SUMMARY OF RECOMMENDATIONS Short Term (over next 18 months)



QSet up a Mortgage Development Group made up of stakeholders—There are multiple inter-

ested participants in the mortgage market and the related sectors such as construction, housing, capital markets, as well as government departments and civil society. A policy group should be convened under the auspices of the CBK or a government department to help drive and direct the change process, and to provide inputs into work as it progresses.



QIndustry to form a Mortgage Lenders Association—From the industry side, an important devel-

opment mechanism is the creation of a strong trade association to represent the interests of lend- ers. This would act as a lobby group reviewing regulatory proposals and as a standards group for mortgage best practice, and could push into areas such as research or data collection for the wider benefit of the sector.



QCBK to collect and publish regular mortgage market data—The Annex to this report repre-

sents a first attempt at collating lender level mortgage data. This is an important instrument for both market development but also market monitoring. CBK should take lead in collecting this information and making it available to the market on a regular and timely basis.



QEnsure CRB collects all positive/negative data—Coverage is inadequate at present and

although it is a new area, more could be done to push lenders into providing all loan data. The next step would be to collect data from other providers of credit. This is an important building block towards lowering the cost of credit and building a secondary market.



QBegin work on developing a mortgage liquidity facility—The concept is simpler than Covered

Bonds or Securitization and will allow access to longer term finance to mid-tier lenders who may not otherwise be able to raise sufficient term funding. Based on experience, it can take up to 18 months to do all necessary preparation work to create such an institution,



QDraft mortgage regulations—prudential standards—The CBK should consider exploring more

prescriptive rules which would set some minimum product standards for mortgage loans in terms of both loan to value and payment to income. This should be done with a view to ensuring ‘responsible’ lending for the protection of both consumer and lender.



QAmend current foreclosure law to limit frivolous appeals—The current foreclosure process

works relatively well in most cases, but the potential is there for long drawn out cases through the use of repeated appeals. This should be eliminated through an updated law which would be clear for the basis on which an appeal is allowable.



QIntroduce consumer protection framework and mortgage financial literacy campaign—As

the market grows it is important that it is underpinned by confidence on the part of consum- ers. It would be worth considering introducing some mechanisms for ensuring minimum levels of disclosure, complaints handling procedures and adjudication processes. Alongside this it is clear from FinAccess survey that there is some resistance to and a lack of understanding of collateral- ized lending with property. Explaining mortgages, how they work and their benefit would help to ensure that lending is done in safe way and that the benefits of financing are understood.

Medium Term (18 months to 3 years)



QReview of risks and regulation for pension backed housing loans—Pension Backed Housing

Loans carry a high level of risk for both lender and borrower. In the absence of other forms of reliable collateral, they have proved popular in South Africa especially. However, but a thorough review of the products and the regulatory framework for them should be done to avoid a future crisis should lenders start losing their retirement income.



QSet up mortgage liquidity facility—In the medium term, the liquidity facility can be set up and

refinancing operations can begin. This could be done with the support of the World Bank or through other means.



QWork to standardize mortgage market documentation—Standardized documentation carries a

number of benefits for development of the sector. It helps consumers feel more comfortable with documentation. It facilitates a homogenous market, which can then more easily turn to the capi- tal markets and offer standard mortgage assets in return for funding. Lastly it makes it easier to enforce regulatory standards.



QDevelop more advanced capital market tool—mortgage covered bond—Kenya has a relatively

sophisticated institutional investor market who may be interested in taking some credit risk on mortgages but in a limited, transparent way. Covered Bonds offer a more secure instrument than Mortgage Backed Securities and could be considered for the Kenyan market in the medium to long term.



QReview property registration system—work towards a one-stop shop with unified database—

Numerous reports all point towards the need of a unified land and property registration titling and registration system. A simpler, more secure, reliable process which is both cheap and efficient could significantly boost the development of the mortgage market. This will require large scale investment, and would ideally lead to the full computerization of the registry system.



QBanks to work to diversify product range including Graduated Payment Mortgages (GPM)–

Affordability is a key constraint on the future growth of the market. One way of tackling afford- ability is by designing products where cost of the loan is spread out more evenly over the lifetime of the loan. A GPM would allow for a small manageable increase annually in the mortgage pay- ment, which means the initial loan can be higher than would otherwise be the case.

Long Term (3 to 5 years)



QDevelop options for a Government program to help market reach further down income dis-

tribution—Fiscal resources are constrained and there are numerous priorities and demands on the budget, but as the mortgage market develops it will reach a point where it needs a helping hand to reach lower income groups. This could be done through a guarantee mechanism, private or public, through subsidies, or through other means. Having a review of the options would help guide the market onto the next phase of development.



QDevelop unified mortgage law—Although it is not a big impediment as the current system does

function, having a more streamlined and standard process would improve market efficiency. This could be done in line with changes to the titling and registration system.