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Standardization, Training, and Construction of Savings Plans

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  • 1. Contractual Savings Schemes for Housing, Minimum Quality Standards in Mortgage Lending, Training for mortgage lenders Dr. Friedemann Roy AIPR Workshop in Tsakhkadzor, 29 May 2005
  • 2. Borrowers Origination, Servicing, Risk Management and Funding Insurers Secondary Market Operator Funding and Risk mitigation Loan take-up Development of fully integrated primary and secondary markets Objective of Government of Republic of Armenia Bank Bank Bank
  • 3.
    • Contractual savings schemes for housing (CSSH)
    • Banking operations for mortgage lending process
    • Minimum quality standards in mortgage lending
    • Legislative infrastructure
    • Institutional set-up of secondary mortgage operations
    • Improvement through suitable training
    Important elements of a primary mortgage market
  • 4. Establishment of CSSH in Armenia
  • 5. Mechanics of CSSH systems Allocation pool t Lifetime of contract Inflow of funds Outflow of funds Savings Redemption payments Deposits Loans
  • 6. Risks of CSSH
    • Economic view: volatile inflation rates may deter customers from saving
    • Banking view: trust of people in banks for longer-term commitments
    • Risk management view:
      • liquidity risk: how do we ensure a constant inflow of new savings into the scheme?
      • interest rate risk: how do we anticipate future market developments?
    • Government view: subsidisation is likely to distort housing finance market (e.g. crowding-out of other saving products)
  • 7. Benefits of CSSH
    • Economic view: CSSH may assist in inducing higher savings activities
    • Banking view: CSSH is applicable to modest loans for home improvement
    • Risk management view: savings period serves as pre-screening instrument indicating future reliable borrowers
    • Government view: CSSH may improve access of low and middle income groups to mortgage finance
  • 8. Minimum quality standards in mortgage lending
  • 9. Definition of minimum quality standards (MQS)
    • Origination:
    • Counselling
    • Customer application
    • Credit assessment
    • Property valuation
    • Loan offer and completion
    • Servicing:
    • File set up
    • Payment processing
    • Quality control
    • Document control
    • Customer service
    • Funding and Risk Management:
    • Management information, IT, account management
    • Arrears management
    • Funding of mortgage loans
      • Deposits
      • Bonds
      • Liquidity facilities
    MQS set standards in all areas of the mortgage lending process
  • 10. Benefits of MQS
    • Standards in underwriting, documentation, administration and data collection facilitate long-term funding in the primary and secondary market
    • Improve transparency for customers and advances interest into this type of loan product
    • Increase competition, thus lowering prices for mortgage loans and expanding access to mortgage loans
    • Facilitate supervision, thus reducing overall risk in the economy
  • 11. Prerequisites for MQS
    • Successful implementation requires a broad acceptance within financial community
    • Good co-ordination between supervisory bodies and banks facilitate introduction
    • MQS may necessitate further amendments in legislation
  • 12. Training programmes in mortgage lending
  • 13.
    • Prerequisites:
    • Training should focus on practical experiences, case studies and interactive teaching
    • Training should adapt to changing needs of financial community
    Objective of training Training programmes will assist financial institutions in providing better service to their customers and improving the risk management of their mortgage portfolios
  • 14. Possible outline of training programme
    • Introduction to mortgage lending:
    • Housing market dynamics
    • Legislative and regulatory framework
    • Loan underwriting and origination procedures
    • Servicing and ensuring their repayment (including arrears management)
    • Monitoring procedures of mortgage loans
    • Loan instruments
  • 15. Possible outline of training programme
    • Introduction to mortgage lending:
    • Housing market dynamics
    • Legislative and regulatory framework
    • Loan underwriting and origination procedures
    • Servicing and ensuring their repayment (including arrears management)
    • Monitoring procedures of mortgage loans
    • Loan instruments
    • Pricing and risk management issues:
    • Risk management in relation to home mortgages
    • Pricing of mortgages
    • Refinancing of home mortgages
    • Issuance and circulation of mortgage securities
    • Formation and functioning of secondary mortgage market
  • 16. Dr. Friedemann Roy Bankakademie e.V. Sonnemannstraße 9-11 D-60314 Frankfurt am Main T +49-69 154008-622 F +49-69 154008-670 E-Mail: roy@bankakademie.de

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