KMRC seeks standard mortgage terms


Capital markets

KMRC seeks standard mortgage terms


Johnston Oltetia, managing director of the Kenya Mortgage Refinance Company (KMRC). PICTURES | DIANA NGILA | NMG

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Summary

  • The firm set up to reduce risk in the mortgage market says the consultant will be responsible for conducting a survey of current mortgage terms, including pricing and term.
  • The ultimate goal is to develop a mortgage-backed securities market where banks will pool home loans of similar characteristics, sell to investors through brokers, and investors will earn by earning monthly mortgage payments from buyers. of houses.

The Kenya Mortgage Refinancing Company (KMRC) plans to engage a consultant to help it develop uniform lending terms for housing loans in the banking sector as part of a strategy to establish a secondary mortgage market in coming years.

The firm set up to reduce risk in the mortgage market says the consultant will be responsible for conducting a survey of current mortgage terms, including pricing and term.

The ultimate goal is to develop a mortgage-backed securities market where banks will pool home loans of similar characteristics, sell to investors through brokers, and investors will earn by earning monthly mortgage payments from buyers. of houses.

“The initial processes will basically be to carry out the survey to verify what the current market practices are with regard to the granting of mortgages in all financial institutions. We will then find out the best practices, ”said the managing director of KMRC, Johnson Oltetia.

“Once we receive this report, it will be the starting point to tell us how normalization (for mortgages) is going to work. It’s something we want to do and we’ll make sure it happens.

Mortgage-backed securities (MBS) allow long-term investors such as pension funds, insurance companies and hedge funds to essentially lend money to homebuyers and earn returns through monthly repayments of interest and principal.

Under MBS, banks act as an intermediary between an investor and a home buyer.

Securities were at the center of the global financial market crisis of 2008-2009 following loose lending standards and massive defaults in the United States that led to the collapse of the housing market.

KMRC, 25.3% owned by the National Treasury with the rest of the stake controlled by private lenders, says it has since late last year engaged banks under the Kenya Bankers Association.

“The discussion we’re focused on with banks is that we want an industry-wide standardization practice. So we’re not just looking to standardize mortgage origination practices for banks that are currently participating. to KMRC, because it will not be enough,” Mr. Oltetia said.

“We will also engage the regulator as they will also play a key role in ensuring adoption of the standard.”

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