Mortgage-backed securities are a tool for expanding the mortgage market and enhance commercial bank lending power, said Hossein Abdoh Tabrizi, secretary general of the Securities and Exchange Organization’s high council, on Monday.
According to SENA, the advisor to the minister of roads and urban development said, “There are 60 trillion rials in mortgages on Bank Maskan’s balance sheet and the issuance of MBS will remove the mortgages from the bank’s overall balance, hastening the lending cycle and increasing the bank’s lending power.” This will also help improve the bank’s various financial ratios and increase the efficiency in which the bank utilizes its working capital.
Abdoh Tabrizi added that banks normally should wait on the return of the debtors’ payments, in order to regain their lending ability, however by offering MBS’s the bank can offer more to the consumers.
He went on to say that mortgages are sold to an investment bank that “securitizes” or packages the loans together into MBS’s, which can be sold to investors via the capital market. Then the bank can lend to new customers before the loan matures.
Pointing out that creating and expanding a secondary mortgage market enlarges its primary market, he said: “In our opinion the primary mortgage market is small, but with the sale of MBS in the secondary market, the banks will be ready to provide new facilities, and in reality the secondary market will greatly help expand the primary market.”
The renowned academic pointed out that the mechanisms for these asset-backed securities varies around the world, singling out the difference between the issuance of MBS in the US and European Union. He added that banks in the West, particularly in the US, finance 120 percent of a property’s price which includes the cost of furnishing the building. “This method of lending was the cause behind the global financial crisis, which started in 2008,” he said, adding that this problem wouldn’t occur in Iran as mortgages cover only a fraction of the property’s total price.
