JORDAN MORTGAGE REFINANCE COMPANY IBRAHIM DAHER – MANAGING DIRECTOR Presentation for the Global Conference on Housing Finance In Emerging Markets, organized by The World Bank Washington D.C – U.S.A March 15 –17, website

Jordan Mortgage Refinance Company Table Of Contents - An Overview of Housing Finance in Jordan. - Establishment of JMRC. - Operations ’ Mechanism of JMRC. - Benefits to Borrowers and Investors. - Achievements of JMRC

JORDAN MORTGAGE REFINANCE COMPANY Table Of Contents -Obstacles Faced JMRC. -Assessment of JMRC Impact on Housing Finance - Future work plan. - Appendixes:- -General information about Jordan. - Assets /liabilities Management policy. -Credit Policy & credit ceilings. -Investment policy.

JORDAN MORTGAGE REFINANCE COMPANY AN OVERVIEW OF HOUSING FINANCE IN JORDAN - Before 1996 there was a wide gap between housing supply and demand for low-cost housing. - In 1996 the Government adopted a housing strategy in cooperation with the World Bank to restructure housing sector. The aim was:- To enhance role of private sector in housing for low- income households.

JORDAN MORTGAGE REFINANCE COMPANY AN OVERVIEW To mobilize increased mortgage financing by banking system. - An agreement was signed between the Government and the World Bank to implement Housing Finance and Urban Sector Reform Project. Loan from the World Bank (US$ 19 million) to establish a secondary mortgage facility (JMRC).

AN OVERVIEW Sources of Housing finance are as follows:- - Informal finance from individuals ’ savings, sale of personal belongings, assistance from relatives etc … - Formal finance from banks and other private and public financial institutions. JORDAN MORTGAGE REFINANCE COMPANY

AN OVERVIEW Prior to 1997 Formal Housing finance was dominated by : - The Housing Bank (HB) which provided (50%-60%) of formal housing finance. HB was offered incentives to grant long term loans and to subsidize the interest rate. JORDAN MORTGAGE REFINANCE COMPANY

AN OVERVIEW Jordan Islamic Bank (JIB), which provided (17%-21%) of formal housing finance. Public and private housing funds (e.g. military funds, teachers funds, private pension funds etc … )

Establishment of JMRC Incorporation : JMRC was incorporated in June 1996 as a public shareholding company. ( Its worth mentioning that the World Bank had an important role in JMRC establishment and still has a consultancy and supporting role in its operations). JMRC is considered to be the first step towards a secondary mortgage market in Jordan. JORDAN MORTGAGE REFINANCE COMPANY

OBJECTIVES - JMRC Aims to:- Support Government ’ s strategy to improve efficiency of housing finance. Make mortgage lending more attractive to lenders, reduce liquidity risk and access longer term funds for housing at a lower effective costs, through refinancing mortgage loans originated by banks. Promote the capital market, through issuing medium and long-term bonds. JORDAN MORTGAGE REFINANCE COMPANY

Sources of Funds JMRC Sources of Funds are :- -Paid- up capital of JD 5 million (US $ 7.04 million). - A subordinated loan in JD equivalent to US$ (19) million from the Government, originally obtained from the World Bank. - Funds raised through issuing bonds in the local capital market. JORDAN MORTGAGE REFINANCE COMPANY

The shareholders of JMRC are:- - Governmental institutions:- -Central Bank of Jordan 18%. -Social Security Corporation (SSC) 10%. -Housing & Urban Development Corporation (HUDC) 10%. - Private sector institutions (62%). 12 local banks and 1 financial company. - Board of Directors chaired by the Governor of CBJ. JORDAN MORTGAGE REFINANCE COMPANY

Operations’ Mechanism of JMRC. IN Lending -Financial institution applies for refinancing mortgage loans. -JMRC refinances 83% of the outstanding balances of mortgage loans. -JMRC prices its loans based on its cost of funds with a margin (around 1%). JORDAN MORTGAGE REFINANCE COMPANY

Operations’ Mechanism of JMRC. -Financial institution transfers its right on pledged collateral to the favor of JMRC. -Principal amount of the loan is usually repaid at maturity date, and interest paid quarterly or semi annually. -Financial institution bears all risks.

JORDAN MORTGAGE REFINANCE COMPANY IN Funding JMRC issues corporate bonds on the local capital market through:- - Public subscription. - Private Subscription. -By Auction. -By Agreement. -JMRC ’ s bonds are unsecured by any specific assets.

Benefits To Borrowers And Investors. - JMRC ’ s loans are usually cheaper than other sources of funds. - JMRC ’ s loans improve capital adequacy ratios (risk- weighted 20%) - JMRC ’ s loans are exempted from provision of good loans (2%). JORDAN MORTGAGE REFINANCE COMPANY

Benefits To Borrowers And Investors. -JMRC ’ s loans improve assets- liabilities management. - JMRC ’ s loans help to hedge against interest rate risk. JORDAN MORTGAGE REFINANCE COMPANY

Benefits To Borrowers And Investors. - JMRC ’ s bonds are considered as liquid assets. - JMRC ’ s bonds are risk-weighted at (20%) for the purpose of calculating the capital adequacy ratios of banks. JORDAN MORTGAGE REFINANCE COMPANY

Achievements of JMRC Complete and update the infrastructure needed to operate:- -legal documentation. -manuals. -IT environment. -Qualified staff. -Marketing strategy. JORDAN MORTGAGE REFINANCE COMPANY

Total JD 153 million – US $ 215 million Loans extended On the lending side:-

JORDAN MORTGAGE REFINANCE COMPANY ACHIEVEMENTS OF JMRC

JORDAN MORTGAGE REFINANCE COMPANY ACHIEVEMENTS OF JMRC On the Funding Side

JORDAN MORTGAGE REFINANCE COMPANY JMRC’s Assets

JORDAN MORTGAGE REFINANCE COMPANY ACHIEVEMENTS OF JMRC

Major Obstacles Faced JMRC. Previous. - Before 2000 lenders were unable to lend housing loans for long terms, because the interest should not exceed –by law- the principal. This has been solved by the amendments of banks’ law. -The transfer fee of the mortgage deed. JMRC was exempted to pay such fee. JORDAN MORTGAGE REFINANCE COMPANY

Major Obstacles Faced JMRC. Present. - The bond market is not yet so active. -Access of liquidity in the banking sector. -The absence of legal aspects for securitization (it is now under process). JORDAN MORTGAGE REFINANCE COMPANY

Assessment of JMRC Impact on Housing Finance. -JMRC lending reduces interest rate risk, mismatching risk. -JMRC plays a vital role in encouraging banks to enter the mortgage market. -Banks compete to offer good terms on housing loans (e.g. interest rate, down-payment requirements, tenor..) JORDAN MORTGAGE REFINANCE COMPANY

Assessment of JMRC Impact on Housing Finance. -JMRC lending increases term of housing loans which improve the borrowers ’ affordability and increases availability of loans to low and middle income families. -Availability of mortgage loans has promoted residential construction industry, and improved middle and low cost housing. -JMRC plays an important role to standardize origination of mortgage loans. JORDAN MORTGAGE REFINANCE COMPANY

Future work plan - Purchase mortgage loans and issue mortgage- backed bonds (securitization ) - Adopt a mechanism to refinance or purchase mortgage loans extended by Islamic banks. - Encourage establishment of a mortgage information system and credit agencies. JORDAN MORTGAGE REFINANCE COMPANY

Future work plan -Encourage establishment of non-banking financial institutions specialized in mortgage origination. -Encourage establishment of mortgage insurance companies. JORDAN MORTGAGE REFINANCE COMPANY

Future work plan -Encourage banks to offer fixed rate mortgage loans. -Issue longer-term bonds (over 5 years). JORDAN MORTGAGE REFINANCE COMPANY

Appendixes

JORDAN MORTGAGE REFINANCE COMPANY General information About Jordan. Ruling Regime: Parliamentary With hereditary monarchy Population : 5.32 million Area: 89.3 thousand sq. Km. Economic System: Market oriented economy. Macroeconomic Indicators 2004: (equivalent to US$) Nominal GDP US$ 11.5 billion Real GDP growth 7.7% GDP per capitaUS$ 2164 Inflation3.48%

JORDAN MORTGAGE REFINANCE COMPANY General information About Jordan. Net Public Debt: US $ 10.1 billion - Domestic Debt: US $ 2.58 billion - External Debt: US $ 7.54 billion Currency: Jordan Dinar, which equals US$ 1.41, and is fully convertible. Domestic credit: Extended by banks JD 9.59 billion (US $13.52 billion) as at end of October 2005.

General information About Jordan. Number of banks:14 commercial banks, 2 Islamic banks,8 foreign banks. Resources: -Several natural resources; phosphate and potash are the most important ones. -Abundant skilled human resources. -Several historical / tourism sights. - Agriculture. JORDAN MORTGAGE REFINANCE COMPANY

JMRC implements its operations according to policies and manuals Assets / liabilities management (ALM) policy which aims to:- -Preserve real value of JMRC ’ s assets. -Realize optimum return on assets. - Match between duration of assets and liabilities -Minimize interest rate risk, liquidity risk and credit risk. JORDAN MORTGAGE REFINANCE COMPANY

ALM policy includes :- -Credit policy and credit ceilings. -Investment policy. JORDAN MORTGAGE REFINANCE COMPANY

Credit policy includes: Eligibility criteria for a financial institution:- -The institution is privately owned, regulated by CBJ, financially strong, satisfies CBJ ’ s capital adequacy requirements and other banking regulations. - The institution ’ s financial statements were revised and approved by independent auditors. JORDAN MORTGAGE REFINANCE COMPANY

Eligibility criteria for a mortgage loan:- - First class mortgage deeds. - (LTV) does not exceed 80%. - Provided for residential use. -No installment due. JORDAN MORTGAGE REFINANCE COMPANY

Credit Ceilings JMRC determines -once every year – a credit ceiling to each bank on the basis of it ’ s financial statements, taking the following financial indicators into account :- - Return on assets (ROA). - Volume of assets. - Liquidity ratio. - Utilization ratio. - Capital adequacy ratio. JORDAN MORTGAGE REFINANCE COMPANY

Investment Policy JMRC invests in the following JD instruments :- - Treasury bills, Treasury bonds issued by the Government, and Corporate bonds guaranteed by the Government. - Time deposits and certificates of deposits issued by banks. JORDAN MORTGAGE REFINANCE COMPANY

Investment Policy - Corporate bonds issued by public shareholding companies. - Investment portfolio.