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Russia: Building a mortgage market

Investment bankers scouring Russia for the next juicy deal are salivating at the prospect of mortgage-backed securities written off Russian property.

Until the end of last year, legal and economic obstacles kept the Russian property business strictly within the domain of well-connected and deep-pocketed developers. Several essential elements of the mortgage industry had been absent, such as the lender's ability to evict and foreclose and the protection of private property rights.

But the expected offering of a small tranche of mortgage-backed debt later this year could mark the start of what could eventually become the second-largest market for Russian debt after sovereign issues. At the end of last year, the Russian government finally launched the Agency for Housing Mortgage Lending (AMHL), which is being advised by US mortgage agency Fannie Mae together with the Urban Institute, a private US policy think tank.

"Depending on whether interest rates fall enough, we could see the capitalization of the Russian mortgage market increase by as much as $500 million within the next year, with about half of that growth financed by dollar-denominated securities," says Andrei Suchkov, deputy director of AMHL. "Although some obstacles remain, we now have at least the necessary legislation in place to make the foundation of a mortgage market."

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