Special Euromoney Coverage: Egypt's mortgage securitization hopes not to repeat US mistakes

Daily News Egypt
3 Min Read

CAIRO: Seemingly unabated by the mortgage-related crisis that blew up in the USA, Egyptian banks have started to engage in the securitization of mortgages.

Bankers at a workshop organized by Ahli United Bank at the Euromoney Egypt Conference Monday explained that while there were certainly problems with securitization, the structure itself remained a useful tool.

The panelists identified several lessons to be learned from American mistakes. Most importantly, banks and investors have to look closer at the real value of assets. Instead of glancing at ratings, investors have to analyze the underlying assumptions of the rating model employed.

Hazem Moussa of the securitization company Contact explains that past ratings sometimes were off because they assumed no volatility, when prices were in fact extremely volatile or assumed real estate prices to evolve only in one direction when suddenly they started falling. Variable interest rates have also played their part in distorting the risk of the underlying asset.

More analytical ratings, improved transparency and better regulation were also cited by Ahmed Haggag, CEO of Amlak Finance and Real Estate Investment, as part of the solution. He favorably took note that Egypt was complying with the international “classic appraisal standard, evaluation rules when it comes to asset evaluation, but stressed that more in-depth evaluation was needed.

“Egypt is an overregulated market, believe it or not. But we need more technical regulation, he added.

Haggag assured that “we are maintaining course. Securitization is needed and the demand for credit would at some point be greater than what banks can finance. Mutual funds and insurers are pushing mortgage companies to securitize their portfolios, they are asking for it.

The other panelists agreed that they were also on the customer side observing business as usual with no change in default rates. Haggag expected real estate prices to remain stable or decrease slightly by around 5-10 percent. As some banks have been lending more aggressively than others, Moussa points out, their situation may be different.

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