Mortgage Housing Lending As the Most Important Part of the Housing Policy Government Strategy. Reflections on Mortgage Lending | "Real Estate and Investments. Legal Regulation", the journal

Mortgage Housing Lending As the Most Important Part of the Housing Policy Government Strategy. Reflections on Mortgage Lending

Professor Ponomarev V.N., vice-chairman of the Gosstroy of Russia

If the Government provides process of acquiring of housing in the personal property, it meets commitment before the citizens and extends possibilities of their involvement in prosperity of the state.
F.Roosevelt

The mechanism of development of a long-term mortgage housing crediting will allow to solve with more success the problem of additional extra-budgetary sources of finance of housing construction. In a series of locales of Russia there are already examples of improvement of the different schemes of crediting the population. Each of these variants requires the detailed analysis, but any scheme permitting people to decide housing problem fast, should be and will be supported by the state.
V.Poutin

The world practice testifies that even in the most developed countries the state has a possibility to provide with housing for socially unprotected categories of citizens only in 15-20% from common need of the population in housing. It explains, why the attempts of the Soviet State to provide with free-of-charge housing all population of country have turned to be completely unrealistic and, eventually, crashed.

State housing construction was an excessive burden for the state budget. It has converted our cities in featureless, boring, "gray" towns from the architectural point of view. Being ineffective owner by its nature, the state was not able to use rationally unrestricted, as it may seem, financial resources.

Eventually they were not used to shape of a flexible optimum industrial technological and engineering infrastructure oriented on construction of quality housing. The concept "quality housing" means: convenient for residence, appropriate to individual needs of the citizens, adapted to natural and climatic conditions providing economical maintenance of a living-space fund.

Having liberated the population from the necessity to solve the housing problems themselves, having artificially limited need and freedom of choice, the state has converted the man into the passive observer, has generated in peoples’ minds dependant moods and illusions, has deprived the man of the realized motives of social and economic activity (here we talk not about socially unprotected levels of the population, for which the state is obliged to bear responsibility).

In the society feedbacks between the producers of goods and services and their customers have appeared to be completely destroyed, and without them any social and economic development is impossible. Without these connections the formally correct slogan about necessity of the support domestic producer has become — and could not not become — arbitrariness of the producer.

The national economy dispossessed of an active solvent customer has appeared deformed. The main mechanism of its operation became cost mechanism, providing production of the expensive poor-quality goods only. As a result, the population gradually became more and more poor. Last years as money acquired original sense as an equivalent of the produced goods and, accordingly, invested labor, it became more and more obvious.

The state propaganda machine educated minds of the citizens adequate to the deformed economy. As a result, the substitution of the correct thesis "wealth of the country stipulated by wealth of its citizens" by a thesis "wealth of country, stipulated by wealth of its subsoil" was done. Main sources of economic development of any state are money and other material assets of the people living on its territory.

In this respect state-housing policy has the special place. It is an index of social and economic and political state of the society, as should provide a comfortable habitat for all citizens. Sociologists say that today more than 80 % of the country’s population needs improving of housing conditions.

The cruel financial crisis, which has "knocked" the country at the end of 80th — beginning 90th, involuntarily has put a beginning to process of reforming housing sphere. The state could not afford any more the luxury of direct financing of housing construction in large volumes. On data of the State committee on statistics of Russia share of free-of-charge housing effected at the expense of the budgets of all levels, decreased from 80% in 1987 to 26% in 1999, including at the expense of the federal budget —to 15%.

At the same time the withdrawal of the state from direct financing of construction has stipulated cutting of volumes of housing from 73 million sq. м to 32 million sq. м per year. We approached a dangerous line, when the present rates of housing construction do not provide any more even a direct reproduction of housing fund.

To overcome the current negative tendency it is necessary:

At first, it is essential to increase the effectiveness of budgetary investments in a housing sphere by introduction of mechanisms hindering their no-purpose usage, and accomplishment of transition to support of requiring categories of citizens on the basis of grant of the address bounties; secondly, to realize radical turn from direct financial support of the producer to support of a customer - citizen wishing to gain housing (or to improve the housing conditions) by introduction of credit and financial mechanisms, providing significant growth of demand of the population;

Thirdly, to provide introduction of mechanisms permitting to involve in housing sphere extra-budgetary sources of finance, including the means of the population, private and institutional investors.

The central place at the solution of the two last enumerated problems has a long-term mortgage housing crediting.

The system of mortgage housing crediting (further referred to as a system MHC) is developed in all countries with market economy and is necessary institution used by a state, both in economic and social policy.

The analysis of world practice shows, that the overcoming of crisis in the economy was provided substantially due to introduction and development of mechanisms of long-term crediting of citizens with the deposit of the housing, owned or acquired by them, and creation of the institution of hypothecation on this basis.

It is possible to say, that crisis situations in economic sphere provoke and stimulate rise of the hypothecation, as certain natural protective mechanisms providing environmental sanitation of social and economic organism of the society.

Therefore is not random, that pre-images of classical mortgage schemes spontaneously appear now in many Russian locales. The problem today consists not in the question, how reasonable and justified is now the introduction of institution of the hypothecation, but what measures it is necessary to undertake, taking into account huge scales of the country, to regulate the process of its operation which has just begun and to give to this process the organized and regulated character.

At all the variety of forms a necessary condition of operation of this institution is the ensuring of refinancing of the creditors participating in starting and realization of mortgage programs.

The main instrument of refinance are mortgage financial securities, which, due to their high reliability, can become rather attractive to the citizens, firms and financial institutions (such as insurance companies, pension funds, small investment funds etc.).

At correct organization the hypothecation, having received state support at a stage of introduction, quickly transforms to a self-funded system, which:

forms the market of housing, provides its development;
Is directed on inducing of demand of the population and, at the end, on more complete sufficing of need of the citizens in housing;
Involves the means of citizens in economic turnover of country;
improves credit and financial system;
Promotes activity and development of many sectors of economy, steadies an economic situation as a whole in the country.

It is necessary to underline, that due to macroeconomic and social character the institution of hypothecation promotes a creation between the state and citizens of such relations, which provide repeatability and evolutionary character of steady development of the society as a whole, and also takes out social tension. Essentially, the hypothecation becomes gradually the instrument of not only economic, but also political control over public processes, that is illustrated by practice of all countries. Moreover, it testifies what those political groups, which were able to understand and realize a potential of the hypothecation, held a leading position in the society. Most vivid example is Franklin D. Rousvelt.

Thus, the system MHC is not only an instrument in a solution of may be extremely important, but nevertheless short - and medium term problem of providing housing for the citizens. Its introduction realizes strategically interdependent social, economic and political aims of the society as a whole:

It is oriented on socially and economically active levels of the society, and, therefore, promotes forming of so-called middle class — its social fundamentals;
It introduces into a sphere of economic activities the universal reliable mechanism (through the deposit of the real estate) of involving the investments in real sector of economy;
It hardens "white" sector of economy and diminishes its "black" part, as it is oriented on legal, safely valued and predictable incomes of the citizens. An economic, and, therefore political controllability of the society increases.
It creates vertical (citizen — authority) and horizontal (man - investor — man - loaner, fund association etc.) links in the society. Only after mass introduction of a system MHC the society from a group of people, integrated by common territory, turns in a socium, founded on a balance of social and economic and political interests.

Actually, the system MHC creates technological base for steady development of the state.

For this reason, at a creation of a system MHC, it is necessary to avoid to create a simple organizational and financial model oriented only on a solution of a current task of providing some groups of the citizens with housing, which can appear deadlock from the point of view of realization of the above mentioned strategic purposes.

Now in Russia all prerequisites for start of a system MHC are created:

1. During structural reorganization of a housing sphere volume of housing being in private property of the population, has increased from 14% in 1987 to 59% in 1999 and has constituted about 1 billion sq.m., that constitutes not less than 3-3,5 trillions roubles.

According different calculations the population has not less than 0,5-1,0 trillions roubles cash which were not included in economic circulation.

The resuscitation in 1999-2000 of an economic conjuncture has stipulated the growth of the population possessing stable incomes, and also growth, yet not very strong, of incomes themselves.

2. The federal acts "On state registration of the rights on the real property and transactions with it" and "On the hypothecation (deposit of the real estate)" contain a legislative base for operation of a system of mortgage crediting.

The activity of all professional subjects of the hypothecation market (valuation, realtor, and insurance companies) is legislatively or normatively described. The Order of the Government of Russian Federation (of August 26, 1996 №1010) creates Agency on mortgage housing crediting.

3. The Concept of development of a system MHC in Russian Federation (Governmental order of Russian Federation of 11.01.2000 №28) is confirmed, on the basis of which regional mortgage programs can be developed and started. The state concept of development of a system MHC gives huge spaciousness to the initiative of the subjects of Russian Federation on a choice of the schemes, on which this system will develop in a locale. Any pattern of long-term crediting of the citizens is acceptable, if it meets requirement of legal purity and financial transparency and includes a mechanism of refinancing.

The governmental order of Russian Federation of 11.01.2000 №28 adopts the set of legislative and normative acts directed on the development of separate measures of the state support of a system MHC, lowering of risks for the participants of the mortgage market, lowering of price on credits for the population, and also on engineering of reliable financial instruments of engaging resources in this sphere.

Among measures of state support it is necessary especially to select these, which are directly linked to the Man, namely, fiscal incentives for the physical persons who have obtained the credit for acquiring of housing, raise of availability of the long-term mortgage housing credits. In particular, the rise of a size of privileges on income tax (from the sum up to 600 thousand roubles is provided) with a simultaneous rise of the period of its grant (on all phase of cancellation of the credit). Simultaneously is provided a significant (not less than 10 times) lowering of a size of a State Tax at the notarial certification and state registration of the agreements of the hypothecation.

4. In the federal budget of the year 2000 the providing of state warranties of 3 billion roubles is stipulated (under the bonds of Agency on mortgage housing crediting), what allows to attract the means for refinancing of the creditors who have given mortgage housing credits to the population.

In a basis of the development strategy of a system MHC should be the orientation on the subjects of Russian Federation - concentration of efforts on realization of concrete regional mortgage programs which are as much as possible taking into account the specificity of each locale (presence of resources, development of the real estate market, standard of well-being of the population) and potential of management and economic subjects to introduce these programs. During the development of the system the horizontal inter-regional connections will be shaped, there will be an integration of the regional markets of mortgage credits in a uniform integrated system, that is a necessary condition of its refinancing.
A role of the federal center is to accelerate this process as much as possible by a way of:

Regulating and control over credit and financial activity of the subjects of the mortgage market;
Common coordination, working out the uniform methodology and uniform standards of a system MHC;
Usage of the means of the investors to the refinancing of a system MHC;
Creating of a favorable legislative and normative (including, tax) medium for operation of a system MHC.

The main function of a federal center is also explanation and promotion of establishing principles, mechanisms and essence of the institution of hypothecation as a whole.

Lack of clearness in these problems, variety of the approaches and judgements even among the experts create favorable conditions for appearance of rather vague information in mass media, that disorganizes public, creates a false judgement of the potential investors about the lack of seriousness and realism in the Russian developers’ and participants’ of mortgage programs plans and hides in itself a threat to discredit a mortgage idea. Besides, it is not seldom, that the principals of locales consider a system of mortgage crediting as a way of direct financing of building complexes, that actually is a result, not a purpose of its existence.

The system MHC is a system of selling of ready housing. Therefore directed means of the population can not be used up to the moment of presentation of housing, satisfying their needs and possibilities. Only in this case a Man — a user of housing — is protected from risks at construction.

Thus, the interests of the builders and Man which acquires a mortgage credit are coordinated. The tenant builder, having a reliable system of selling of the housing built, can have a credit in bank. With these borrowed means flats or individual houses are built, and potential customers - loaners realize public supervision over construction, terms, costs and quality.

Thus relations customer —producer acquire a civilized form: the buyer of housing constrains building organizations to begin battle for the client, creating competition, necessary for our economy, which was absent within socialist way of production.

There is an opinion, that the system MHC is directed only at people with very high incomes, but as they have already to acquire housing, there will be not enough of the loaners in the country. Whether it is so?

At first, we shall answer a question, what amount of families can be provided with housing by a building complex of the country. We have already shown the figures — maximum volume of accomplished housing makes 73 million sq. м. per year (1987). Thus, in their best years the builders could provide with housing about 3% of families (on present social standards and if to accept that the average family consists of 3,2 men). Today 32 million sq. м is introduced yearly, i.e. the volumes of housing construction have fallen in 2,3 times. Therefore, the building complex provides today wits housing less than 1,5% of the Russian families.

Secondly, we shall answer a question, what monthly payings will be present at standard mortgage credits. Let's remark that, basing on usual prices on the regional markets of housing (except for separate locales such, as Moscow, St.-Petersburg, Kaliningrad and some others), cost of a flat varies from 200 thousand roubles to 400 thousand roubles. Receiving standard mortgage credit (its parameters are known: a primal contribution — 30% from cost of a flat, period — 10 years, 10-12% per year), a family should repay monthly 2500-5000 roubles. Such burden can be sustained by very few, as the monthly payings under the credit should not exceed 35% of the common incomes of a family. In this case a family should have the monthly joint income at a level 7000-14000 roubles per month.

However, if to take into account possession of the privatized flats by half of population of the country and to solve at the first stage a problem of improving of housing conditions, the situation will seem much better. Really, if the family has an aim to acquire a flat with one additional room, selling the old flat, monthly payings will decrease to 750-1500 roubles per month, and a big number of families can already afford it.

According data of the State committee on statistics of Russia more than 5% of Russian families have an average monthly income not less than 6000 roubles. All these families are potential loaners. Thus, the building complex should operate 4-5 years to meet the requirements of this category of citizens.

We can make a conclusion, that the solvent demand on housing today already exceeds essentially the supply on the market of housing. This conclusion is confirmed by a fact that at the absence of a system of mortgage crediting citizens are constrained to participate in share construction. Thus, as a rule, they spend not less than 50% of housing cost even before completion of construction.

As to the citizens with high incomes, for them also the mortgage crediting is of large interest, since they, as a rule, belong to a category of the successful businessmen. For them long-term crediting under the pledge of the acquired housing is way of release of own resources for investments in profitable commercial operations, where the interest will pay back any percents on the mortgage credits.

Starting the discussion of the organizational and financial schemes of a system MHC, it is necessary, first of all, to realize, that:

The development of a system will not be sudden. It is a process, and its duration will depend on coordination of operation, will, comprehension and cooperation on the part of managements of all levels. Unsuccessful attempts to construct a system of Federal center only, essentially imposing it to the locales, as well as construction of the regional patterns irrespective of Federal center, convincingly support this thesis;
Creation of the system will pass definite phases, and an adequate organizational and financial scheme will correspond to each phase. The structural elements constituting a basis of each of these circuits, while the process of development of a system will appear functionally linked among themselves and eventually will form an integrated self-sufficient credit and financial organism. The organizational and financial circuits providing different phases, can be created in a parallel way, moreover, for the acceleration of a process they should be created in a parallel way. However it is necessary to realize that they will begin operate efficiently as a single unit only when necessary conditions appear.

Phase of accruing of the means by the population

The qualitative analysis, made on the previous pages, has shown, that because of the extremely low incomes of an appreciable part of the population, and also expensiveness of the loans due to high risks (stipulated by the of imperfection of legal and normative base, backwardness of a bank system, still present despite diminished economic and political instability) first of all, small mortgage credits will be acceptable.

At small volume of the credit the loaner needs to have appreciable own assets. Reliable mechanisms permitting them to accrue assets should be created. The so-called accumulative schemes have received a wide circulation in Europe, they are present in all countries with a low level of incomes of the population (including countries with transitory economy).

Major demand to these circuits is a protection of the deposits of the potential loaners from probable losses.

The natural instrument permitting people to accrue means within the framework of the schemes of accumulative insurance with minimum risk, are the insurance companies.

Other instrument of accruing of the means of the citizens are the credit consumer unions, which are regulated by an article 116 of the Civil Code of Russian Federation and Federal act "On the consumers' cooperation (consumer societies, their unions) in Russian Federation".

Now, after adoption by the Government of the state concept of mortgage housing crediting, the new possibilities open for the development of credit cooperation in Russian Federation under the form of housing loan-saving co-operatives. Thus an important role should be played by the federal Act. The initiator of its development was a Commission of State Duma on mortgage crediting and the Government of Russian Federation. This law definitively has to consolidate "rules of the game" of credit unions, and also to establish the forms of state control over their activity. The latter is especially important, in the presence of recent sad experience of "financial pyramids". Probably, it is expedient to provide creation of special governmental body such as State inspection, which together with a Federal commission on securities market would govern and control the activity of credit unions as organizations, operating the assets of the population.

After a citizen has accumulated the assets, sufficient to get a credit (appropriate to the level of his affirmed incomes) for the purchase of ready housing, he will contact a creditor.

Phase of forming of the initial market of the mortgage housing credits.

Within the framework of this phase (in the regard of a phase of accruing) a principal problem is of providing the citizens with housing through rise of a level of solvent demand and simultaneously there is an accruing of (initial) mortgage housing credits.

The organizational and financial scheme constitutes a basis regional mortgage program.

Principal "players" on the mortgage market are:

The loaners —citizens wishing (and having a possibility) to acquire ready housing;

The creditors (initial) — legal entities, having the right to give mortgage housing credits (loans) according to the local law;

Long-term mortgage housing credits (loans) — the credits (loans) offered to the citizens for the purchase of ready housing under the deposit of the acquired real estate for the period of more than 3-5 years. The liabilities of a loaner resulting from the incorporeal rights on mortgage housing credit, provided by the hypothecation (deposit) of the real estate, can be made out as a financial credit instrument —mortgage — the emitter of which is a loaner.

In the long term in the process of development of a bank system the central place in the system of initial mortgage credits will be certainly occupied by banks. Today, however, their possibilities are essentially restricted, as the Russian bank system is oriented on universal banks, and they work, mainly, with "short" money. In this connection the interest rates under the credits, given by them, are too high to become attractive to a mass customer.

Therefore now "the bank gap" can be filled by ЖССК and insurance companies.

If to speak about ЖССК, we do not have to refer on foreign experience, though there as well an appreciable part of the population (about 70% in USA, more than 90% in Ireland etc.) is involved in the activity of credit consumer unions. It is enough to remember our history - recent Soviet (housing cooperatives, cash department of mutual aid) and pre-revolutionary. Practically up to the end of the XIX century the credit partnerships dominated on the Russian credit (borrowings) market. Securities for huge sums, emitted by them were highly quoted not only inside the country, but also abroad. It is necessary to mark, that in a basis of activity of the credit unions lays the human requirement in mutual support and help with simultaneous instinctive non-confidence to authority, present in the Russian mentality and beginning with the communal way of life of pre-revolutionary Russia. And the bolshevik ideology with the collective farms was not unexpected.

As to the insurance companies, they deserve special attention.

At first, without life insurance, asset (and later - liability) no creditor will give any long-term mortgage credit.

Secondly, the insurance companies can be a reliable accumulator of the assets of the population (twe have already spoke about that above).

Thirdly, the potential loaner buying long-term (on the duration of the credit) life insurance for the sum, equal cost of a flat or house being a subject of his wishes, can account on receiving of a (mortgage) loan from the insurance company for the purchase of housing under its deposit (for the benefit of the insurance company).

And, at last, insurance companies acting on a mortgage market, can become a (co-) investor of a new housing construction at the expense of created (within the limits of 5-10 %) reserves. It is especially important today, when in the secondary market of housing experiences the acute shortage of supplies, and the volumes of new housing construction for the last decade decreased more, than twice.

Operator of a (regional or municipal) system MHC can become a regional or municipal housing-social fund at this phase — noncommercial organization founded by the management of the subject of Russian Federation or an organ of local self-government.2 Housing-social fund:

Following the orders of Management develops the regional (urban) concept (program) of a system MHC and on its basis —a mortgage project;
Explains the population the essence of a system MHC and realizes its promotion;
Realizes the tutoring of professional participants of the mortgage market;
Realizes selection of the insurance companies, valuation agencies, realtor agencies;
Conducts meetings with the population and renders services to potential loaners (on the basis of the agency contract) on searching housing and concluding the contracts of purchase, (including sale of old housing), credit agreements and hypothecation, insurance contracts, including, if necessary, accumulative insurance contracts;
On the order of a creditor (on the basis of the agency contract) realizes an underriding of the potential loaners;
Plays a role of the Customer of a housing construction in mortgage projects;
Develops provisions and organize tenders of the building companies on involvement in mortgage projects, in the case of operation with the initial market of housing;
Organizes registration of the property right on the acquired housing and hypothecation in regional judicial authorities

Let's stop now on a role of authorities in locales. It is especially important at the development of a system MHC and consists in:

Conducting of a state policy according to the Concept of development of a system of mortgage housing crediting in Russian Federation;
Creation of favourable conditions for realization of regional mortgage projects by granting of budgetary warranties, favorable fiscal policy, transmission of material assets (as the land lots, incomplete plants of construction etc.), primal rather restricted one-time investments in a system with the purpose of its starting, including, in the form of the target address, revocable or irrevocable bounties to the citizens;
Effecting of control over the activity of the subjects of the mortgage market and regional system MHC as a whole with the purpose of prevention of no-purpose usage of the asssets of the population and other investors;

Creating an atmosphere of trust and partnership between the citizens and authority — a necessary conditions of mass involvement of the population in a system MHC.

It is important to underline, that without support, interest and will on the part of the state and local authorities the system MHC will not work in the nearest future in the country. With its development, in the process of growth of a material welfare of the population, the state involvement will decrease and will be limited to standard regulating and control functions.

At the end of the description of a phase of forming of the initial market mortgage credits, we shall make some notes.

First. Mortgage projects implanted in locales at this stage pursue an overall objective — accruing of the mortgage credits so that to include a mechanism of refinancing of a system, about which we will talk below.

Second. Within the framework of realization of the regional mortgage projects there is a standardization of procedures of giving mortgage credits (loans), checking of the solvency of loaners, registering the agreements with the real estate etc., that is also necessary from the point of view of the mechanism of refinancing.

Third. Without improvement of legal purity and financial transparency within the framework of realization of the mortgage credit projects and financial mechanisms underlying a system MHC, it will be impossible to proceed to creation of a self-sufficient all-Russian full-scale system. In this connection the usage of natural (not monetary) ways of the payments and priviledged interest rates under the credits which do not include long-term character of the credits (loans),apparently, solves a momentary problem of providing citizens with housing, but in a long-term social and economic perspective, represent a deadlock way. The appearance in locales of the similar schemes shows not only objectively usual conditions of transitory Russian economy, but also a vague comprehension of market principles, disability, and sometimes reluctance to overcome the usual stereotypes on a background of passive and weak-willed activity of the federal center.

Fourth. An indispensable condition at this stage already should become a self-support for the budgets of regional mortgage projects. Thus we talk, at least, about direct, instead of expanded reproduction, as the investment schemes can not be formed yet (because of the lack of mechanisms of extra-budgetary refinancing). It will remove a redundant pressure from our scanty budgets, will allow to direct assets towards a support of the extremely poor socially unprotected categories of citizens. Once invested budgetary assets should become simultaneously last budgetary investment in a system MHC. The economic calculation shows, that at rather small mortgage credits (loans) the self-support of mortgage projects is realizable in practice under the condition of purposeful work on lowering the expenditures on a housing construction.

Phase of creation of the secondary market of the mortgage housing credits

At this phase there is a total perfection of a system MHC in a self-funded system at the expense of engaging the means directed on supplements of a resource base of creditors.

The main instrument causing refinancing of a system, as we have already spoken above, are emission mortgage securities—mortgage sheets — provided by the deposits of the real estate and incorporeal rights on mortgage housing credits (mortgages).

In the view of specificity of ensuring of the mortgages of sheets, a pool of the mortgages, formed by definite rules corresponds to each issue. Therefore before an appearance on a securities market of the mortgage sheets should be an accruing (initial) of the mortgage housing credits. Potential capacity of a segment of the stock market, in the basis of which the emission and turnover of a mortgage sheet lays, is already today characterized by a huge sum of 0,3-0,4 trillion roubles (10-15 billlion US dollars).

Besides the mortgage sheets refer to a category of the most reliable financial credit instruments. All over the world according ratings they are placed just after the securities of the great countries. To make the mortgage sheets even more attractive for the investors, it is necessary to provide measures on protection of their rights by introduction of rigid legislative regulation of demands to the emittees of mortgage securities.

These measures, at the end, are reduced: for the economic subjects and emittees of the mortgage sheets, the activity on the mortgage market became if not exclusive but essential (specialized mortgage creditors, specialized mortgage agencies).

For such organizations "mortgage" assets should constitute a basis of all assets, formed by them, so that any exterior liabilities could not influence significantly the quality of ensuringof mortgage securities.

If the emittee of the mortgage sheets is in the state of bankruptcy, "mortgage" assets should be moved to a special bankrupt's estate and transmitted on a upkeep to another emittee.

Therefore, we can assume two different schemes of including of the mechanism of refinancing in a system MHC.

Two-level system MNC

If the initial creditor is not restricted in his activity to the activity on the mortgage market (universal creditor) mainly (extremely), he has no right to issue mortgage securities.

Between the universal creditor and investor a specialized mortgage agency appears, which has its unique functions such as the redemption from the universal creditor of the mortgages or incorporeal rights on mortgage housing credits provided by a pledge of (acquired) real estate, as ensuring the released mortgage sheets, and also sale of the mortgage sheets to the investors.

If the agency redeems the mortgages, it has a status of the investment - financial company. The control over its activity is realized by a Federal commission on securities market.

If the agency redeems the incorporeal rights on mortgage credits, it becomes the secondary creditor, and should act on the basis of the special license which is given by the Bank of Russia (the license of no-bank credit organisation).

From the legal point of view the agency represents an open joint-stock company with the control stake of the shares owned at first, by regional managements or local authorities. Thus a controllability of a system (on the part of the state) is provided. Simultaneously money resources directed on creation of the charter capital of agency, are a trigger of the mechanism of refinancing (by the redemption of the first mortgages or incorporeal rights on the mortgage housing credits).

During the process of development of a system MHC mortgage agencies will be privatizated (with an advantage for the state), as it has taken place with Federal mortgage Agency of the USA (Fanny May), where the state has reserved only 25 % of shares (at a turnover in 900 billion US dollars).

Single-level system MHC

If the grant of (initial) mortgage housing credits is realized by specialized organizations —mortgage creditors, they can release and dispose the mortgages sheets without mediator mortgage agencies. Mortgage banks playing a central role in a German system MHC can become such mortgage creditors.

Because of backwardness of a bank system, complete lack of mortgage banks (and absence of conditions for their appearance in the nearest future), low confidence to them from the part of population (and investors) make mortgage agencies a central component of the system MHC as operators of the secondary market of mortgage credits.

A special role among operators of the secondary market of mortgage credits should belong to the Agency on mortgage housing crediting, founded by the state. The state can realize via this Agency the regulatory function on creation of common standards providing a wholeness of the mortgage market through the development of a regional financial web and involvement in the charter capitals of regional (municipal) mortgage agencies. Through this Agency the strategic Russian and foreign investors can enter a system MHC by grant of state warranties on its "mortgage'' liabilities.

Thus, with creation of regional (and municipal) mortgage agencies the creation of organizational and financial fundamentals of a system MHC in the locales of Russian Federation is completed. By the means of the mechanism of refinancing the way towards the creation of a horizontal inter-regional connections opens.

With the beginning of regular activity of Agency on mortgage housing crediting the beginning of creation of a system MHC in scales of all the country (see picture 5). The mortgage sheets, issued in according to common standards, originally ensured by state warranties (federal or regional governments) will be equally attractive to the investors of Irkutsk or Ekaterinburg, or Novgorod, or Khabarovsk, or Perm etc.

And, at last, some last notes about the investors and interest rates on mortgage housing credits.

At first, a statement that there is no money in the country, is strongly exaggerated. Today, in connection with an amplification of business activity many firms (though not all of them) become interested in creation of more comfortable conditions for the personnel workers ( the debated housing programs of LUKOIL, GAZPROM, Minatom, railway transportation companies, RAOEES, etc. speak for it)

Most efficient and favorable for the companies way of solution of housing problems is the purchase of mortgage securities (transactions with them is not taxed with the VAT).

Secondly, the investor through attractive profitability of mortgage securities determines the interest rates on mortgage credits. If to speak about firms, not the profitability of the acquired securities itself is important for them, but total income, which they will receive from securities and worker, who will begin to work better as a result of the improved housing conditions.

As to institutional investors (insurance companies, pension funds), for them not profitability itself goes out on the foreground, but acquiring of long-term forecast assets.