Russia Follows Fannie and Freddie With ‘Risk-Free’ Mortgage Bond

  • Putin says plan could cut mortgage rates by 150 basis points
  • Weighted-average mortgage rate was at 12.87% as of April 1

Russia’s moving into mortgage bonds to try to cut housing costs, and it’s taking a leaf out of America’s book to do so.

The government studied the U.S. market and has a preliminary agreement with the Bank of Russia in place to sell notes backed by “first-class, risk-free mortgages,” Russia’s First Deputy Prime Minister Igor Shuvalov told a government meeting on the construction industry. That plan may help reduce rates as much as by 150 basis points in the next two to three years, President Vladimir Putin told the same gathering.

Russia’s $6.18 billion MBS market is equivalent to about a tenth of the nation’s total government bonds outstanding. Low liquidity and yields crimp their popularity with investors, while regulations stop banks from using them to meet capital ratios. In February, the deputy chief executive officer of the Agency for Housing Mortgage Lending -- Russia’s equivalent to Fannie Mae and Freddie Mac -- said it was in talks with banks to pool their mortgages into collateral for bonds that would be government-guaranteed.

The most important issue is to guarantee security of these bonds, ‘‘so that they are covered by real square meters,” Finance Minister Anton Siluanov told the government meeting.

The weighted-average mortgage rate in Russia has fallen to 12.87 percent in rubles as of April 1, compared with a 14.73 percent rate a year earlier, central bank data show.

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