MORTGAGE MARKET DEVELOPMENT IN MONGOLIA ISSUES AND CHALLENGES MONGOLIAN MORTGAGE CORPORATION Regional Symposium on Pro-Poor Housing Finance in Asia and Pacific, MORTGAGE MARKET DEVELOPMENT IN MONGOLIA ISSUES AND CHALLENGES Ts.Enkhbayar CEO Enkhbayar@mik.mn New Delhi, India 2010.04.19

Content Housing finance system development process Mortgage market overview Status of conditions on mortgage market development MIK performance , issues and challenges

Housing finance system development overview Before 1990s Top down system Top down system Financed by 100% state Waiting list Free housing delivery 1990-2000 Transitional period Housing supply stopped Housing law (1997) State Housing policy HFS needs Enabling environment Housing privatization ADB project 3090 Some initiatives by private sector 2000s preparatory stage Private investment started Housing demand and supply study (ADB) HFSP by ADB started 2003-2007 Kick off Mortgage loans started in 5 banks Loan portfolio 205 bln tug Loan standards, documentation, database MIK established 2006 HFC established 2007 Housing supply increased Housing demand 2008 …. Development Setting up mortgage legal environment Proper PMM infrastructure capital market development Capacity building, Institutional strengthening Warehousing Liquidity facility Issuance MIK bond Phased development approach

Housing Areas: Serviced apartment area Ger area Planning –proper , 70%- population 59%- UB 80-90% provincial towns Serviced apartment area Ger area Planning –proper , Water supply – central system Sewage – central system Heating – central system Electricity – central system Social infrastructure –sufficient Apartment ownership –yes Housing finance – mortgage loans, savings Planning – not proper Water supply – kiosks (potable) Sewage – pit latrine Heating – stove using coal and wood Electricity – yes Social infrastructure – not sufficient Land ownership –yes Housing finance – savings, assistance from relatives and friends, loans

Market Core Indicators Mortgage market overview 2009.12.31 Market Core Indicators 2003 2004 2005 2006 2007 2008 2009 Total Debt Outstanding /mln.MNT/ 8,2 19 31 74,3 164,6 217 226 Total Debt Outstanding / Changes/ : 0% 132% 62% 141% 122% 8.3% 8.5% Debt Outstanding/Borrower /mln MNT/ : 7,2 6,6 6,5 8,3 10,0 13 13.6 Number of Mortgage Borrowers 1,057 2,892 4,774 8,984 16,444 16 590 16 628 Market W.A.I.R /Ann , %/: 12.0% 14.5% 14.7% 17.8% 16% 18.7% 17.2% Original W.A. LTV % : 83% 70% 75.% 76.% 68% 78%

Shareholders Main Goal Promotion and development of primary and secondary mortgage markets by raising medium to long term funds on domestic and foreign capital market through a series of capital market tools to create and ensure s smooth functioning of long-term financing system to promote affordable home ownership and urban development for Mongolia’s people. MIК Bank of Mongolia Anod Capital Capitron Golomt Khaan Mongol Post TDB UBC bank Хас Zoos Established 06.09.2006 Background The Mongolian Mortgage Corporation (MIK) is established on September of 2006, when Bank of Mongolia (BoM) and ten comercial banks signed a joint Founding Agreement to work together towards to establishment of a private sector controlled Secondary tier Mortgage Institution.

Mortgage market activity Borrower Mortgage Bonds Lender Commercial Bank loans Secondary Mortgage Market Institution INVESTOR (International, Domestic ) Loan Funding Funding ₮ 2 major role i) market development driver I i) Pioneering SMM PRIMARY MORTGAGE MARKET (Large amount, qualified, guaranteed ,Mortgage loan that attract investors) Borrower - Lender SECONDARY MORTGAGE MARKET ( Raise fund through making a portfolio on similar housing mortgage loans to sell it to the third party) Lender- Agency- Investor

MONGOLIAN MORTGAGE CORPORATION Shareholders Board Members Financial Committee Operational Committee Risk Committee Legal & Audit Committee CEO Asset management and Securitization Division (Asset management officer, Securitization officer) Finance and Investment Division (Senior finance officer, Accountant, Assistant Accountant) Risk Management Division (Risk management officer) Internal operation Division (IT, Layer, Cooperation officer, Administration & HR officer)

Reason why we established MIK Increase the affordability of the housing loan Stable structure for long term financing Increase in housing mortgage market Need for capital market development Liquidity facility

МIK OPERATION 16% - PWR 84% - PWOR Dec 2009 swapped MIK bond with mortgage pool

DEVELOPMENT PHASES Diversification 2017-2020 Development period 2013-2016 Start up period (setting up solid foundation for mortgage market development)2007-2012

Phased Development Approach Start up period 2007-2012 Legal and policy environment related with mortgage market development will be in place Financial infrastructure related with mortgage market will be in place. dominant player By purchasing qualified mortgage pools and issuing MIK bonds MIK would become financially capable and highly professional mortgage financing institution

Issues to be done for developing efficient mortgage market development Legal environment Mortgage law Mortgage security SPV Pool registration Tax matter MIK legal status Primary mortgage market infrastructure Standardization of mortgage loans Property appraisal Mortgage database system Mortgage insurance Credit bureau Capital market development Rating Income verification system Market environment Political stability Economic stability Balance on Supply and demand Creating domestic potential investor Affordability Capacity development Institutional capacity Coordination and linkages of market players Quality of collateral Efficiency of Urban planning, land development, construction quality Effective operation and maintenance

MIK Progress Sep 2006 MIK established June 2007 MOU signed with KfW, MOF, BOM Nov. 2007 First mortgage pool purchased June 2008 MIK set up internal operational procedures Oct. 2008 Mortgage standardization procedure approved May 2009 Mortgage toolkit with IFC TA project June 2009 Mortgage law approved July 2009 Agreement with MOF-KfW August 2009 FRC shelf registration MIK Bond Sep. 2009 UNESCAP-UNHABITAT- NHB workshop Oct.2009 first OTC transaction and procedure Oct 2009 First MIK bond issued and sold Dec 2009 KfW TA started Jan 2010 MIK IT infrastructure March 2010 Micro housing finance study project , IFC April 2010 ABS law has discussed by Parliament Domestic investor-insurance companies involved Mortgage guarantee program initiated with FMO

learning Play dual role Driven force of setting up Mortgage market development as well as capital market (laws, regulations, policy framework, financial infrastructure, capacity building, workshops, RTD, lobbying, etc) Acting as secondary mortgage institution Purchasing pools from banks, warehousing m issuing bonds and selling investors etc Institutional strengthening and capacity building

ISSUES AND CHALLENGES Implementation of laws and regulations recently approved Economic stability Different Understanding of mortgage issues Standardized and documented origination and servicing Low affordability rate Local rating agency Inappropriate Professional appraisal Title and Lien registration, enforcement Balance sheet treatment with recourse based loan pools and bonds Bankruptcy remote vehicles Tax and accounting guidelines IT infrastructure AM Credit scoring Mortgage insurance Mortgage guarantee program

What is next? Improve accessibility housing loans to LIHs Housing micro finance study, Guarantee program with international orgs. ABS , SS laws and related regulations, by laws Issue bonds to domestic and international market Expanding cooperation Network meeting in Mongolia APHFU Intensive development of mining industry –coal mining, copper mining, gold etc and

THANK YOU Mongolian Mortgage Corporation LLC /MIK/ MIK Building , United Nations street-38 Chingeltei district-4, 15160 Ulaabaatar, Mongolia www.mik.mn, info@mik.mn   Tel: (976) 11-328267 Fax (976) 11-313338