|
Homeward Bound
By Réhab El-Bakry
When Osama Saleh was tapped 10 months ago to head
the Mortgage Finance Authority (MFA), he was well aware that he
was up against a five-year legacy of false starts. Although the
MFA came into existence in 2001 following the passing of Egypt’s
first mortgage law, the authority seemed to face challenge after
challenge leading many to disregard the effectiveness of the law
and the mortgage system as a whole. Saleh has worked hard to change
this perception.
Soft-spoken and patient, Osama Saleh does not lose his focus easily.
His 27-year career in private banking made him an expert in overcoming
the obstacles of the financial services industry. But in his current
role as head of the Mortgage Finance Authority (MFA), he admits,
he is at a disadvantage. “Coming from the private sector,
I was unaware of the way the government works,” he confesses.
“Banking services I could deal with, but this was very different
because we were dealing with a service that was new, there were
very few who were familiar with it, and even fewer who could implement
it effectively.”
Drafted after years of debate, Mortgage Law 148/2001 aims to protect
the interest of both consumer and mortgage provider. It took time
to implement the law, says Saleh, because the government had to
develop the infrastructure to make the system work. “This
is the first time in Egypt’s history that we have something
to organize the system through which real estate is owned,”
he says. “It [provides] a system of protection and reduces
the discretionary power of individuals by setting rules and regulations
that apply to everyone in the market. This is a great move forward
– don’t underestimate the law.”
The MFA was established in 2001 to regulate mortgage finance in
Egypt, license its players and monitor all mortgage activities.
“The best way to sum it up is that we protect all the players
in the market,” says Saleh. “We protect their rights
and ensure that everything is being implemented according to Law
148/2001.”
It sounds simple enough, but after five years, the MFA has only
recently started to make headway. The total value of mortgages in
Egypt is currently £E 350 million, which may not sound like
a lot for a country of 72 million people, but is a marked improvement
over just one year ago, when the total barely exceeded £E
15 million.
But what exactly is a mortgage? According to Saleh, a mortgage allows
people to pay for a piece of property in installments over periods
of up to 30 years. The long-term financing scheme helps buyers to
purchase real estate they could not afford if required to pay cash
upfront, but they could afford in the future. The property serves
as collateral for the loan.
Under Law 148/2001, a mortgage may be given to purchase real estate,
to build a new house or develop property, or to renovate existing
property. In cases where the consumer is buying property within
a residential compound, the mortgage is granted to the buyer but
the name of the developer must appear on the forms.
Saleh explains the process. The first step, he says, is to decide
whether to hire a mortgage broker or go it alone. Brokers help secure
mortgages either through a mortgage company or bank, which pays
their commission fees in lieu of the consumer.
The second step is to decide whether to take out the mortgage from
a certified bank or mortgage finance company. In essence, there
is very little difference between the two. Both pay for the property
in full and effectively own it until the mortgage-holder completes
the payments.
Banks that offer mortgages must be certified by the Central Bank
of Egypt (CBE), which requires that mortgages do not exceed 5 percent
of a bank’s existing portfolio. Egypt currently has two MFA-certified
mortgage finance companies – Egyptian Housing Finance Company
and Taamir Mortgage Company. A third company is in the process of
receiving its license, while another four are studying the market’s
potential.
Paperwork required for the mortgage application includes: proof
of income from an employer or a tax statement, a copy of a personal
or family national identification card, and proof of property registration.
Registration has been a consistent problem hindering development
of the mortgage market because traditionally, Egyptians don’t
register their property. “It was both an expensive and [tedious]
process,” Saleh admits. “We are still working to address
the issue of registration, but like everything else, changing habits
takes time.”
He explains that the mortgage providers will only deal with registered
properties because it gives them assurance that the property is
owned by an individual and that there will be no contention over
who that individual is. Registration fees, previously at 12 percent
of property value – among the highest in the world –
were recently lowered to 3 percent to encourage registration. Earlier
this year, the government also capped the fee at £E 2,000
– an amount on par with international norms.
After the mortgage application is filed, explains Saleh, the bank
or mortgage finance company assigns a third party to appraise the
property. Once the appraisal is completed and both sides agree to
terms, the mortgage contract is signed. The bank or mortgage finance
company processes the paperwork and, upon verification and approval,
the price of the property is paid. At that point, the buyer is given
the keys to their new home.
For Saleh, the keys to making Egyptians accept the new system are
simplicity and credibility. The mortgage process should be simple,
but the people managing it must be professional and trustworthy.
As such, the MFA handles the training and licensing of brokers and
appraisers. There are currently 210 government-licensed brokers
and 82 certified appraisers in Egypt, all of whom Saleh says have
completed courses conducted by the MFA’s trainers.
The MFA is also working with the CBE to establish a national credit
bureau, Estealam, which is expected to open in 2007. The bureau
would use a point system, deducting points for late payments or
default on credit card and mobile phone bills, among other things.
A better credit rating would make it easier to apply and receive
a mortgage and other loans. “It’s all about the perceived
risk,” Saleh explains. “The higher the risk [for the
mortgage provider], the higher the requirements and guarantees and
vice versa.”
When the mortgage law was first passed, there was much public debate
over who would benefit. Critics said the law targets the upper class
while offering little to the masses. Saleh, however, disputes the
claim, arguing that mortgages are available to anybody and everybody
regardless of property value. He says the MFA is acutely aware that
those with limited means would be less inclined to apply for a mortgage
despite the fact that they are in greater need of financial support.
As such, the authority created the Guarantee & Subsidy Fund
for the Mortgage Finance Industry, an independent body that provides
both subsidies and guarantees to limited-income families. “We
have a philosophy to build the pyramid from the bottom up,”
he says.
The fund, which currently has a total of £E 350 million drawn
from government coffers and private donations, provides a cash subsidy
worth 15 percent of property value, which is deducted from the mortgage.
To be eligible, individual income must be less than £E 1,000
per month and £E 12,000 per year. For a married couple, monthly
income should not exceed £E 1,500 per month and £E 18,000
per year.
If a client falls behind on payments, Saleh explains, the fund kicks
in to make three consecutive payments on the client’s behalf.
The mortgage holder can then resume payments and repay the fund
in installments over six months to a year. The guarantee the fund
provides is important, says Saleh, because “anyone can go
through a financial squeeze.”
Unfortunately, sometimes this contingency plan is not enough. In
cases where the borrower is unable to resume payments, Saleh explains,
the lender forecloses on the property. When this happens, there
is another property appraisal and auction, which a court-appointed
legal agent, trained and certified by the MFA and the Ministry of
Justice, oversees. Upon the sale, the mortgage provider collects
the outstanding balance on the property. The difference in sale
price is then turned over to the mortgage holder.
“This is a very good aspect of the law because it is humane
to all parties. Under other civil codes, the lender forecloses on
the property and sells it for [the amount] owed, while the money
paid by the consumer is of no consequence. The number one priority
is for the lender to get the money they lent out,” says Saleh.
“But under the mortgage law, this system ensures that both
sides walk away with the fewest losses possible.”
While Egypt’s mortgage law is modeled after other international
mortgage laws, it does vary in some aspects, particularly when it
comes to insurance. In most countries, mortgaged properties must
be insured. Egyptian law, however, does not require it. But since
mortgage providers are responsible for the full cost of the real
estate even in the case it is damaged or destroyed, or the owner
dies, they are unlikely to approve a mortgage unless the applicant
has life and fire insurance.
Besides, says Saleh, who would want their remaining kin to be saddled
with debt if they unexpectedly die? “This would mean the family
could end up on the street,” he says. To prevent this, the
MFA is working with the Egyptian Insurance Supervisory Authority
(EISA) to develop specific products for real estate buyers such
as mortgage and title insurance, which will give prudent homebuyers
more options.
For Saleh, one of the MFA’s biggest challenges right now is
to inform and educate the public about mortgages. The authority
is not waiting for clients to simply come knocking on its door.
Instead, it has taken a proactive approach, launching a public awareness
advertising campaign and networking with potential clients.
The campaign is especially important, Saleh says, because the public
has more misconceptions about the mortgage system than facts –
a situation he blames largely on the media. “The media initially
presented the law in a very complicated manner,” he says.
“We are trying to address this by sharing more information.”
The MFA has launched a training program for local journalists to
increase their understanding of how the mortgage system works with
the aim being to help these journalists present mortgage activities
more accurately in their articles.
Another top priority for Saleh is establishing a mortgage refinance
system. Since mortgages are payable over 20 to 30 years, mortgage
financing requires a lot of cash upfront. With a mortgage refinancing
system, he explains, the bank or mortgage company can access cash
without using its own capital. To this end, the government along
with private mortgage companies and banks created the Egyptian Company
for Mortgage Refinancing. The company has £E 200 million paid-in
capital.
The refinancing company, he says, will allow more people to enter
the mortgage market, which in turn boosts the real estate market
and creates a ripple effect through the economy. “Real estate
is an industry,” he says, “that pushes other industries
towards growth. It creates a lot of jobs, from unskilled labor to
highly technical jobs.”
While Saleh is encouraged by the spike in mortgages over the last
year, he feels the numbers are too low compared to the size of the
population. Part of the problem, he says, is that Egyptians are
uneasy with long-term debt. Eventually, though, he thinks people
will accept the idea. “It might take some time, but I am confident
that it will happen. I am accustomed to success. This will be no
exception.”
Submit
your comment
Top
|
