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JORDAN MORTGAGE REFINANCE COMPANY IBRAHIM DAHER – MANAGING DIRECTOR

JORDAN MORTGAGE REFINANCE COMPANY IBRAHIM DAHER – MANAGING DIRECTOR Presentation for the Global Conference on Housing Finance In Emerging Markets, organized by The World Bank Washington D.C – U.S.A March 15 –17,2006 - e-mail jmrc@go.com.jo - website www.jmrc.com.jo.

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JORDAN MORTGAGE REFINANCE COMPANY IBRAHIM DAHER – MANAGING DIRECTOR

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  1. JORDAN MORTGAGE REFINANCECOMPANY • IBRAHIM DAHER – MANAGING DIRECTOR • Presentation for the Global Conference on Housing Finance In Emerging Markets, organized by The World Bank Washington D.C – U.S.A March 15 –17,2006 - e-mail jmrc@go.com.jo - website www.jmrc.com.jo

  2. Jordan Mortgage Refinance Company Table Of Contents • An Overview of Housing Finance in Jordan . • Establishment of JMRC. • Operations’ Mechanism of JMRC. • Benefits to Borrowers and Investors. • Achievements of JMRC

  3. JORDAN MORTGAGE REFINANCE COMPANY Table Of Contents - Obstacles Faced JMRC. - Assessment of JMRC Impact on Housing Finance • Future work plan. • Appendixes:- - General information about Jordan. - Assets /liabilities Management policy. - Credit Policy & credit ceilings. - Investment policy.

  4. JORDAN MORTGAGE REFINANCE COMPANY AN OVERVIEW OF HOUSING FINANCE INJORDAN - Before 1996 there was a wide gap between housing supply and demand for low-cost housing. - In 1996 the Government adopted a housing strategy in cooperation with the World Bank to restructure housing sector. The aim was:- • To enhance role of private sector in housing for low- income households.

  5. JORDAN MORTGAGE REFINANCE COMPANY AN OVERVIEW • To mobilize increased mortgage financing by banking system. - An agreement was signed between the Government and the World Bank to implement Housing Finance and Urban Sector Reform Project. • Loan from the World Bank (US$ 19 million) to establish a secondary mortgage facility (JMRC).

  6. JORDAN MORTGAGE REFINANCE COMPANY AN OVERVIEW Sources of Housing finance are as follows:- • Informal finance from individuals’ savings, sale of personal belongings, assistance from relatives etc… • Formal finance from banks and other private and public financial institutions.

  7. JORDAN MORTGAGE REFINANCE COMPANY AN OVERVIEW • Prior to 1997 Formal Housing finance was dominated by : - • The Housing Bank (HB) which provided (50%-60%) of formal housing finance. HB was offered incentives to grant long term loans and to subsidize the interest rate.

  8. JORDAN MORTGAGE REFINANCE COMPANY • AN OVERVIEW • Jordan Islamic Bank (JIB), which provided (17%-21%) of formal housing finance. • Public and private housing funds (e.g. military funds, teachers funds, private pension funds etc…)

  9. JORDAN MORTGAGE REFINANCE COMPANY Establishment of JMRC Incorporation : • JMRC was incorporated in June 1996 as a public shareholding company. (Its worth mentioning that the World Bank had an important role in JMRC establishment and still has a consultancy and supporting role in its operations). • JMRC is considered to be the first step towards a secondary mortgage market in Jordan.

  10. JORDAN MORTGAGE REFINANCE COMPANY OBJECTIVES - JMRC Aims to:- • Support Government’s strategy to improve efficiency of housing finance. • Make mortgage lending more attractive to lenders, reduce liquidity risk and access longer term funds for housing at a lower effective costs, through refinancing mortgage loans originated by banks. • Promote the capital market, through issuing medium and long-term bonds.

  11. JORDAN MORTGAGE REFINANCE COMPANY Sources of Funds • JMRC Sources of Funds are :- - Paid- up capital of JD 5 million (US $ 7.04 million). • A subordinated loan in JD equivalent to US$ (19) million from the Government, originally obtained from the World Bank. - Funds raised through issuing bonds in the local capital market.

  12. JORDAN MORTGAGE REFINANCE COMPANY The shareholders of JMRC are:- - Governmental institutions:- - Central Bank of Jordan 18%. - Social Security Corporation (SSC) 10%. - Housing & Urban Development Corporation (HUDC) 10%. - Private sector institutions (62%). 12 local banks and 1 financial company. - Board of Directors chaired by the Governor of CBJ.

  13. JORDAN MORTGAGE REFINANCE COMPANY Operations’ Mechanism of JMRC. IN Lending - Financial institution applies for refinancing mortgage loans. - JMRC refinances 83% of the outstanding balances of mortgage loans . - JMRC prices its loans based on its cost of funds with a margin (around 1%) .

  14. JORDAN MORTGAGE REFINANCE COMPANY Operations’ Mechanism of JMRC. - Financial institution transfers its right on pledged collateral to the favor of JMRC. - Principal amount of the loan is usually repaid at maturity date, and interest paid quarterly or semi annually. - Financial institution bears all risks.

  15. JORDAN MORTGAGE REFINANCE COMPANY IN Funding JMRC issues corporate bonds on the local capital market through:- • Public subscription. • Private Subscription. - By Auction. - By Agreement. - JMRC’s bonds are unsecured by any specific assets.

  16. JORDAN MORTGAGE REFINANCE COMPANY Benefits To Borrowers And Investors. • JMRC’s loans are usually cheaper than other sources of funds. • JMRC’s loans improve capital adequacy ratios (risk- weighted 20%) - JMRC’s loans are exempted from provision of good loans (2%).

  17. JORDAN MORTGAGE REFINANCE COMPANY Benefits To Borrowers And Investors. - JMRC’s loans improve assets- liabilities management. • JMRC’s loans help to hedge against interest rate risk.

  18. JORDAN MORTGAGE REFINANCE COMPANY Benefits To Borrowers And Investors. • JMRC’s bonds are considered as liquid assets. • JMRC’s bonds are risk-weighted at (20%) for the purpose of calculating the capital adequacy ratios of banks.

  19. JORDAN MORTGAGE REFINANCE COMPANY Achievements of JMRC 1996 - 2005. • Complete and update the infrastructure needed to operate:- - legal documentation. - manuals. - IT environment. -Qualified staff. - Marketing strategy.

  20. JORDAN MORTGAGE REFINANCE COMPANY On the lending side:- Loans extended 1998 - 2005 Total JD 153 million – US $ 215 million

  21. JORDAN MORTGAGE REFINANCE COMPANY ACHIEVEMENTS OF JMRC

  22. JORDAN MORTGAGE REFINANCE COMPANY ACHIEVEMENTS OF JMRC On the Funding Side

  23. JORDAN MORTGAGE REFINANCE COMPANY JMRC’s Assets 1997 - 2005

  24. JORDAN MORTGAGE REFINANCE COMPANY ACHIEVEMENTS OF JMRC

  25. JORDAN MORTGAGE REFINANCE COMPANY • Major Obstacles Faced JMRC. Previous. • Before 2000 lenders were unable to lend housing loans for long terms, because the interest should not exceed –by law- the principal. This has been solved by the amendments of banks’ law. - The transfer fee of the mortgage deed. JMRC was exempted to pay such fee.

  26. JORDAN MORTGAGE REFINANCE COMPANY • Major Obstacles Faced JMRC. Present. • The bond market is not yet so active. - Access of liquidity in the banking sector. - The absence of legal aspects for securitization (it is now under process).

  27. JORDAN MORTGAGE REFINANCE COMPANY • Assessment of JMRC Impact on Housing Finance. - JMRC lending reduces interest rate risk, mismatching risk. - JMRC plays a vital role in encouraging banks to enter the mortgage market. - Banks compete to offer good terms on housing loans (e.g. interest rate, down-payment requirements , tenor..)

  28. JORDAN MORTGAGE REFINANCE COMPANY • Assessment of JMRC Impact on Housing Finance. - JMRC lending increases term of housing loans which improve the borrowers’ affordability and increases availability of loans to low and middle income families. - Availability of mortgage loans has promoted residential construction industry, and improved middle and low cost housing. - JMRC plays an important role to standardize origination of mortgage loans.

  29. JORDAN MORTGAGE REFINANCE COMPANY • Future work plan - Purchase mortgage loans and issue mortgage- backed bonds (securitization) - Adopt a mechanism to refinance or purchase mortgage loans extended by Islamic banks. - Encourage establishment of a mortgage information system and credit agencies .

  30. JORDAN MORTGAGE REFINANCE COMPANY • Future work plan - Encourage establishment of non-banking financial institutions specialized in mortgage origination . - Encourage establishment of mortgage insurance companies.

  31. JORDAN MORTGAGE REFINANCE COMPANY • Future work plan -Encourage banks to offer fixed rate mortgage loans. -Issue longer-term bonds (over 5 years).

  32. Appendixes

  33. JORDAN MORTGAGE REFINANCE COMPANY • General information About Jordan. • Ruling Regime : Parliamentary With hereditary monarchy • Population : 5.32 million • Area : 89.3 thousand sq. Km. • Economic System: Market oriented economy. • Macroeconomic Indicators 2004: (equivalent to US$) • Nominal GDP US$ 11.5 billion • Real GDP growth 7.7% • GDP per capita US$ 2164 • Inflation 3.48%

  34. JORDAN MORTGAGE REFINANCE COMPANY • General information About Jordan. • Net Public Debt: US $ 10.1 billion - Domestic Debt: US $ 2.58 billion - External Debt: US $ 7.54 billion • Currency:Jordan Dinar, which equals US$ 1.41, and is fully convertible. • Domestic credit: Extended by banks JD 9.59 billion (US $13.52 billion) as at end of October 2005.

  35. JORDAN MORTGAGE REFINANCE COMPANY • General information About Jordan. • Number of banks:14 commercial banks,2 Islamic banks,8 foreign banks. • Resources : -Several natural resources; phosphate and potash are the most important ones. -Abundant skilled human resources. -Several historical / tourism sights. - Agriculture.

  36. JORDAN MORTGAGE REFINANCE COMPANY JMRC implements its operations according to policies and manuals • Assets / liabilities management (ALM) policy which aims to:- - Preserve real value of JMRC’s assets. - Realize optimum return on assets. - Match between duration of assets and liabilities - Minimize interest rate risk, liquidity risk and credit risk.

  37. JORDAN MORTGAGE REFINANCE COMPANY ALM policy includes :- - Credit policy and credit ceilings. - Investment policy.

  38. JORDAN MORTGAGE REFINANCE COMPANY Credit policy includes: • Eligibility criteria for a financial institution:- - The institution is privately owned, regulated by CBJ, financially strong, satisfies CBJ’s capital adequacy requirements and other banking regulations. - The institution’s financial statements were revised and approved by independent auditors.

  39. JORDAN MORTGAGE REFINANCE COMPANY • Eligibility criteria for a mortgage loan:- - First class mortgage deeds. • (LTV) does not exceed 80%. • Provided for residential use. - No installment due.

  40. JORDAN MORTGAGE REFINANCE COMPANY Credit Ceilings • JMRC determines -once every year – a credit ceiling to each bank on the basis of it’s financial statements, taking the following financial indicators into account :- - Return on assets (ROA). - Volume of assets. - Liquidity ratio. - Utilization ratio. - Capital adequacy ratio.

  41. JORDAN MORTGAGE REFINANCE COMPANY Investment Policy • JMRC invests in the following JD instruments :- • Treasury bills, Treasury bonds issued by the Government, and Corporate bonds guaranteed by the Government. • Time deposits and certificates of deposits issued by banks.

  42. JORDAN MORTGAGE REFINANCE COMPANY Investment Policy • Corporate bonds issued by public shareholding companies. • Investment portfolio.

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