Govt to establish secondary mortgage facility

Govt to establish secondary mortgage facility

JAKARTA (JP): The government will establish a secondary
mortgage facility (SMF) to help finance the country's growing
demand for housing, State Minister of Public Housing Akbar
Tandjung says.

"The government's ability to finance public housing has been
decreasing over the last years," Akbar said in a seminar on
alternative financing for the real-estate industry yesterday.

To remedy this, the government is considering establishing an
SMF, which has been successful in Malaysia, to meet the growing
demand for housing, especially from the lower end of the market.

SMF is a complicated structure which allows a financial
institution to mediate the trade of scrutinized mortgages between
the issuers of mortgages (banks) and investors. In the United
States, such institutions are called the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage
Association.

Those mediating financial institutions -- usually referred to
as "conduits" in financial lingo -- make money from selling those
mortgages to the investors.

The conduits, subsequently, use the money as a type of long-
term capital injection for the banks. Consequently, the banks
receive more funding, which enables them to issue fresh
mortgages.

Delicate

Due to the potentially delicate nature of this scheme, the
conduits are usually controlled by the government or major
private financial institutions.

Indonesia, a country of 180 million, is facing tremendous
growth in the demand for housing due to the country's 2.5 percent
annual urban population growth. Analysts estimate that in Jakarta
alone, demand is around 100,000 houses per year.

In contrast, figures indicate that out of all the loans
provided by the Indonesian banking sector as of last March, only
around four percent were mortgages.

In Indonesia, low-cost housing is usually financed with loans
provided by the state-owned Bank Tabungan Negara and Bank Papan
Sejahtera. The interest on these credits is subsidized by the
government, leaving rates well below the market.

Dono Iskandar Djojosubroto, chief of the research and
development agency of the Ministry of Finance, told the meeting
yesterday that the SMF scheme will be carried out "in the near
future."

"Maybe next year," he said on the possible implementation of
the scheme.

Dono also said that it will reduce credit risks for banks,
provide more outlets for fund raising and facilitate more funding
for mortgages. (04)