The Russian financial authorities have figured out how to make mortgage more accessible and affordable at 8% per annum, as President of Russia Vladimir Putin instructed.
The Central Bank, the Ministry of Finance and the state-owned company Dom.rf (formerly known as the state Agency for Housing Mortgage Lending) have drafted a roadmap to develop a new tool, mortgage-backed securities (MBS).
According to their project, the demand for these mortgage-backed securities will be ensured by the state: VEB state corporation will invest pension savings in them, while other state companies will buy MBS. This should lead to additional investment of up to RUR 7 trln ($107 bln), which will support the mortgage market. Issuing mortgages, banks will immediately be able to raise more funds through MBS. Roughly speaking, Dom.rf will redeem mortgages from banks in exchange for the new securities, which the bank can sell for cash. As a result, the mortgage risks will be shouldered by the state represented by Dom.rf, not the bank.
“I still have some doubts about that,” economist Sergei Khestanov, associate professor at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), admitted. “If the project is successfully implemented, mortgages will indeed become more affordable. This will naturally drive sales – and prices as well. But at the same time, this project will increase the risk of a mortgage crisis. In 2007, a similar policy in the USA led to a mortgage crisis, which triggered the 2008 global economic crisis.”
Fortunately, the Russian mortgage market is not so large, the expert added.