Affordable Mortgage Finance DPL

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The objective of the Affordable Mortgage Finance Program Development Policy Loan Program for Egypt, Arab Republic of is to reform the current system of inefficient and poorly targeted supply-side subsidies for housing for the broad low and middle income sector and replace them with a transparent and economically efficient demand-side subsidy system. The program faces several risks that would be mitigated as follows: 1) financial and macroeconomic environment: with the current global crisis, obtaining funding sources priced at a level appropriate for on-lending to the mortgage sector is one of the major short-term risks. In mitigation of this risk, the Egyptian Mortgage Refinance Company (EMRC) is moving forward with plans to issue its own bonds. (ii) Inflation: increase in inflation may result in increasing mortgage interest rates across mortgage lenders, thereby affecting the size of loan which beneficiaries will be able to afford. Measures to tackle the affordability problem would include: (a) moving from a buy-down to an upfront subsidy; and (b) reducing cost of construction through improved regulations or change the mix of units between new communities and existing urban areas. (iii) Market risk: inability of a class of households drawn into mortgage obligations, to pay according to amortization schedules drawn up by lenders to expand initial affordability, risking loan default. The program deals with this risk in the following ways: (a) loans are fixed rate loans; and (b) maximum payment-to-income ratios will be set by law at 33 percent, although for some lower income households, the program may operate below this ceiling. (iv) Political environment: stakeholder's opposition could weaken the government's attempt to pursue the needed policy and structural reforms. Budgetary allocations for the new subsidy program on a sustained basis could be disrupted, thereby, impacting negatively lenders' confidence. These risks would be mitigated through ensuring the issuance of decrees, amending relevant laws, launching public awareness campaigns, and consulting with stakeholders.