As a young economist, Oleg Klementiev comes across as a typical member of Russia's up-and-coming middle class. He works in a bank, speaks passable English, and is equally comfortable supping borshch with his in-laws or stopping off at Pizza Hut for a quick bite to eat.


But until last year he was doubtful he would ever be able to afford that symbol of middle-class stability: his own home.


"Frankly speaking, I didn't have any idea what I would do," he said, adding that he and his wife and their young daughter squeezed into a small apartment with his wife's parents for five years. "Even if you work with a good company and earn good money, it is impossible for people who are not bandits to pay for a flat without credit."


Fortunately for him, he qualified for a mortgage loan last year under a pilot program launched by his employer, Mosbiznesbank, and the Klementievs are now the proud owners of an apartment in Chertanovo in southern Moscow.


They are among a select group of Russians taking advantage of the country's fledgling system of mortgage lending -- a group that could grow exponentially if the law on mortgages, which faces its second reading in the State Duma at the end of this month, is ultimately passed and then meets approval from the Federation Council and the president. Until this happens, mortgage lending will be risky for all involved.


After 70 years of state ownership of property, the legal foundation for long-term housing lending to individuals is almost nonexistent, and high inflation and chronic instability are further disincentives. So it's hardly a surprise that the average time frame for a mortgage loan at the moment is just three to 10 years, as opposed to 30 years in the West, and that interest rates are steep -- between 25 and 30 percent a year.


These terms impose rigid limits on the potential pool of applicants. The most conservative banks are only helping their own employees through special lending programs that entail limited profit, and even banks that are willing to lend to the general public impose a lengthy and thorough credit check.


"I would say mortgages are not available to regular people," said Vladimir Orlov, the head of the Association of Mortgage Banks, which boasts 22 members.


"Most of the people getting loans are either affiliated with the bank or people the bank knows very well," added James Cook, a housing finance adviser from the Urban Institute, which is helping develop Russia's mortgage infrastructure with a grant from the United States Agency for International Development.


"Some may have the money to buy a house or apartment outright, but they want to invest their money elsewhere." Nonetheless, he estimates that about 300 mortgage loans are approved each month in Moscow and predicts they will eventually trickle down to average Russians, not just wealthy ones.


At Mosbiznesbank, one of the pioneers in mortgage lending, the mortgage department has 10 staff members including an appraiser, an underwriter and credit specialists, all trained in the last three years. Galina Sokolovskaya, the department director, said the bank started off handing out just a few mortgages a month and now gives the green light to as many as 40 per month. Thanks to extreme caution, she said, none of the loans are currently in default.


This limited lending will continue, Sokolovskaya said, until a law on mortgages is passed and a secondary mortgage market is established with support from the state. This would allow a quasi-governmental agency, similar to the Federal National Mortgage Association in the United States, to buy loans in bulk from individual banks and provide a level of state backing for the loans, which would considerably lower the risk for individual banks while also increasing their cash flow. In 1993, President Boris Yeltsin signed a decree promoting the creation of such an institution and momentum is slowly building to establish its basic structure and seed money.


Simplifying foreclosure procedures is another step specialists say is needed before the mortgage floodgates can open. Contradictions between current laws make it difficult to evict residents from their home, even if they have defaulted on a loan. A proposed law on mortgages would clarify this and strengthen the position of banks.


Within the current limitations, most mortgage loans are given in hard currency or in ruble amounts linked to the rate of the dollar. Besides traditional mortgage arrangements between the bank and an individual, some banks have set up "lease purchasing agreements" to lower their risk.


Under this system, a bank sets up a real estate affiliate or works closely with a real estate agency. Money is loaned to the agency to purchase an apartment, and the agency then creates a "lease" agreement with the future homeowner. When a buyer has paid back the cost of the apartment, it becomes theirs.


Looking ahead, experts say, the broader outlook for mortgage lending can only be positive. According to Urban Institute research from 1993, 98.4 percent of the Russian households do not have enough personal funds to purchase a new apartment, so credit is absolutely necessary to help solve the country's crushing housing shortage.


"The mortgage system is right on the verge," said Cook. "And one of the big advantages in Russia is that when people privatized, they gained instant wealth."


Apartments, dachas and plots of land are all valuable collateral, he said, which enable people to eventually take loans for new apartments, to winterize dachas, or build new property on their land.


"Even though Russians in general don't have very big savings or capital, it's better for them to invest what they have in real estate than in pyramid schemes like Mavrodi's MMM," added Georgy Zadonsky, the State Duma deputy from the Russia's Choice faction who has overseen the mortgage law.