Global market volatility threatens to derail the U.S. mortgage industry's efforts to replicate itself abroad in emerging economies.
In the last week the political and economic chaos in Russia and continued turbulence in Asia took their toll in the United States, as the stock market plunged and several banks announced trading losses related to emerging markets.
"There is no question that the current turmoil in the world capital markets is going to postpone American exports of the mortgage process and secondary-marketing process for at least two to three years," said Warren Lasko, head of the Mortgage Bankers Association of America's international division.
Several of the top lenders are eyeing foreign countries as areas for expansion, but are focused on more advanced economies. HomeSide Lending last year dispatched its chief executive officer Joe K. Pickett to Australia to build an American-style mortgage business there. More recently, Angelo Mozilo, the CEO of Countrywide Home Loans, indicated an interest in the $4 trillion mortgage market of Western Europe.
But the programs directly affected by the international turbulence are secondary-market initiatives in emerging markets.
Last year the U.S. Agency for International Development hired Fannie Mae to assist in the creation of a secondary-market agency in Russia.
The new agency, known as the Russian Agency for Mortgage Lending, would emulate Fannie Mae and Freddie Mac, setting lending standards, buying loans, and repackaging them into securities.
The system in the United States has made mortgages more available and affordable by supplying lenders with capital to keep creating loans.
Before the current crisis erupted, the Russian lending agency was planning to begin purchasing mortgages from Russian banks in September, said Joel Heisey, project manager at the Agency for International Development.
That is still the plan, he said. But "it will be done much more cautiously because of the stability of the banks. They have to check the individual banks much more carefully." The Russian lending agency will buy fewer loans than anticipated, he added.
Mr. Lasko said he would be "exceedingly skeptical" that the Russian agency, nicknamed Natasha Mae, would be able to originate "any significant amount of loans, even a modest amount" in the current environment.
Mortgages are inherently long-term instruments, Mr. Lasko said, and creating a secondary market for them is "not feasible in a market where the currency is collapsing and inflation is out of control."
Efforts to replicate the U.S. model have also been put on hold in Indonesia, where the banking system is in disarray.
The MBA was planning to hold a training session in Indonesia in April, but it has been postponed until next year because of the crisis there, said Debra Erb, senior director in the MBA's international unit.
The Asian Development Bank has committed $50 million to create a secondary-marketing agency in Indonesia, to be called the Secondary Marketing Facility.
Expected to be up and running by mid-1999, the Indonesian agency initially will make loans to banks collateralized by mortgages held in the banks' portfolios.
However, it will be a "challenge" for that agency to find mortgages of high enough quality to be used as collateral, Ms. Erb said. "The quality of the loan assets even as we speak are deteriorating," the upshot of poor lending standards and economic malaise, she added.
The global turmoil "saps energy and attention away from longer-range projects," said Lewis Cohen, a partner at the Clifford Chance law firm who specializes in international securitization. "It's hard to get your mind on something that's on a 12-to-18-month horizon when the company may go out of business or the country may go into insolvency."
But the missionaries of mortgage banking haven't given up all hope. South America, where the situation is less chaotic than in Russia or Asia, "has been more promising," Mr. Lasko said.
World Mortgage Association LLC, Washington, owns a secondary-marketing agency in Argentina called Aggie Mae, which is buying loans.
Ms. Erb said that officials at the Ministry of Finance and other government ministries in Indonesia have continued to work on drafting laws that would allow securitization and create other necessary infrastructure such as property registration systems and credit bureaus.
"The fundamental reason for mortgage standardization and securitization, providing liquidity to the market, remains constant," Mr. Cohen said. "It's motivated by the governments. They see this is very much a positive for the man in the street, and for that reason they want to continue."
