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)