament about establishing a              According to Consumer Law, for a                    developed in Turkey.         Macroeconomic
secondary market institution that would buy      mortgage to be in default, the borrower             conditions, paired with an inadequately
outstanding mortgage portfolios which            must have missed two consecutive                    development capital market, seem to be
conform to standards of this institution,        payments and not responded within 7 days            the greatest inhibitors. For example, high
from the lenders in order to provide liquidity   to the written notice sent by the lender.           domestic debt requirement of the Turkish
to the market. This act also suggests            Banking Law requires that the bank                  Treasury and adversely high interest rates
certain tax incentives and provisions from       establish a loan loss reserve for all of the        offered by domestic debt instruments
some laws such as foreclosure law. Ill-          borrower’s outstanding consumer loans               causes a crowding out effect in the
functioning foreclosure law is one of the        after two consecutive missed payments on            secondary bond market. Hence, mortgage
biggest impediments towards a robust             any consumer loan that it has originated to         banks have only limited access to capital
mortgage-lending program. In Turkey,             that borrower. This implies that if a               market funding for their mortgages. This
foreclosure on properties of defaulted           borrower has missed two consecutive                 phenomenon indirectly affects the cost of
borrowers can take as long as four to five       payments on a car loan, then the bank has           funds available for mortgage lending and
years. With the envisaged implementation         to establish a loan loss reserve for that loan,     dilutes growth of retail banking in general.
of a foreclosure law coupled with a new          as well as any additional credit that the bank
consumer protection act, the government          has extended to that borrower, for example,         As has been previously discussed,
hopes to eliminate certain impediments and       on the home loan, even if it has been paid          mortgage lending in Turkey has been limited
define the standards of “conforming”             on-time. This regulation creates a burden           by high inflation and high interest rates –
mortgage loans These acts are expected to        on the commercial bank by causing it to             two conditions requiring the design and
provide the long expected standardization        keep more reserves than are necessary for           implementation of alternative mortgage
of the primary mortgage market besides           performing mortgage loans.               Such       instruments.       The development of
liquidity.                                       regulations force banks to adopt more               appropriate primary and secondary
                                                 conservative lending guidelines.                    mortgage market financing will increase the
                                                                                                     liquidity and lending capacity of mortgage
3. Legal and Regulatory                          c. Bonds and Securities                             lenders, increase housing affordability, and
   Infrastructure                                The banking system in Turkey is quite               facilitate the wealth accumulation by
                                                 developed. Although some of the banks               individual households.
a. Title and Lien Registration                   have extensive cross border asset
Well-established property registration and       securitization, none has been involved in           Mortgage lenders in Turkey are mainly
foreclosure laws are essential for successful    securitization of mortgage assets primarily         commercial banks. Funding for mortgage
implementation of a mortgage lending             because of limited volume of outstanding            loans is done through savings deposits.
system and these exist in Turkey. Currently,     loans. In spite of adequate laws and                The average term of savings deposits is less
lien records are kept locally, at the Title      regulations for domestic asset backed               then two months.         Therefore, even
Registry Office that covers the area where       securitization, due to poor market                  mortgages with 5-8 years maturity create an
the property is located. In most cases,          confidence and crowding-out caused by the           enormous amount of risk load on banks’
entries are made by hand.                        Turkish Treasury, these banks choose off            balance sheets. Secondary markets will

                                         HOUSING FINANCE INTERNATIONAL – March 2005                                                           25
                                         HOUSING FINANCE PRACTICES IN TURKEY

provide the long-term funds required to         protection law and some other incentives         effect in the domestic bond market
disburse longer-term mortgage loans at the      and exemptions are also defined in this          diminishes in the short run. Finally,
primary market level.                           draft.                                           regulatory infrastructure should be in place.
                                                                                                 In other words, in order to eliminate certain
Currently there is a draft being discussed at   Most important of all, the new draft will        legal impediments, certain laws, such as the
the parliament about establishing a             enable the lenders to extend ARMs despite        tax laws, consumer protection law,
secondary market institution that would buy     the consumer protection act.                     foreclosure law, etc have to be amended.
outstanding mortgage portfolios, which                                                           These amendments are expected to be in
conform to their standards, from the lenders                                                     effect within 2005.
in order to provide liquidity to the market.    5. CONCLUSION
The suggested secondary market entity will                                                       Until the above-mentioned prerequisites are
assume some conduit (Fannie Mae-like)           There is a tremendous expectation for a          met and a domestic secondary market is
functions and some other functions of           robust mortgage market to be up and              evolved, lenders may choose to utilize
FHLB, VA and German mortgage banks.             running in Turkey. All the players are putting   funding their mortgages through cross
This institution is expected to provide         a lot of resources into this development.        border placements.
standardization to the primary market.          However, for a mortgage lending system to
                                                be as effective as it is in western              Buyer’s equity (down payment) plays a
This act also suggests certain tax incentives   economies, first of all, macroeconomic           crucial role for affordable monthly
and provisions from some laws such as           stability should be achieved. Secondly, until    payments. Housing savings fund systems
foreclosure law. Foreclosure law is one of      all the elements of a robust mortgage            is one of the methods to help the buyers
the biggest impediments towards a robust        system is adequately in place, “mortgage         raise equity shares. There is a law of
mortgage lending program as with the            lending” practices should be implemented         incorporation for a housing savings fund
current implementation of this law coupled      on housing development projects as “pilot        issued     by    Housing      Development
with the new consumer protection act,           programs”. This approach would enable            Administration in 1995 in place without
foreclosure on properties of defaulted          the lenders to create homogeneous pools of       secondary regulations necessary for
borrowers can take as long as four to five      mortgages. On the other hand, minimizing         implementation. Housing finance through
years. By eliminating certain impediments       the cost of land for housing development         savings funds support the primary market in
and defining the standards of “conforming”      purposes through proper regulation and           reaching a volume where secondary market
mortgage loans, this act is expected to         utilization of state owned lands would play a    transactions would fit the economies of
provide the long expected standardization       crucial role in making housing more              scale.
to the primary mortgage market besides          affordable, at least until a robust domestic
liquidity.                                      mortgage market is in place. Thirdly, a local
                                                investor appetite towards mortgage-backed
Tax exemptions, faster foreclosure              bonds should increase. This appetite is
procedures, exemptions from consumer            expected to increase as the crowding out

26                                      HOUSING FINANCE INTERNATIONAL – March 2005

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