BAKU, Azerbaijan, November 1. According to the international practice and numerous researches, the main issue regarding financial mechanism of mortgage lending is ensuring a sufficient amount of long-term and sustainable financial resources, which is associated with the long-term nature of capital investment and the investment mechanism of the mortgage lending system, Director of the Treasury Department of the Mortgage and Credit Guarantee Fund (IKGF) of Azerbaijan Ilhama Isabalayeva told Trend.
According to her, there are several solutions, however, the most effective tools, is refinancing process with the state's participation.
"Refinancing in mortgage lending is the assignment of the rights of claim (sale) by the primary lender of a mortgage loan and the return by the lender of funds previously issued in the form of long-term loans in a short time. Thus, refinancing maintains liquidity for the primary lender, ensures the restoration of the ability of the credit institution to issue new loans," Isabalayeva said.
She stressed that there are two main forms of refinancing mortgage loans in the world practice.
"One of them is a single-level model of mortgage lending, i.e. the bank that issued mortgage loans independently refinances them by issuing mortgage-backed securities. This model is typical for Western European countries - Germany, France, Austria, Denmark, etc. The two-tier refinancing model provides for the presence of specialized operators of the secondary mortgage market (large mortgage banks or specialized organizations), whose task is to maintain the liquidity of the mortgage lending market. In this model, primary lenders issuing mortgage loans assign (sell) them to secondary market operators. The secondary market operator issues mortgage-backed securities and places them. The two-tier model is widespread in the US, Canada, Australia, and the UK," Isabalayeva explained.
She noted that the system of mortgage housing lending in Azerbaijan has been implemented on the basis of a two-tier refinancing model.
"In accordance with the decree of the president of Azerbaijan, the functions of the operator of the secondary mortgage lending market are performed by the Fund, which was created using international experience. The Fund, as a state institution for the development of the mortgage lending market, redeems the rights of claim on issued mortgage loans, i.e. refinancing. The main financial resources of the Mortgage Loan Refinancing Fund are budget transfers and funds raised through the issuance of bonds secured by mortgage loans," Isabalayeva said.
She stressed that the Fund has placed bonds worth 1.74 billion manat ($1.02 billion) since 2009. Currently, the volume of the Fund's bonds in circulation amounts to 1.2 billion manat ($705 million).
