Mortgage Refinance Company

The concept of affordable housing is often marketed by politicians to lure voters during their election campaigns. The irony is that despite famous slogans such as "Roti, Kapra aur Makaan" being raised since past many decades, a large portion of population across the country remains deprived of "makaan".
Housing shortage in Pakistan was at an estimated 7.57 million units in 2009, which can accommodate only 31 percent of the country's population, according to The World Bank.
While low disposable income, amid rising land and building material costs, is the biggest culprit behind insufficient housing supply, part of the blame also goes to poor mortgage financing facility in Pakistan. The housing finance-to-GDP ratio in the country is below one percent, as opposed to seven percent in India and 50-70 percent in developed countries, according to World Bank calculations.
Weak property titles, ownership transfer issues and high interest rates are some of the major factors affecting growth of housing finance in Pakistan. But more importantly, there is a lack of will on the part of commercial banks to increase their exposure to long-tenured mortgage loans given high volatility in the discount rate and the short-term nature of commercial banks financing sources.
To address this longstanding issue, the State Bank of Pakistan and International Finance Corporation have come forward to roll out a Mortgage Refinance company (MRC) in Pakistan, to support long-term lending activities by Primary Mortgage Lenders (PML).
Although the feasibility study is underway since the past few years, the company is expected to start functioning in the current fiscal year.
By acting as an intermediary between PML and the capital market, MRC will facilitate banks and housing finance companies access to long-term funds, thereby, enabling PMLs to narrow the gap between maturity profile of their assets and liabilities.
In a country like Pakistan, where interest rates are highly volatile, lenders access to long term funding at competitive rates will also talk down markup rates on mortgage loans. Since the mortgage refinance companies raise funds through bond issuance, a high rating, liquidity and scale result in lower the interest rate on bonds.
The success stories of other MRCs across the world suggest that these mortgage liquidity facilities also paved way for the development of capital market. Besides, the regular issuance of financial instruments also helps in the formation of long term price yield curve.
However, it is quite likely that the project might take longer than expected time since the project is the first of its kind in Pakistan and market sources suggest that the 2008 global crisis has eroded commercial bankers interest in mortgage financing.