Economy, Business And Markets

Bank Maskan to Cover MBS Risks

Bank Maskan to Cover MBS Risks Bank Maskan to Cover MBS Risks

Bank Maskan (housing bank) is planning to establish a “Special Maskan Credit Insurance” to cover risks for mortgage-backed securities (MBS) and the repayment of housing loans, said Mohammad Hashem Botshekan, the bank’s chief executive on Sunday.

“Bank Maskan is planning to issue MBS in the near future and the proposed firm would cover the risks,” quoted him as saying on Sunday.

MBS, which are bonds backed by home loans packaged together and sold to investors, would help stimulate the debt market and spur housing construction in the country of about 80 million people. Iran has seen some aspects of MBS but on a small scale. Active trade in them has yet to be developed.

Iran’s capital market regulator announced last month that it wants to develop a market for MBS and has published related rules. The new MBS rules, released by the Securities and Exchange Organization (SEO) last week, include strong consumer protection features - a reasonable precaution considering the role MBS played in 2007 when some turned sour in the United States and triggered a worldwide financial crash.

State-owned Bank Maskan is among the local banks studying the new MBS rules as one of the main providers of mortgage in Iran.

Botshekan added that his bank has proposed that the insurance scheme for MBS be included in the sixth five-year development plan (2016-21) or sent as a bill to the Parliament by the Ministry of Roads and Urban Development.

  Secondary Mortgage Market

Negotiations between Maskan, Ministry of Roads and Urban Development and CBI to launch the secondary mortgage market -- of which mortgage-backed securities is an instrument -- have been underway for almost a year. The CBI had indicated that its approval of the initiative is subject to an OK from the bourse. In addition to that, CBI set two conditions before giving its final approval.

“Self-regulation” and “self-operation” were the two key demands of monetary officials. This would mean that Maskan will be ultimately responsible for managing the risk involved in the venture. If for any reason, MBSs fail to meet market expectations, Maskan should have enough reserve funds to reimburse the investors.

Maskan will issue 1 trillion rials ($34 million at the official exchange rate) worth of MBSs in the first phase of the plan. The lender has announced plans to pump 100 trillion rials ($3.4 billion) annually into the secondary market from MBS revenues. That money would be twice the special Housing Saving Account – the 12-year mortgage plan -- is capable of generating. This could enable Maskan to raise the ceiling for its measly mortgages and offer more loans.

Some analysts, however, argue that for the secondary mortgage market to succeed, inflation must first be tamed since the market normally looks to bank deposit rates and the “general inflation” rate to adjust its expectation of MBS yields.

But those who are impatient to see the housing market come out of the extended slumber, contend that the government should subsidize the market while inflation continues on its downward slope.