The Kenya Mortgage Refinancing Company (KMRC) plans to hire a consultant to help it develop uniform lending terms for homes loans in the banking industry as part of a strategy to set up a secondary mortgage market in the coming years.
The firm created to lower the risk in home loans market says the consultant will be tasked with conducting a survey on the current terms for mortgages, including pricing and duration.
The ultimate goal is to develop mortgage-backed securities market where banks will pool home loans of similar characteristics, sell to investors through brokers and the investors gain by earning monthly mortgage repayments from home buyers.
“The initial processes will essentially be doing the survey to check what the current market practices are in relation to origination of mortgages in all financial institutions. We will then find out the best practices,” KMRC chief executive Johnson Oltetia said.
“Once we get that report, it will be the starting point for the basis of us saying this is how is going to run the standardisation (for mortgages). That’s something we are very keen to do and we will ensure that’s achieved.”
Mortgage-backed securities (MBS) enable long-term investors such as pension funds, insurance firms and hedge funds to essentially lend cash to home buyers and get returns through monthly repayments on interest and principal sums.
Under MBS framework, banks act as intermediary between an investor and home buyer.
The securities were at the centre of 2008-09 global financial market crisis following loose lending standards and massive defaults in the US that led to collapse of the housing market.
KMRC, 25.3 percent owned by the National Treasury with the remainder of the stake controlled by private lenders, says it has since late last year been engaging banks under the Kenya Bankers Association.
“The discussion we are focusing on with the banks is that we want a whole industrywide standardisation practice. So we are not only looking at standardisation of mortgage origination practices for the banks that are currently participating in KMRC because that will not be sufficient,” Mr Oltetia said.
“We will also be engaging the regulator because he will also play a key role to ensure the standard is adopted.”