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. Last Updated: 07/27/2016

Duma Urged to Cut Mortgage Red Tape

Too much red tape makes mortgages more expensive and less attractive, the chairman of the State Duma's committee on the development of mortgages told lawmakers last week.

A bill allowing issues of mortgage-backed securities is ready to go before the chamber for a crucial second reading on April 23, committee chairman Ivan Grachyov said at a hearing in the Duma.

Grachyov said there is some debate as to the degree of protection afforded by various regulatory bodies, including the Federal Commission for Securities, and the committee wants to ensure that investors in the securities and the homebuyers are adequately protected.

"We want low interest rates, long-term finance," he said. "If we do not succeed in doing this, people will not take out mortgages."

Grachyov, who spearheaded the drive to introduce mortgages, said the draft bill -- which is backed by commercial players, including the state-owned Agency for Housing Mortgage Lending, DeltaCredit Bank and the Moscow Mortgage Agency -- should be passed.

Andrei Gusev, vice president of the Russian Realtors' Guild, said keeping the number of issuers small would insure investors. "If we don't, the system will be discredited," he said.

But Grachyov also said that if restrictions were too tight, the securities would become a monopoly and sources of finance and competition restricted.

Although the bill allows commercial banks to issue mortgage securities, Grachyov said only banks that are tightly tied to property would actually be permitted to do so. He said the bill requires issuers be assessed.

Natalya Kalinina, head of the Center for Real Estate Analysis, said mortgages make up a comparatively small part of the gross domestic product in countries that have heavy regulation.

Citing a report the center prepared for the World Bank, Kalinina said Greece and Italy have high fees for obtaining mortgages and the lowest percentage of GDP in mortgages in Western Europe. In 2002, mortgages accounted for only 0.3 percent of Russia's GDP, she said.

She said the market needs to support the Agency for Housing Mortgage Lending in preparing agreements to refinance ruble-denominated mortgages in regions across Russia.

The agency is pressing for the bill because it wants the State Pension Fund to invest in mortgage securities when it is allowed to do so on June 1 and because it intends apply the lowest possible rate for the Finance Ministry's OFZ bonds.

However, Kalinina warned that the center's study showed that even if all the legal requirements of a mortgage system are in place, few individuals would be able to afford them if prices grew.

The study also found that rising prices failed to stimulate construction because would-be homeowners did not have the income to pay more.

Dmitry Budakov, general director of the Moscow Mortgage Agency, also said that mortgages are unattractive because the high fees associated with taking out a mortgage drive people into other forms of financing.

DeltaCredit Bank has also called for lowering the fees, saying a 1.5 percent notary fee is too high and should be replaced with a flat fee of perhaps $100.