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World’s first Islamic mortgage guarantee

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Points of Essence:

  • Cagamas Holdings and Hong Kong Mortgage Corporation had jointly launched Cagamas HKMC which is the world’s first Islamic mortgage guarantee program.
  • The mortgage will provide financial institutions as mortgage originators, a mortgage guarantee facility with a portfolio and risk management solution to manage the credit risk exposure of their mortgage portfolio while continuing to provide affordable mortgage loans to home buyers.
  • The mortgage will be marketed in Islamic countries subject to feasible market conditions.

By Dalila Abu Bakar

Cagamas HKMC, which launched the world’s first Islamic mortgage guarantee program (MGP) last week, will explore all Islamic countries if market conditions are feasible, said executive director Steven Choy. Cagamas HKMC is a joint venture between Cagamas Holdings and Hong Kong Mortgage Corporation.

The MGP, covering both Islamic and conventional mortgage finance, provides financial institutions, particularly mortgage originators, a mortgage guarantee facility with a portfolio and risk management solution to manage the credit risk exposure of their mortgage portfolio while continuing to provide affordable mortgage loans to homebuyers.

“We have set a new industry standard. We are keen to look at markets in the Islamic countries if the opportunity is there and market conditions are feasible,” Choy told Islamic Finance news on Tuesday.
He expects the MGP to be well received by Islamic banking institutions in Malaysia in view of the capital relief to be derived from the program.

Choy said of the RM174.3 billion (US$54 billion) of housing loans outstanding in the banking industry as at the 31st December 2007, RM18 billion (US$5.5 billion), or 10.3%, was in respect of Islamic house financing.

Cagamas’ outstanding housing loans (including Islamic house financing debts) purchased with recourse amounted to RM12.6 billion (US$3.88 billion), or 7.2%, of the total housing loans outstanding in the banking system. Cagamas’ outstanding Islamic financing debts constituted about 15% of the banking industry’s Islamic house financing.

Choy added that a total of RM48.1 billion (US$14.8 billion) of new housing loans (inclusive of Islamic house financing) was approved in 2007. He said Cagamas will continue to issue debt securities as long as there is a need for Islamic banking institutions to raise funds through Cagamas.

“We are positive that this will happen but not certain of the quantum and timing of the transaction,” he said. Cagamas had issued RM200 million (US$62 million) of Islamic commercial papers in May. However, according to Choy, demand for debt securities is expected to dampen as investors will likely demand higher yields amid rising inflation globally.

However, investors are seeking quality papers and this augurs well for Cagamas debt securities, which constituted about 23.5% of the AAA private debt securities market.

“Our experience shows that Cagamas debt securities are soughtafter, even during the Asian financial crisis in 1997-99. We managed to attain our ‘AAA-‘ rating during that challenging period, unlike the other ‘AAA-‘ institutions,” Choy added.

Source: IFN

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Written by Suapi Shaffaii

July 11, 2008 at 8:04 am

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