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Amendments to the Mortgage Finance

Amendments to the Mortgage Finance Guarantee and Subsidy Fund
Upon its issuance the Mortgage Finance Law No. 148 of 2001 did not only purport to organise mortgage lending, but to also provide the institutional framework for the mortgage market at large and promote its development. One of the cornerstones of this institutional framework is the Mortgage Finance Guarantee and Subsidy Fund, which aims at achieving two main purposes: firstly, to guarantee mortgage lending in a manner which reduces the risk borne by the lender and encourages the growth of its activities, and secondly, to subsidise low-income borrowers in order to improve access to finance and low-income housing. Unfortunately, in the few years following the issuance of the Law, this Fund was not sufficiently activated due to a number of economic and institutional reasons, including the lack of resources dedicated to the Fund and the weakness of its institutional set-up. Despite the issuance of Presidential Decree No. 4 of 2003 which provided the Fund's Statutes[1] and its amendment by Presidential Decree No. 272 of 2009[2], the Fund continued to suffer from a lack of institutional clarity and resources. Finally the Egyptian Financial Supervisory Authority ("EFSA") proposed a new amendment to the Fund's Statutes, which was subsequently issued by Presidential Decree No. 405 of 2014,[3] which introduced the following key changes.
New Changes
The Fund's Board of Directors has been granted more independence and power in managing its affairs, including setting out its overall policies and establishing branches and offices. The clarification that the Fund's role shall include not only guaranteeing the purchase of houses but also acquiring the right of use (usufruct) and leases that converts into purchase (such as financial leasing). This is an important clarification as it opens the door for a variety of financial products that lead to eventual real estate ownership. Allowing EFSA's Board of Directors to determine the value of the subsidy provided to low-income borrowers, which previously was determined by law. Increasing the Fund's resources by cancelling the exemption granted to low-income borrowers from the 1% levy on the mortgage installment, and providing additional fees to be paid by low-income borrowers when applying for a loan and obtaining a credit review.
Conclusion
The new amendments are positive insofar as they grant additional powers to the Fund's Board of Directors and may help increase its independence. However, three remarks are worth making here: the first is that Section (5) of the Statutes includes a drafting mistake, whereby it previously stated that the Fund would receive the proceeds of penalties imposed by courts with respect to the Mortgage Finance Law No. 148 of 2001, while now the reference is to "this law" without determining which law; this could cause problems with collection of funds in the future. The second, more substantive remark is that increasing the Fund's resources may be necessary, but it should not have come at the expense of low-income borrowers whose interests the Fund is meant to protect. Finally, a Decree by the Prime Minster - reviewed in the following piece of this Egypt Legal Update - granted supervision over the Fund to the Minister of Housing, which we believe to be a wrong policy decision as it leads to the fragmentation of non-banking financial supervision.   [1] Presidential Decree No. 4/2003 on the Real Estate Activities Guarantee and Aid Fund, Egyptian Gazette, Issue No. 1 (bis), 5 January 2003. [2] Presidential Decree No. 272/2009 amending certain provisions of Presidential Decree No. 4/2003 on the Real Estate Activities Guarantee and Aid Fund, Egyptian Gazette, Issue No. 33 (bis), 16 August 2009. [3] Presidential Decree No. 405/2014 on the Real Estate Activities Guarantee and Aid Fund, Official Gazette, Issue No. 45 (bis) (c), 12 November 2014.
Upon its issuance the Mortgage Finance Law No. 148 of 2001 did not only purport to organise mortgage lending, but to also provide the institutional framework for the mortgage market at large and promote its development. One of the cornerstones of this institutional framework is the Mortgage Finance Guarantee and Subsidy Fund, which aims at achieving two main purposes: firstly, to guarantee mortgage lending in a manner which reduces the risk borne by the lender and encourages the growth of its activities, and secondly, to subsidise low-income borrowers in order to improve access to finance and low-income housing. Unfortunately, in the few years following the issuance of the Law, this Fund was not sufficiently activated due to a number of economic and institutional reasons, including the lack of resources dedicated to the Fund and the weakness of its institutional set-up. Despite the issuance of Presidential Decree No. 4 of 2003 which provided the Fund's Statutes[1] and its amendment by Presidential Decree No. 272 of 2009[2], the Fund continued to suffer from a lack of institutional clarity and resources. Finally the Egyptian Financial Supervisory Authority ("EFSA") proposed a new amendment to the Fund's Statutes, which was subsequently issued by Presidential Decree No. 405 of 2014,[3] which introduced the following key changes.
New Changes
The Fund's Board of Directors has been granted more independence and power in managing its affairs, including setting out its overall policies and establishing branches and offices. The clarification that the Fund's role shall include not only guaranteeing the purchase of houses but also acquiring the right of use (usufruct) and leases that converts into purchase (such as financial leasing). This is an important clarification as it opens the door for a variety of financial products that lead to eventual real estate ownership. Allowing EFSA's Board of Directors to determine the value of the subsidy provided to low-income borrowers, which previously was determined by law. Increasing the Fund's resources by cancelling the exemption granted to low-income borrowers from the 1% levy on the mortgage installment, and providing additional fees to be paid by low-income borrowers when applying for a loan and obtaining a credit review.
Conclusion
The new amendments are positive insofar as they grant additional powers to the Fund's Board of Directors and may help increase its independence. However, three remarks are worth making here: the first is that Section (5) of the Statutes includes a drafting mistake, whereby it previously stated that the Fund would receive the proceeds of penalties imposed by courts with respect to the Mortgage Finance Law No. 148 of 2001, while now the reference is to "this law" without determining which law; this could cause problems with collection of funds in the future. The second, more substantive remark is that increasing the Fund's resources may be necessary, but it should not have come at the expense of low-income borrowers whose interests the Fund is meant to protect. Finally, a Decree by the Prime Minster - reviewed in the following piece of this Egypt Legal Update - granted supervision over the Fund to the Minister of Housing, which we believe to be a wrong policy decision as it leads to the fragmentation of non-banking financial supervision.   [1] Presidential Decree No. 4/2003 on the Real Estate Activities Guarantee and Aid Fund, Egyptian Gazette, Issue No. 1 (bis), 5 January 2003. [2] Presidential Decree No. 272/2009 amending certain provisions of Presidential Decree No. 4/2003 on the Real Estate Activities Guarantee and Aid Fund, Egyptian Gazette, Issue No. 33 (bis), 16 August 2009. [3] Presidential Decree No. 405/2014 on the Real Estate Activities Guarantee and Aid Fund, Official Gazette, Issue No. 45 (bis) (c), 12 November 2014.