Translated material
Mortgage roller coaster
Experts are confident that from now on potential borrowers will be assessed much more strictly and securitization of loan portfolios will be more successful. And it will be more difficult for ordinary Russians to get a loan to buy a home.
What's happened?
“The past year in the mortgage market was a bit like a roller coaster,” Elena Shilina, senior vice president of Ipotek Bank, draws an analogy. Since the beginning of the year, many aggressive programs have appeared on the mortgage market: with reduced rates, without a down payment, and also offered a huge number of different discounts. The softening of lending conditions was loudly announced in the media as a change in the situation in the Russian mortgage market under the code name “Mortgage is getting cheaper.” As a result, according to the head of the brokerage department of the Credit Max company, Victoria Shcherbakova, the level of awareness of Russians about the mortgage market has increased. and reached almost 80% of the total creditworthy population by the end of 2007. “People began to look for real opportunities to solve their housing problems, which is due to the favorable macroeconomic situation in Russia as a whole, as well as the presence of federal housing programs,” continues the expert. As a result, even in the regions, about 14% of residents expressed their readiness to use a mortgage.
However, the blissful picture did not remain for long. The crisis came from overseas. At the beginning of the year, a wave of mortgage defaults swept across the United States. As a result, the volume of new loans to finance real estate transactions fell by half, which led to a sharp decline in the issuance of mortgage-backed securities. “The crisis caused by the default on mortgage loans in the United States has undermined investor confidence in certain pools of mortgage-backed securities,” explains Olga Sadovskaya, board member of the City Mortgage Bank.
Under these conditions, banks that intended to refinance issued mortgage loans through securitization were forced to attract investors with higher returns, which is not always economically feasible. Securitization transactions were postponed by most banks. Which for borrowers meant an increase in interest rates for using a mortgage loan. “We are already observing this trend in the market,” continues Sadovskaya. Following this, an international liquidity crisis began, the consequences of which were not long in coming in Russia.
Linked by one chain
“The events of 2007 in the Russian mortgage market are especially interesting because for the first time consumers and banks realized how dependent our mortgages are on debt financial markets: the cost of money abroad and their liquidity,” says Elena Shilina. This dependence is always clearly visible in the USA and Europe, but until recently it was not obvious in Russia: banks issued loans on balance sheets, were often funded with shorter-term money and did not react to fluctuations in the cost of funding on world markets “Consumers, in turn, viewed mortgages as a kind of social product. rates on which will only decrease, and they postponed the purchase of housing on credit until the time when they decreased even more,” notes Shilina.
Feeling difficulties with borrowing on the foreign market, several banks at once chose to reduce or completely stop issuing mortgage loans. In particular, rates on mortgage loans were increased by 1% by Uniastrumbank and Moskommertsbank, the latter bank subsequently completely suspended the issuance of mortgage loans. In addition, mortgage brokers also reported problems with obtaining loans from Investsberbank. One of the leaders of the Russian credit market, Russian Standard Bank, also refused to issue mortgages until the new year.
Before the crisis, about 15-20% of apartments in Russia were purchased with a mortgage. In the current situation, according to forecasts, this figure has approximately halved. Consumers, willy-nilly, had to understand the situation. “Today, the consequences of the crisis concern not only banking gurus, but also ordinary citizens,” said DeltaCredit Marketing Director Olga Bazanova.
The consequences were felt not only in the mortgage market. According to Dmitry Balkovsky, general director of the brokerage company Independent Mortgage Lending Bureau, Russia felt the impact of the overseas crisis at the end of summer, when food prices rose and high inflation began. “The American crisis is a good example of negative experience for all Russian banks, which makes us think once again about the quality of loans issued,” says Olga Sadovskaya. “Given the mistakes of Western banks, we can either mitigate the negative consequences of a possible crisis or prevent their onset ".
Underdevelopment to the rescue
Only the insufficient development of the mortgage market protected our country from a serious collapse of the banking sector. Compared to Western countries, this sector of the Russian market is still at the very beginning of its journey. According to Victoria Shcherbakova, no more than 2% of the country’s total population used mortgage lending. “The share of mortgage transactions on the market is not yet sufficient to influence the situation as a whole: our mortgage industry is only in its infancy,” she argues.
As a result, among Russian mortgage borrowers the percentage of those who may not repay the loan is very small, and therefore banks do not face the problem of non-repayment. “In our country, banks approach the assessment of borrowers quite conservatively, while in the United States it is quite easy to get a loan with a negative credit history,” argues Elena Shilina. For comparison: in Russia, the volume of mortgage assets at the end of last year amounted to about 2% of GDP, in the USA this figure was 50-55% of GDP “For now we are working with the cream of the crop of mortgage clients,” says Elena Shilina. “Therefore, the crisis in the United States remained a crisis primarily in the United States and had only a minor impact on Russian mortgages,” concluded Victoria Shcherbakova.
Despite this safety net, the crisis still affected the financial institutions of our country. First of all, this is an increase in the cost of money and a deterioration in the ability to attract funds to finance mortgage operations. Will banks begin to curtail mortgage programs? “It depends on what resources the bank has to further issue mortgage loans,” explains Olga Sadovskaya. “If the bank does not have problems with liquidity and financing, then there is no reason to reduce the volume of issuing mortgage loans.” As the expert notes, a mortgage is the least risky type of lending, because the loan is secured by reliable collateral - the apartment itself. “The decline in the growth rate of mortgage portfolios of some banks, currently observed on the market, is caused by a reaction to panic in the mortgage market and uncertainty about the terms of refinancing the mortgage loans they issue,” Sadovskaya continues. “When the situation becomes clearer, banks will again increase their issuance volumes.”
However, much depends on what kind of capital Russian banks use: domestic or foreign. According to Victoria Shcherbakova, the crisis did not affect major players in the mortgage market with Russian money. And against the backdrop of the crisis, their programs only became more attractive, and the flow of clients increased, which only slightly affected the timing of consideration of loan applications.
Looking to the future
“Of course, it has become more difficult and somewhat more expensive for banks to borrow money,” notes Pavel Ilyin. “But we shouldn’t dramatize the consequences of the American crisis for the Russian market.” According to the expert, the fact that several banks have curtailed their mortgage programs cannot have a global impact on the entire market. “Mortgages are now issued by more than 500 banks, which will quickly take away borrowers from less viable banks,” he continues. “We are assessing the consequences of the crisis from the point of view of the emergence of local problems at several credit institutions.” Moreover, the Moscow Credit Bank in September announced a more loyal approach to confirming the income of borrowers, allowing verbal confirmation of income and requirements for minimum length of service at the last place of work. “This does not mean that the American crisis does not teach us anything, we simply work in the conditions of the Russian economy, where more than half of salaries are “gray”, and the client’s creditworthiness should not depend on the fact that our client’s employer does not pay taxes,” optimistic expert. In turn, Alfa Bank began active expansion into the regions in October. The bank's mortgage centers opened in Izhevsk, Volgograd, Tomsk, Kemerovo, Khabarovsk, Krasnodar and several other cities. “We do not feel a reduction in lending volumes,” notes Olga Sadovskaya. Moreover, according to her, the City Mortgage Bank is constantly increasing both the number of approved applications and the volume of loans issued. And in early October, the bank introduced a new service for borrowers of third-party banks - the opportunity to refinance your loan.
True, Russian banks are no longer able to refinance abroad as before. To ensure an influx of funds, they turn to the old proven method: attracting deposits by increasing rates on them. “Of course, with the increase in the cost of resources in the interbank market, the bank pays increased attention to the conditions for attracting resources from private clients, but there is no shortage of resources,” explains Vyacheslav Gubkin, deputy head of the retail operations department of Vozrozhdenie Bank. “And the increase in deposit rates is more likely due to the desire to match the market and provide clients with competitive conditions.”
"Positive Points"
“The crisis has also brought positive aspects: the Russian mortgage industry will become stronger, and the parameters of mortgage loans issued will be more consistent with the new requirements of investors,” notes Olga Sadovskaya. The fact is, she explains, that with the growth in the volume of mortgage loans, banks are thinking about refinancing them, including securitization. And here certain risk requirements come into force. These requirements affect the quality of the loan portfolio, including the requirements for borrowers. “Therefore, now in some banks, where the risk bar has been raised quite high, there is a reassessment of risks and the development of new criteria for selecting clients,” says the expert.
“The mortgage market continued to grow, despite the problems,” agrees Olga Bazanova. The optimistic mood of some experts is so high that they extrapolate their positive expectations to the American market. “In my opinion, it is exaggerated to call the situation in the US mortgage market a financial crisis: it has negatively affected the availability of funding, that is, “long-term money” for banks, but this is a temporary impact,” Elena Shilina is sure. According to her, in Russia the market for long-term financing and securitization of loans will return to pre-crisis levels in mid-2008. “The level of delinquency in the Russian mortgage market is incomparably lower than the world level,” she adds. “Thus, the Russian mortgage sector may well become a source of high-quality securities for investors.”
As Victoria Shcherbakova notes, mortgage loan programs, even after the crisis, are presented on the market in a wide variety. The range of interest rates in foreign currency ranges from 10.25 to 12.5% depending on the amount requested, the size of the down payment, the age and reliability of the borrower. For ruble loans, the maximum rate is 16-17% per annum. “New credit programs are constantly appearing, specialized in purchasing apartments in specific projects under construction, where conditions can be almost preferential,” the expert assures.
Thus, the consequences of the global crisis have had a contrasting impact on the Russian market. Some banks, albeit temporarily, have stopped working with mortgage programs, others have increased loan rates, and still others say that they did not suffer in any way during the crisis. According to independent experts, they are all right and each bank has its own situation. As leading players note, in general the Russian market withstood a sudden blow called the “international crisis”, but did not avoid certain changes. And Russian mortgages will no longer be the same as they were at the beginning of 2007.