Monday, July 2, 2018

Can development of Secondary Mortgage Market help fix the housing shortage in India?

Author: Sachin Gupta | Find me on Twitter

As has been documented on numerous occasions about the shortage of housing in India, till 2012 (as per the census results) the housing shortage in urban areas stood at 18.78 million units**. About 99% of this housing shortage pertains to the economically weaker section (EWS) and low income group (LIG) categories. That’s a whopping number and constructing those many housing units for growing urban population will take enormous effort on the part of government, private businesses, and finance ministry.

Providing low cost housing finance to plug the housing shortage is seen as the key ingredient. However, most banks use traditional products such as using funds from deposits to finance long term housing loans. Therefore, to provide housing on a scale as large as in India, the concept of secondary mortgage market may well soon be adopted in India. In this article, we will briefly talk about the secondary mortgage market and why it is difficult to implement in India.

What is a Secondary Mortgage Market:

The secondary mortgage market is active in developed economies such as USA, Europe, Japan, Australia, etc. The primary function of this market is to provide a mechanism for refilling funds used by mortgage originators (Banks, Housing Finance Companies, etc.). This, in turn, enables them to maintain a flow of new mortgage origination during periods of rising and falling interest rates. They may accomplish this by selling mortgages directly to government agencies or private entities. Or they may form mortgage pools and issue various securities, thereby attracting funds from investors who may not otherwise make investments directly in mortgage loans. Hence, much like any corporation raising funds for doing business, the primary goal of mortgage originators in today’s market is to replenish funds by reaching broader investor markets.

In addition to direct sales of mortgages from originators to investors, many large mortgage originators found that they could place mortgages in pools and sell securities of various types, with mortgages in these pools serving as collateral. With the assistance and expertise of investment bankers, large mortgage originators can then issue securities in small denominations which would be purchased by many more investors. Firms with smaller mortgage origination volumes could continue to sell mortgages directly to government agencies, which in turn would create large pools of their own and issue securities.

Many types of mortgage related securities have been developed in recent years. The number and types of securities are continuing to increase as mortgage originators, investment bankers, and government agencies continue to innovate and reach investor markets that provide the ultimate sources for many of the funds used in new mortgage origination. Major types of mortgage backed securities are:

  1. Mortgage backed bonds (MBBs)
  2. Mortgage pass through securities (MPTs)
  3. Mortgage pay through bonds (MPTBs)
  4. Collateralized mortgage obligations (CMOs)


Why it is difficult to implement in India?

RBI recently came out with a report listing down the reasons for non-implementation of secondary mortgage market in India:

  1. Low Investor Base
  2. Cultural factors
  3. Poor capital market infrastructure
  4. Regulatory environment
  5. Legal hurdles
  6. Lack of proper accounting standards
  7. Taxation
  8. Poor quality of assets
  9. System deficiencies
  10. Lack of standardization


Road Ahead:
It is clearly evident from the discussion above that development of secondary mortgage market in India is inevitable given the scale of housing stock that needs to be provided. And sooner, we as a country fix some of the issues facing secondary mortgage market; the better it is for growing urban population and economic growth of the country. In 2011-12, the housing loan disbursed to individuals stood at Rs. 68221.12** Crores. With secondary mortgage market in place, this disbursed loan amount can achieve the global levels. And at the same time, provide a mechanism for transparent debt markets.

** Source: National Housing Bank



Have any Questions?

35 comments:

  1. What a brilliant work with writing and excellent distribution of content all over the blog. To provide dream homes at prime location of Ghaziabad Wave group puts forth Wave City Dream Homes, an alluring township offering unmatched lifestyle.

    ReplyDelete
  2. I really like this blog about Housing problem in India.Thanks for sharing with us great blog.
    New Residential Project in Bhiwadi

    ReplyDelete
  3. This is useful information you have shared with all. And the factors told by you due to which secondary mortgage can't be implemented in India are not known to the investors.

    HomeTrust

    ReplyDelete
  4. if at all implemented i don't think it would work and the 2 main reason from above mentioned points i think would be the barrier would be lack of standardization and the legal procedures. other points might improve but this two things will not.

    ReplyDelete
  5. This would certainly bring some stability in real sector of India.
    Property Advertising Services can ease your job dealing in property.

    ReplyDelete
  6. Quiet unsure about these secondary mortages.
    This could help real estate sector to some extent.
    Properties in patna are booming day by day.

    ReplyDelete
  7. This comment has been removed by the author.

    ReplyDelete
  8. Thank you for the information regarding with this useful topic .It is helping me a lot and keep writing such a worthy blog.

    ReplyDelete
  9. This comment has been removed by the author.

    ReplyDelete
  10. Thank you so much... your blog is giving very useful knowledge for all.i didn’t have the knowledge in this now i get an idea about this..
    thks a lot:-)To know more spot cash for card swipping

    ReplyDelete
  11. This comment has been removed by the author.

    ReplyDelete
  12. Thanks for sharing this informative blog, it seems very helpful for me, i was looking for same kind of content about Emi Calculator

    ReplyDelete
  13. You had posted an outstanding post and given an good information. I like your way of content and will keep your guide always in mind.
    Bangalore Property Management Company
    top property management company in Bangalore

    ReplyDelete
  14. Really interested information sharing about Secondary Mortgage Market help fix the housing shortage in India.
    Top Construction Companies in Chennai

    ReplyDelete
  15. ThankQ for sharing this information and really good articles. We are also one of the best Mortgage Loan In Chennai Apply 9840136583 For Patta Land Mortgage Loan, Vacant Land Mortgage Loan, UnApproved Land Mortgage Loan, House Mortgage Loan, Property Mortgage Loan, Commercial Mortgage Loan, Industrial Mortgage Loan, DTCP Land Mortgage Loan, CMDA Land Mortgage Loan.

    Mortgage Loan in Chennai | Land Mortgage Loan in Chennai

    ReplyDelete
  16. Thank you so much for sharing the important information regarding real estate
    Ambience Creacions Sector-22 Gurgaon

    ReplyDelete
  17. Apex The Kremlin offered 2, 3 & 4 BHK ultra-luxurious residential project in the serenity of fully loaded amenities and exclusive size ranging from 998 to 1830 sq. ft. floor area.
    Call Us: +91- 8010654321

    ReplyDelete
  18. Supertech Scarlet Suits is being constructed with the best use of civil technologies that will cater you with the finest life tools helping celebrate life in the best of its colors.
    Call Us: +91 -9582 275 275

    ReplyDelete
  19. Ambiencecreacionsgroup is the brand new creation by the reputed real estate builder . The accomplished architectonics in this project is being done by using the latest technologies and hence, is considered to be the most admirable address offering absolute amusement to each and every resident.
    ambience creacions price list

    ReplyDelete
  20. Excellent Article! Sastabroker is one of the renowned property dealers in India. Visit India's most trusted Real Estate portal for property details, specifications, floor plans. We offers great 1 bhk, 2 bhk flats, .commercial office space, commercial shops space, independent houses and more with exciting offers and deals.

    ReplyDelete
  21. Thanks for sharing, If anyone are looking to buy property in Pune. I am sharing some residential projects.
    2 BHK flats in Sopan Baug
    3 BHK flats in Sopan Baug
    3.5 BHK Villament in Baner

    ReplyDelete
  22. Seethesh Beyond Technologies, [28.08.18 11:27]
    Shreyas Enterprises home loans in Vizag
    Shreyas Enterprises Vizag is engaged in offering Home Loans to the clients In Visakhapatnam. A crew of experienced personnels works with enthusiasm for rendering best services

    ReplyDelete
  23. Glad to read the informative content you have posted for us. Undoubtedly the real estate sector is growing in Bhopal and the are giving exceptional properties to live. In those names, one name is Construction co. top best builders in bhopal who provide quality with a blend of affordibility.

    ReplyDelete
  24. nice information for a new blogger…it is really helpful. pre-settlement funding

    ReplyDelete
  25. Interesting stuff to read.i am also looking new information related to. seo in lahore keep it up.

    ReplyDelete
  26. socialpoint.ca found the article Awesome and informative article. Interesting things that you always shared with us. Just continue and always write this kind of articles. Thanks

    ReplyDelete
  27. it was an intresting information you shared with us keep sharing that type of posts with us
    if anyone have any social media account like instagram and that one not getting likes not have many followers then just visit our site
    buy social followers Au

    ReplyDelete
  28. When you are thinking for taking loans through mortgage but if you are new on this sector then I'll suggest you to contact with mortgage brokers whitby. Because from there you'll get so many experienced mortgage brokers who can give you the perfect solution. Also they are familiar with many mortgage lenders who are always ready to provide you the best rates for mortgage.

    ReplyDelete

  29. Fantastic page! I actually really liked all the following. I hope to learn from you. I've got outstanding awareness and so perception.
    I’m certainly absolutely fascinated by this particular guidance.Visit Here

    ReplyDelete
  30. Terrific article! This is the sort of data that should be shared around
    the web. Disgrace on the web indexes for the time being not situating this post higher!
    Please finished and visit my site .
    smmservices.ca

    ReplyDelete