GRM 2010 GRM 2011

Abstract Details

Family Name:
al Maari
First Name:
Title of Paper:
Outsourcing Mortgage Financing for UAE Nationals: Setting the Boundaries, Defining the Rules
Paper Proposal Text :
In the GCC Region, many governments deliver housing affordability through production: developing new homes that are then sold to individual deserving households at a concessionary price, and with the householder committing to pay a modest home purchase loan. Yet to be the extender of credit places the government on the demand side, not just the supply side, and redefines the government's time horizon (because the loan will take many years to repay). Further, when government is both the purveyor of subsidy and a direct lender, customers tend to think government loans are really grants in disguise, with the result that after a while they stop paying. When that happens, government finds it hard to foreclose because of political backlash.

In this context, the Mohammad Bin Rashid Housing Establishment (MBRHE), the provider of homes and financing for UAE nationals in Dubai, has concluded that even if it must be on the demand side – providing financing or subsidizing financing costs – it wishes to intermediate all the technical functions of the activity, which may include origination, credit underwriting, loan closing, loan servicing, collection and enforcement. Done properly, privatization of demand-side financing administration can harness the private sector for public benefit: more efficient, less costly, less government overhead, and with greater clarity of the respective roles of government as enabler, resource provider, and regulator, and of the private sector as delivery network.

At the same time, choosing to outsource these activities creates new challenges for MBRHE. The private sector's motivations will be purely economic, so the program has to be structured to protect the public interest. Lenders and loan servicers have to be induced to participate, qualified, contracted with, compensated, overseen, and then as appropriate enforced against.

Bringing the private sector into the finance of affordable housing is thus something quite different from a typical procurement or even a classical PPP, in that there are many more elements to structure. This paper will explore the functions involved in demand-side intervention, divide them between essentially governmental (to be reserved to the public sector) and technical (hence able to be contracted to the private sector), cite successful examples from Egypt, Turkey, Mexico, and South Africa, and suggest principles that may be suitable for MBRHE and other housing agencies in the GCC. .