MONGOLIAN MORTGAGE CORPORATION MORTGAGE MARKET DEVELOPMENT IN MONGOLIA

MONGOLIAN MORTGAGE CORPORATION MORTGAGE MARKET DEVELOPMENT IN MONGOLIA Regional Symposium on Pro-Poor Housing Finance in Asia and Pacific, 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 • Top down system • Financed by 100% state • Waiting list • Free housing delivery Before 1990 s Top down system 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 • Private investment started • Housing demand supply study (ADB) • HFSP by ADB started 2000 s preparatory stage 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 • Setting up mortgage legal environment • Proper PMM infrastructure • capital market development • Capacity building, Institutional strengthening • Warehousing • Liquidity facility • Issuance MIK bond • Phased development approach 2008 …. Development

Housing Areas: Ger area 70%- population 59%- UB 80 -90% provincial towns 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 Serviced apartment 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 4

Mortgage market overview Market Core Indicators 2009. 12. 31 2003 2004 2005 2006 2007 Total Debt Outstanding /mln. MNT/ 8, 2 19 31 74, 3 164, 6 Total Debt Outstanding / Changes/ : 0% 132% 62% 141% Debt Outstanding/Borrower /mln MNT/ : 7, 2 6, 6 6, 5 8, 3 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% 75. % 76. % 68% Original W. A. LTV % : 83% 70% 2008 2009 122% 217 8. 3% 226 8. 5% 10, 0 13 13. 6 18. 7% 17. 2% 70% 78% 205 857 090, 12 164 625 901, 96 74 318 389, 54 30 839 715, 65 8 199 617, 73 19 018 145, 68 2003 2004 2005 2006 2007 I Quarter, 2008 5

Shareholders Bank of Mongolia Zoos Anod Хас UBC bank Capital MIК Capitron Established 06. 09. 2006 Golomt TDB Mongol Post Khaan 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.

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

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 & 8 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

16% - PWR 84% - PWOR МIK OPERATION Outstanding mortgage pools 2008 -2009 bln Tug 9 000, 00 Dec 2009 swapped MIK bond with mortgage pool 8 000, 00 16% 84% 7 969, 78 7 000, 00 6 000, 00 5 000, 00 4 000, 00 USD 8% 3 000, 00 MNT 92% 2 000, 00 2 614, 38 2 707, 99 2 429, 80 1 630, 49 1 000, 00 10 2008. IV 2009. III 2009. IV

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

Mortgage security SPV Pool registration Tax matter MIK legal status Standardization of mortgage loans Property appraisal Mortgage database system Mortgage insurance Credit bureau Capital market development Rating Income verification system Market environment Mortgage law Primary mortgage market infrastructure Legal environment Issues to be done for developing efficient mortgage market development 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 June 2007 Nov. 2007 June 2008 Oct. 2008 May 2009 June 2009 July 2009 August 2009 Sep. 2009 Oct 2009 Dec 2009 Jan 2010 March 2010 April 2010 • • • • • MIK established MOU signed with Kf. W, MOF, BOM First mortgage pool purchased MIK set up internal operational procedures Mortgage standardization procedure approved Mortgage toolkit with IFC TA project Mortgage law approved Agreement with MOF-Kf. W FRC shelf registration MIK Bond UNESCAP-UNHABITAT- NHB workshop first OTC transaction and procedure First MIK bond issued and sold Kf. W TA started MIK IT infrastructure Micro housing finance study project , IFC ABS law has discussed by Parliament Domestic investor-insurance companies involved Mortgage guarantee program initiated with 14

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 15

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 17

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 18