No New Mortgage Funds in '09 Budget

The revised 2009 budget will not have additional funding for mortgages, a source in the Finance Ministry said, meaning that the Agency for Mortgage Lending will have to cut back on the number of loans it purchases and toughen demands for borrowers.

"Allotting funds to AIZhK is being discussed, but a decision has not yet been made," presidential economic aide Arkady Dvorkovich said, referring to the agency by its acronym.

Two sources in the Economic Development Ministry said additional funding for the agency had not been under consideration since the government began reworking its budget for this year.

In December, Finance Minister Alexei Kudrin promised AIZhK as much as 200 billion rubles ($5.6 billion) to purchase mortgages from state banks. The agency's chief, Alexander Semenyaka, repeated that talks were being held on giving the state mortgage lender 200 billion to 300 billion rubles -- the question was only whether it would be loans or a capital boost.

The government also considered giving AIZhK money from the budget as a government capital boost and part from the National Welfare Fund in the form of loans, or allotting the agency some of the free budget money returned by other state corporations. All of these options are now off the table.

Semenyaka, however, has not lost hope and is counting on budget money and the National Welfare Fund.

"For now, we're planning our operations based on the statements and orders from our shareholder: that additional state support in 2009 would total 200 billion rubles," he said.

If there won't be additional money for mortgages, AIZhK will have to rely on its own cash flow, buying home loans with income from its current portfolio, Semenyaka said. That would be roughly 1 billion rubles ($28 million) per month, or 700 mortgages, he said.

"Given such a figure, our priority will certainly have to become buying up the best mortgages from the best lenders in the best regions," Semenyaka said, adding that AIZhK wouldn't "sharply increase" rates to attract such loans.

To help the agency lower its credit risks, he said, it would make sense to follow banks' example and toughen criteria regarding the size of the loan compared to the borrower's earnings and down payment. AIZhK will also focus on improving its standards and technology to improve the quality of its portfolio and productivity, Semenyaka said.

That's not a lot, given that AIZhK has become just about the only buyer of banks' mortgages. Under the precrisis rate that mortgages were being approved, an average bank from the top 100 would require about 1 billion rubles in the two months, said Alexander Chernyak, head of refinancing company Atta Ipoteka.

"Demand for loans under AIZhK's terms here is really high now -- a lot of borrowers come in from other banks to refinance since it's more dependable," said Andrei Shinkarenko, chief of the agency's branch in Perm.

Seeing the amount of missed payments at its competitors, Shinkarenko's agency decided to toughen its demands from borrowers: Previously, they accepted as many as half of all loans, a figure that has now fallen to 10 percent.

"We'll allow a 20 percent down payment from borrowers, but generally we demand 30 percent. We take into account all of the risks connected to the borrower's employer," he said. "Before, a family of two in Perm with monthly income of 15,000 rubles could afford a mortgage, but now the minimum is 25,000 rubles."

Semenyaka, the AIZhK chief, said the agency now "saw itself as a reserve force, waiting for the government's command to fight the crisis."