The Role of Mortgage Liquidity Facilities in Housing Finance: Lessons Learned from Egypt, Tanzania, Nigeria and Malaysia
Centre for Affordable Housing Finance in Africa
Download Document| Date Published | 2016 |
| Version | |
| Primary Author | Sarah Langhan |
| Other Authors | |
| Theme | Liquidity Facilities |
| Country | Egypt, Arab Rep. of , Malaysia, Nigeria, Tanzania |
Abstract
The central question which this case study aims to address is what is the role of a Mortgage Liquidity Facility (MLF) in housing finance in Africa? Traditionally, MLFs have been designed to provide funding and capital market access to primary mortgage lenders. MLFs either purchase loans on a full recourse basis from primary mortgage lenders or lend to them on an overcollateralised basis for mortgages pledged to the facility. MLFs are said to be generally more appropriate for emerging markets and can play a vital role in the establishment of a more developed secondary mortgage market, including securitisation. Generally, MLFs are less complex than securitisation. They involve lower levels of risk transfer (the risk of default remains with the bank/lender), and the bonds issued are not directly linked to the underlying mortgages. As the market matures, MLFs have an important role to play in assisting the market to achieve a higher level of sophistication. They can also be used to promote mortgage securitisation once the proper conditions are fulfilled. The two instruments can however co-exist, leaving users and investors free to choose between different combinations of features, risks and prices. MLFs are seen as ideally suited to the relatively early stages of market development. .