Initial Feasibility Study

Mortgage Securitization Project In

The United Arab Emirates (UAE)
MANAGEMENT SUMMARY
Dubai International Financial Centre (DIFC) and Absalon
Project (Absalon), performed in February 2010 an Initial
Feasibility Study in the United Arab Emirates (UAE) with
the purpose to investigate whether it is a viable business
idea to establish a mortgage solution in the UAE, based
on the principles behind the Danish Mortgage Model.
Based on the findings and draft report some further
clarifications were done in November 2010 and a new
draft was issued and sent out for comments. Most
comments are in line with our findings and conclusions
and are not mentioned specifically while a few others
are commented briefly in the report.
The Danish Mortgage Model has caught international
interest during the latest financial crises. The model
eliminates market risk and significantly reduces credit
risk for banks. The mortgages are financed though
an ongoing issuances of covered bonds with same
characteristics as the mortgages. On top of the payments
to investors the borrowers pay an administration
fee. This makes the solution completely transparent.
Investors have access to low risk and liquid bond
series and borrowers have transparent, affordable and
flexible mortgages. The strict origination procedures in
the model will comply to the suggested Basel 3 rules
with minor changes.
Absalon has in 2007 made an implementation of
a Mortgage Model based on the Danish Model in
Mexico and are now offering implementations in other
countries.
The objectives for the study are to investigate whether
the prerequisites for introducing the Danish Mortgage
Model in the UAE are available and to identify the
benefits of the introduction of Danish style mortgages
in the UAE.
During the analysis we have found that:
• The project idea is well received by all parties
visited, which has included commercial banks,
Based on these findings it is our recommendation to
mortgage banks, construction companies and
establish a project with joint ownership on a UAE level,
developers, regulators, investors and Stock
at least with participants from Dubai and Abu Dhabi
Exchanges. Most visits have been made to
to:
companies and institutions in Dubai, but also
several visits have been made to federal offices
in Abu Dhabi including the Securities and
Commodities Authority and the Central Bank of
the UAE.
2 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
• Major gaps between the prerequisites for the
Danish Mortgage Model to work and the current
legal and practical infrastructure in the UAE have
been identified. Especially issues in the following
areas needs to be solved or clarified before a
decision to start implementation could be made:
- Lack of federal mortgage law
- Lack of federal bankruptcy law
- Lack of full implemented strata law
- Expatriates limited rights to stay in the UAE
(work permits, tourist visa, retirement)
- Unclear legal framework for expatriates
• It has been recommended that the study should
cover the whole of the UAE and with the aim to
expand the model to cover the GCC region at a
later stage. At this stage the implementation focus
should be the UAE.
• The model can be implemented to issue traditional
mortgages, ljara mortgages or both types
dependant on the feedback from the market. The
main objectives is to create as large and liquid
bond series as possible.
• Also the lack of a capital market in the UAE is
considered a major issue for the introduction the
mortgage model in the UAE. On the other hand
there are initiatives on their way to create such
a market, and federal government bonds are
expected to be issued in late 2011 or early 2012.
• The need for mortgage financing has been
estimated in Dubai at the current market
conditions, and those findings indicate that there
will be a viable business case for introducing the
Danish Mortgage Model in Dubai.
• It is the impression that also Abu Dhabi would
benefit from joining the model but we have
had no direct contact with current suppliers of
mortgages in Abu Dhabi like Abu Dhabi Finance.
• Analyse the prerequisites for a stepwise
implementation plan: Dubai first, then Abu Dhabi
and finally on a UAE level when prerequisites are
available.
 • Propose a more detailed implementation plan in
accordance with the overall strategy along with a
project budget:
• Identify the need for changes in legal and/or
practical aspects in the mortgage industry in the
UAE for the introduction of the Danish Mortgage
Model.
• Address the issues and gaps raised in this report
and give practical solutions to overcome the
issues.
• Address the impact to the UAE on a
macroeconomic level of the introduction the
Danish Mortgage Model

To bring the project forward a project team should

be established to prepare a plan according to the
recommendations above. A project team could
be staffed with:
• Representatives from Absalon Project
• Legal advisor from the UAE with knowledge of
the housing market and the mortgage area
• Finance expert in the investment area from the
UAE
• Mortgage expert from the UAE
• Economist from the UAE for macro economic
analysis.

Absalon and DIFC have financed this initial step. The

project to create the proposed plan is estimated to
cost around 250.000 USD. A project sponsor is needed
to finance the work of the project team to make the
detailed plan. So the immediate next steps are:

• Identify sponsor to finance the next steps.

• Identify members of the project team
• Identify governance of the project including
budget and timetables

3
Table of Contents

1. PROJECT BACKGROUND AND OBJECTIVES 1

1.1 Introduction 1
1.2 Objectives for the study 1
1.3 Development of the project idea 2
2. INTRODUCTION TO THE DANISH MORTGAGE MODEL 3
2.1 Basic Principles of the Danish Mortgage Model 3
2.2 Participants – roles and responsibilities 4
3. PRODUCTS AND MARKETING 9
3.1 Product definition 9
3.2 Borrowers of the mortgages 9
3.3 Investors for the mortgage bonds 9
3.4 Pricing analysis 12
3.5 Competitors 13
4. COMPANY STRUCTURE AND IMPLEMENTATION 14
4.1 Mortgage Service Provider 14
4.2 Implementation – alternative 1: Government Related Entity 14
4.3 Implementation – alternative 2: Market Owned Entity 15
5. FINANCIAL OUTLOOK 16
6. DEVELOPMENTAL PERSPECTIVES 17
7. SWOT ANALYSIS AND ISSUES 18
7.1 SWOT analysis 24
7.2 Issues and gaps 19
8. CONCLUSION AND NEXT STEPS 21
8.1 Conclusions 21
8.2 Recommendations 21
8.3 Next Steps 21
APPENDICES 23
Appendix 1: Organizations that participated in the Initial Feasibility Study 24
Appendix 2: Mortgage Model in Denmark 25
Appendix 3: Implementation of the Danish Mortgage Model in Mexico 26
Appendix 4: Mortgage Model in Singapore and Hong Kong 36

Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
1. PROJECT BACKGROUND AND OBJECTIVES
1.1 Introduction
Dubai International Financial Centre (DIFC) and Absalon
Project (Absalon), a joint venture between affiliates
of VP SECURITIES A/S and Soros Fund Management,
performed in February 2010 an Initial Feasibility Study
in the United Arab Emirates (UAE) with the purpose
to investigate whether it is a viable business idea to
establish a mortgage solution in the UAE based on
the principles behind the Danish Mortgage Model.
Based on the findings and draft report some further
clarifications were done in November 2010.
The Danish Mortgage Model1 has existed for more than
200 years and has undergone only few minor changes
throughout the years. The model is still a viable,
strong solution to provide funds for housing through
continuous issuance of mortgage bonds in the same
quantity and nature as the underlying mortgages.
During the 200 years of existence no single investor has
ever had a loss due to default of the mortgages, and
the model has survived several crises though the years,
including the current one, which started in autumn
2008.
Absalon has in 2007 made an implementation of a
Mortgage Model based on the Danish Model in Mexico2
and are currently investigating other countries for
possibilities of implementation. For more information
please visit www.absalonproject.com.
During the initial study, the mortgage models used in
models in Singapore and Hong Kong3 has been briefly
examined. The immediate conclusion is that the models
from these areas are not likely to be useful as inspiration
for UAE.
The project in UAE is hereafter referred to as the UAE
Mortgage Securitization Project. This initial study is
financed by the partners respectively.
1 Appendix 2
2 Appendix 3
3 Appendix 4
1.2 Objectives for the study
The objectives for the study are to investigate whether
the prerequisites for introducing the Danish Mortgage
Model in the UAE are available and to identify the
benefits to the UAE of the introduction of Danish style
mortgages in the UAE.
The findings are expected to be presented to future
key members of such a solution, governmental
representatives and/or other possible founders of a
mortgage project in the UAE with the purpose to:
• Identify changes in legislative and operative
procedures to close the gaps that have been
identified for the Danish Mortgage Model to work
in the UAE
• Suggest alternative structures and ownership of a
Mortgage Service Provider (MSP) utility in the UAE
• Estimate an initial budget for the project
development
• Be the foundation for raising commitment and
capital
- to carry the project through an actual more in-
depth analysis
- to form the basis for an actual decision to
implement the project and to bring the project
into daily operations
The implementation of the project is expected to be in
the form of a centralized Shared Service Facility named
a Mortgage Service Provider (MSP), that will administer
all services and regulations for the mortgage model
to work, and provide the needed interfaces to the
distributors of the mortgages, the Mortgage Credit
Intermediaries (MCI) and connections to other partners
in the model such as regulators, Stock Exchange and
Central Securities Depository (CSD).
1
1.3 Development of the project idea
DIFC and VP got introduced to each other in autumn
2009, as DIFC had learned about the Danish Mortgage
Model and a Mortgage Securitization Project VP had
undertaken in Mexico, in a company named Absalon,
a partnership between affiliates of VP and Soros Fund
Management.
VP was invited to participate in a Housing Finance
Seminar in November 2009 at the DIFC, organised by
Dr. Nasser Saidi from DIFC.
DIFC and VP (on behalf of Absalon Project) then
agreed to pursue the business idea to introduce the
Danish Mortgage Model to finance private dwellings
in the UAE.
To meet these objectives, a series of meetings was
organized by DIFC in February and November 2010
with representatives from possible future participants in
the model from Dubai, Abu Dhabi and representatives
from federal UAE level. During these meetings, the gap
that exists between the current situation in the UAE
and the prerequisites for the Danish Mortgage Model
to operate successfully in the UAE were identified.
2 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
A draft report dated December 20, 2010 was then
issued and sent to key stake holders for their response
to the findings and conclusions. Some comments
were received until end of February and has been
taken into account in this final version. Besides the
remarks already in the SWOT analysis and issues list
the comments generally was concentrated around the
following areas:
• A suggestion to let a law firm identify the gaps
and issues for the Mortgage Model to work in
UAE
• Lack of clear description of functions and roles of
key stake holders if the model is implemented
• Concerns regarding domestic liquidity to invest in
the mortgage bonds and/or a doubt whether the
bonds will attract foreign capital to the UAE.
• And finally if the model is open for all banks to
become part of the project or it was limited to
local bank
2. INTRODUCTION TO THE DANISH MORTGAGE MODEL
2.1 Basic Principles of the Danish
Mortgage Model
The model will offer mortgages to owners of private
homes – residential mortgages. The mortgages are
characterized by the following main principles known
in the Danish Mortgage Model:
Principle of Balance
The mortgages are financed through the issuance
of mortgages bonds directly into the secondary
market. The amount of mortgages and the amount
of bonds in circulation used to fund those mortgages
should always match each other. This means that
bonds are only issued when they are needed to
securitize a mortgage (tap issuance on a daily
basis), and bonds are redeemed by calling at par,
whenever the borrowers make principal payments
or prepayments.
Pooling of mortgages with similar characteristics
To ensure large and liquid mortgage bond series,
mortgages with same characteristics regarding
maturity, interest rate, amortisation profile and
risk profile are pooled together, and securitized by
issuance of mortgage bonds with characteristics
corresponding to the mortgages. Series are open
for issuance in 3 years.
Mortgages are serviced by the issuer of the
mortgages
The Mortgage Credit Intermediaries (MCI) which
originated the mortgage will also service the mortgage
throughout the lifetime of the mortgage until maturity.
In the situation that a mortgage defaults, the MCI
guarantees to the investors that bonds corresponding
to defaulted mortgages will be taken out of circulation.
So the MCI is encouraged to perform a proper credit
scoring of the borrower and appraisal of the property
to ensure only to grant mortgages to borrowers who
they believe are likely to be able to pay the obligations
of the mortgage.
Borrower has two prepayment options
The borrower is at any time entitled to make a full or
partial prepayment of the mortgage by the cheaper of
two options:
• Buying the bonds corresponding to the mortgage
in the market at market price and delivering
them to the MCI, who will then cancel both the
bonds and the mortgage.
• Prepaying the mortgage at par value. The MCI
will call the bonds at par to maintain the Principle
of Balance.
The prepayment options protect the borrower’s ability
to sell the property and prepay the mortgage both in
case of increasing and decreasing interest level.
Separation of credit risk and interest risk
An important consequence of using these principles
is a complete separation of credit risk and interest
risk. Credit risk is maintained within the MCI, and
an important part of implementation of the model
is setting up rules and procedures for the MCI to
ensure high quality of the mortgages and sufficient
capitalization of the issuer to stand up against losses
on the mortgages. It is very important for the model
that the investors can have complete confidence that
the mortgage bonds do not contain any credit risk.
On the other hand, all interest risk is transferred to the
investors, so the MCI has no risk in this area.
Normally a Danish Mortgage is denominated in local
currency to avoid any currency risk. The model though
can handle all currencies.
Loan types
The basic idea is to offer the borrowers long term
mortgages. In Denmark mortgages are normally with
30 years’ maturity and in the UAE probably 15-20
years or longer. However currently it is not likely
that investors in the UAE will accept bonds with that
3
long maturity, so the solution will probably be long
term loans with refinancing every 5 or 10 years.
This need to be further analyzed with the market
during the implementation of the model. It is
important to notice that this will differentiate the
implemented model from the traditional Danish
Mortgage Model.
The normal products in the Danish Mortgage Model
are bond loans with level payments or interest only
payments. A solution with initially very small principal
payments, which will be increased exponentially over
time (L-factor loan) is also a possibility (this loan type
was developed for the Mexican market).
2.2 Participants – roles and
responsibilities
The customers of the Mortgage Service Provider
(MSP) will be financial institutions which want to
offer competitive home financing to their clients by
joining the MSP and become a MCI according to the
model described.
When entering this co-operation, the MCI will sign a
contract with the Mortgage Service Provider, defining
the conditions of the partnership.
It is not analyzed in details yet how the legal structure
of the MSP and the MCIs should be in the UAE. In the
following, a model close to the model implemented
in Mexico is assumed, but the legal framework for
the UAE could make it necessary for this to change,
when the legislation and regulation are analyzed
more into depth.
The model described involves a number of different
participants:
• MCI
• 1st layer trusts
• 2nd layer trusts
• Mortgage Service Provider
• CSD (Centralized Securities Depository)
4 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
• Stock Exchange
• Market Maker(s)
• Underwriter
• Trustee
The tasks of these participants are described below:
MCI
The MCI will be the sales channel of the mortgages
with the following responsibilities:
• Marketing (supported by the Mortgage Service
Provider)
• Counselling of the borrowers
• Handling of loan applications (supported by
IT systems provided by the Mortgage Service
Provider)
• Appraisal of the properties
• Collection of all necessary documentation
• Credit score of the borrowers (supported by
IT systems provided by the Mortgage Service
Provider)
• Registration of property deeds and mortgage
deeds
Further on the MCI will take on responsibility for
defaulted mortgages, meaning that if a mortgage is
overdue, and the borrower is not expected to be able to
fulfil his obligations, the MCI is committed to move the
mortgage to its own books by prepaying the mortgage
and removing the bonds from circulation.
Potential MCIs are specialized mortgage banks like
Tamweel and Amlak but also commercial banks in
the UAE, which want to enter into or expand their
participation in the mortgage market.
1st layer trust
In order to separate the risk of the issuer of the
mortgages and bonds from other risks of the MCI, the
MCI will have to create a trust (capital centre), which has
the mortgages as asset with the property as collateral.
Procedures in the trust will be established to ensure that
sufficient capital is available in the trust to ensure that
the mortgage bonds always are rated by international
rating agencies to the same level as sovereign debt. The
model can be illustrated by the figure 1. below.
The trust should be capitalized by the MCI, which
will put in sufficient equity to ensure the rating of the
bonds. It should be considered to allow that some of
the capital is provided by issuing mezzanine- or junior
bonds, which the MCI can sell at the market to diminish
the capital requirements from the MCI.
Instalments from the borrowers are paid to the trust,
which pays interest and redemption to investors and
also a spread which pays other obligations in connection
with the issuance of the bonds. Part of the spread paid
by the borrower will be given to the MCI as payment for
the work performed and the risk involved for the MCI.
However, the MCI will only receive this payment when
all other obligations to the trust are fulfilled, including
possible need for additional capital.
Figure 1. Separation of credit and interest risk
If new bond series needs to be opened because of
changed coupons, different maturity or other changes
in characteristics of the bond are needed, the MCI will
have to establish a new sub trust to maintain only one
set of characteristics in all bonds issued by each sub
trust. However, these sub trusts will have joint liability
towards all claims, and the MCI will only receive their
spread, if all obligations in all sub trusts for which MCI
is beneficiary are met.
This can be illustrated by the figure 2. on page 6. In
the figure it is assumed that sub trust 1B has many
defaulting mortgages, so this sub trust needs to
receive liquidity from the other sub trusts for which
MCI1 is beneficiary.
5
Figure 2. Separation of credit and interest risk

Figure 3. 2 Layer Trust structure to ensure large bond pools

6 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
2nd layer trust
We expect that the MCIs, which will be joining the
model, will require separation of the credit risk from
the mortgages of other MCIs. So in principle, all MCIs
joining the model should have their own bond series.
On the other hand, it is essential for the model to have
great liquidity in the bonds, so to ensure big bond
series, the bonds issued to fund the mortgages of one
MCI are not sent to the market as public bonds. Instead
the bonds are issued as private bonds, which are sent
to a new trust. This 2nd layer trust will then issue the
public bonds in a one to one proportion, and these
public bonds are then sold in the market. This can be
illustrated in fig 3.2 on page 6.
The model ensures that the quality of the mortgages
and the capitalization of all the 1st layer trust are such
that all credit risk will be maintained within the 1st layer
trust, and the private bonds issued by all 1st layer trusts
are locally AAA rated by international rating agencies.
All private bonds transferred to the 2nd layer trust will all
have same coupon, maturity and other characteristics,
and the same characteristics will apply for the public
bonds. This means that the 2nd layer trust will be able
to issue AAA rated public bonds without any capital. If
several coupons or maturities are needed, new 2nd layer
trusts will be created to handle these.
Mortgage Service Provider
The Mortgage Service Provider will perform the
following tasks:
• Clarify all legal aspects of establishing the model,
including clarifications with the Ministry of
Finance, the Central Bank of UAE, the Securities &
Commodities Authority, and other authorities
• Enter all agreements with participating parties:
- MCIs
- Trustees
- Market Makers
- Stock Exchange
- Securities Depository
• Prepare prospectuses and get approvals for the
bonds
• Support the MCIs with marketing activities
• Support the MCIs with IT systems (counselling and
handling of loan applications)
• Administer the trusts on behalf of the trustee,
among other things with
- Final approval of mortgages
- Issuance of bonds to fund mortgages
- Payment collection from borrowers
- Assisting borrowers with prepayments
- Solvency calculation
-Distribution of payments (waterfall process)
- Accounting
The Mortgage Service Provider will receive its income
from three different types of fees:
1. Access fee from MCIs: One time payments for
entering the model plus an annual fee
2. Securitization fee: A percentage of the amount
securitized
3. Administration fee: A percentage of the
outstanding mortgage debt (part of the spread
paid by the borrowers)
The size of these fees will be decided during the
establishment of the company after further analysis of
the size of the market.
The MSP is a new entity in UAE and is expected to be
established as a shared service facility, owned by market
participants and possibly also with participation from
government. The MSP should be the project owner.
CSD (Centralized Securities Depository)
It is important that an efficient CSD exists in the market.
The Danish model requires special features which
not necessarily are present in all units taking care of
registration of ownership, clearing and settlement of
securities in the UAE today:
• Possibility for tap issuance on a regularly basis,
either on a daily basis directly to the secondary
market or to the primary market through frequent
auctions
• Possibility to cancel bonds which have been
delivered to the MCI for prepayments
7
 • Frequent redemption by calling bonds at par
proportionally between all investors
A model with single investor accounts at the CSD is
preferable. This will make the redemption to the
individual investors most efficient.
In the UAE the CSD functionality is managed by the
Stock Exchanges.
Stock Exchange
The bonds should be listed and traded at the stock
exchange at UAE level. At the moment, two stock
exchanges exist in the UAE, ADX (Abu Dhabi Securities
Exchange) in Abu Dhabi, and DFM (Dubai Financial
Market) in Dubai. These are supervised by ESM (Emirates
Securities Market), which is part of SCA (Securities &
Commodity Authorities).
A third stock exchange exists in DIFC, NASDAQ Dubai,
which operates under surveillance of DFSA (Dubai
Financial Service Authorities).
Market Maker
A prerequisite for the model to work is a liquid market
where it is always possible to sell the bonds issued at
a price which reflects the interest level of the market,
and where it is possible to buy bonds to be used for
prepayments at a fair price.
Further on, it should be possible for the borrower to
hedge himself against fluctuations in the price of the
bonds by making a fixed price agreement. When signing
the loan agreement, the borrower will know the future
payments to be paid, but he does not know the exact
amount he will receive until the bonds are actually
issued and sold in the market, unless he makes a fixed
price agreement with “somebody” who guarantees to
buy the bonds at a certain price.
Accordingly, a borrower who wants to prepay his
mortgage does not know the cost of doing so until
he actually buys the bonds in the market, unless
8 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
“somebody” will guarantee to sell the required amount
of bonds at a certain price on the date where the
prepayment will take place.
To perform these tasks, a Market Maker will be needed.
The Market Maker is a financial institution which always
has a certain stock of the relevant bond series. The
Market Maker will quote a price on a daily basis on the
stock exchange, and he always accepts to buy at this
price minus a certain margin, and to sell at this price
plus the same margin.
Underwriter
The task of the Underwriter is normally to sign the
prospectus and to organize and guarantee the sale of
the securities at a predefined minimum price.
As the bonds according the Danish Mortgage Model are
issued at the same rate as the loans are appropriated
and therefore sold using tap issuance (sold a little by
little), the fact that the borrower will need to accept
that bonds are sold at market price, and finally as a
Market Maker is obligated to provide a realistic market
price, the role of the Underwriter is less important than
in a traditional securitizing model (and should as a
consequence be substantial cheaper).
The role of the Underwriter will be handled by a broker,
typically a bank.
Trustee
The role of the trustee depends on local legislation, but
his primary role is guaranteeing the investors that the
issuing trust is acting in accordance with regulations
and takes care of their interests.
The role as trustee is typically handled by a bank.
3. PRODUCTS AND MARKETING
3.1 Product definition
The model will offer mortgages to owners of private
homes – residential mortgages. The mortgages are
characterized by main principles known in the Danish
Mortgage Model, which is described in section 2.1.
It should be considered to offer the mortgages in a way
which is Sharia compliant, either as the only product
type or as an alternative product for Islamic clients to
offer in addition to traditional mortgages.
Sharia compliance can be obtained by issuing the
mortgage as a ljara based financing. The main principles
for a ljara are:
• The property is bought by the mortgagee, not the
mortgagor.
• The mortgagor makes an agreement with the
mortgagee to buy the property after a certain
period (e.g. 20 or 30 years) at the same price
as the mortgagee paid. During the period, the
mortgagor will pay the price of the property
according to a pre-defined schedule.
• During the period, the mortgagor will have
access to the property. He will pay a pre-agreed
rent during the period. The rent can be set as
a percentage of the part of the purchase price,
which has not been paid yet.
• If the property is sold with a profit before it has
been handed over to the final owner, the profit
will be given to the final owner, as he already has
an agreement to buy the property at a given price.
The funding of a ljara mortgage is done in sukuks,
i.e. Sharia compliant bonds. An investor in a sukuk is
entitled to a payment, which represents a lease rental
on the underlying mortgages.
After having consulted a manager of the Sharia
compliant origination in Standard Chartered Bank in
Dubai, it is evaluated that the Danish Mortgage Model
will qualify to offer Sharia compliant lending, with some
minor adjustments. Procedures around forced sale of the
property, if the mortgagor defaults, should be defined.
4 According to information from Tamweel and Amlak
3.2 Borrowers of the mortgages
The mortgage market in Dubai today is dominated by
Amlak and Tamweel, who holds about 50-60% of the
issued mortgages.
A mortgage is for the moment needed in about 30%
of the sales of properties in Dubai. In the remaining
sales, the price is paid in cash. We assume that similar
conditions exist in the rest of UAE.
The proportion of people needing a mortgage
is expected to increase in the future, as focus in
development projects will change from high end and
upper middle class to middle class. It is also expected
that some of the speculators, who bought projects in
cash to make a fast resell will need a mortgage, as they
might not want to sell the property under the current
market conditions.
The present mortgage market in Dubai alone is estimated
to 250 million USD new mortgages per month, which
is about 25% of the size before the crisis started4. We
have no consolidated figures for the whole of the UAE
at the moment.
We have not met with representatives from Abu Dhabi
Finance, the leading mortgage provider in Abu Dhabi,
but anticipate that most of the conditions for mortgages
in Abu Dhabi are similar to those in Dubai, even though
the financial situation is different in the two emirates.
However, there are a number of issues regarding the
borrowers in the UAE:
• The value of a property, especially in Dubai, is
difficult to settle at the moment
• 80-85% of the inhabitants of the UAE are
expatriates, who can be forced to leave the
country with short notice
• Many of the local people from the UAE will build
their property on a piece of land given to him
for free (granted land). However, a property on
granted land can’t be sold, and for that reason,
can’t be used as collateral for a mortgage.
9
 • There is not a well proven practice for forced sale
if mortgages default. The first forced sales have
though been performed in Dubai.
• There is no culture for making credit scoring of
borrowers in the UAE.
In the following these obstacles are discussed in relation
to the proposed model.
Appraisal of the property
It is essential for the model that the property can be
appraised at a realistic price. If the appraisal is not
realistic and there is not a correct value of the property,
the collateral might be worth less than expected to
cover for the mortgage.
Dubai Land Department has a unit that appraises
property for taxation and other issues and that unit
is expected to be able to evaluate the property at
realistic prices.
However in Dubai there is a current supply of property
of 350,000 units that not has been sold to the market
yet, a figure which is expected to increase with 50,000
units this year5. In contrast in Abu Dhabi there is still
a need for construction of new dwellings, as demand
exceeds supply.
For this reason, it is very difficult to set a price on a
house or an apartment at the moment. In certain areas,
prices have dropped up to 70% since the crisis started
in 2008, while in other areas the prices have only gone
down with 5-10%.
During the visit in November we got the information
from both Tamweel and Amlak that the housing market
was moving again and that Tamweel had started up
issueing mortgages again.
The real prices on property are where buyers and sellers
can meet and agree on transactions.
5 According to information from Emirates NBD
6 Article in Gulf News March 7, 2010
10 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
Registration of ownership
It is essential that the registration of the ownership to
land and the associated house or apartment is done in
a transparent and indisputable manner so there is no
doubt about the ownership. For the suggested model
to work it is furthermore essential that the mortgage
is registered on the property as it works as collateral
for the mortgage. There is no federal mortgage law
in place.
In Dubai there is 3 different legal status of land:
Freehold, Leasehold and Granted land. In Freehold land
it’s possible for all to buy the land and build on it and
register all rights to that land. On Leasehold Land it’s
possible for all to build a property and have all rights
to that building, but the land is only leased (from
government). On Grated Land only Emiratis can build,
and they only get the right to use the building, they
can’t sell it.
As a very important prerequisite in the Danish
Mortgage Model is that the house serves as collateral
if the loan defaults. For that reason houses on Granted
land can’t qualify for Danish Style Mortgages without
some specific arrangement is put in place to replace
the house as collateral. For the Freehold and Leasehold
Land the model works.
During the visit in November we met with
representatives from Dubai Land Department to
learn about their services. It seems like in Dubai it is
possible to get an official evaluation of the property
and to register ownership to that property in the Land
Department. We were told that in Abu Dhabi this
service was offered by the developers, and were not
implemented as a centralized, governmental service.
Afterwards we have learned that there are initiatives
on their way to implement a federal solution “….to
organize ownership and registration of real estate
across the country”6.
Property rights for expatriates in the UAE and
visa rules
80-85% of all inhabitants in the UAE are expatriates,
many of them working in the UAE according to a
residence visa or permit. Normally such visa is granted
for 3 years, and should be sponsored by an employer.
When the visa expires or is cancelled (e.g. if the person
looses his job), and if it is not renewed, the expatriate
only has 30 days to leave the country (this period is
considered being increased to 90 days, but that has not
been changed yet).
Also it is not possible to get a visa to retire to the UAE
neither if you have worked in the UAE up to retirement
nor if you for some reason would like to retire in UAE.
Both the short notice by which your visa can be
terminated and the lack of possibility to be a resident
in the UAE upon retirement makes it a very uncertain
decision to own a property in the UAE. It also seems
like most developments have been sold to professional
investors and therefore many apartments and houses
have not yet been sold to the secondary market (to an
owner that actually occupies the property).
Another problem in relation to mortgages and
expatriates is evaluation of the value of the house
compared to the mortgage. In case the expatriate
loses his job and/or visa, and the value of the house is
evaluated to be less that the mortgage, the expatriate
has no incentive to keep the loan current, as he is about
to leave the country.
Generally it takes much longer time to sell a property
and finalize all the paper work, and this very limited
period expatriates are given to get out of the country
is estimated to have a negative impact on expatriates’
willingness to buy a house.
Property on Granted land
Emiratis are often given a piece of land to build a house
(Granted Land). Often they are also given a loan, in
which case they don’t need a mortgage. But if this
is not the case, the person might need a mortgage.
However, properties on Granted Land cannot be sold,
but should be delivered back to the government, so
it is not possible to use the property as collateral for
a mortgage.
Another problem is that no expropriation legislation
exists for Granted Land in the UAE. Practice is to
compensate the “owner” of the property, but he has
no legal right to compensation.
If the model should work on Granted Land there should
be a kind of sovereign guarantee that the mortgage will
always be kept current.
Forced sale
In the UAE no mortgage legislation exists at federal
level. In Dubai a mortgage law has been passed but
only a few forced sales have been carried through.
To minimize loss for the MCI, it is important that
defaulting mortgages can be terminated in a fast and
efficient way.
Special consideration will need to be taken, if the
mortgages should be ljara based to make the lending
arrangement Sharia compliant.
Credit scoring of the borrower
There is no income tax in the UAE, so no authority
requires information and documentation about
income. For this reason there is no culture for preparing
a household budget, and credit scoring of the borrower
can be a problem.
There has recently been established a company in Dubai
that delivers credit scoring of individuals.
3.3 Investors for the mortgage bonds
The UAE has at the moment no federal government
bond market, as the federal government until now has
not needed liquidity. A consequence of that is that no
reference interest (yield curve) exists in the market. So
pricing of other types of bonds will be difficult.
11
However, a Public Debt Management Unit has recently
been established under the Ministry of Finance and the
Central Bank of UAE7, and the first federal government
bond issuance is expected by end of 2010 or beginning
of 2011 . It seems like this issuance has been postponed
1 year so it will not happen until earliest end 20118.
We believe that a federal government bond market will
be a prerequisite for a liquid mortgage bond market,
but in the absence of a federal government bond
market, the pricing of the bonds will have to be decided
in comparison to the individual emirates government
bond markets.
There is at the present no huge demand for mortgage
bonds in the UAE. There are, besides the lack of a
government bond market, several reasons for that:
• There are only a few and small institutional
investors (insurance companies and pension
savings funds).
• Private investors have up till now had a preference
for short term investment with a high profit.
• There is in the UAE a tradition for negotiating
terms of investments. Danish Style Mortgage
Bonds have fixed and non negotiable terms.
Further on, the present real estate crisis in Dubai has
made international investors very cautious. We have
though experience some interest among some of
the banks of investing in these kinds of long term
investments.
It is crucial for the model that a liquid market exits. The
Danish Model is dependent on the ability to sell bonds
in the market whenever a tap issuance is made to fund
a mortgage, and on the ability for the borrower to be
able to buy bonds in the market to make a prepayment.
Both transactions should be at fair prices reflecting the
current interest level in the market.
7 Press release from UAE Ministry of Finance referenced in article in Thaindian News September 7, 2009
8 Article in The National January 24, 2010
12 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
Potential investors in the mortgage bonds could be:
• Institutional investors (though few and small)
• Family owned enterprises
• Private people in the UAE
• Foreign investors
• Governmental institutions
To attract foreign investors it is critical that the current
policy of having a close link between AED and USD is
maintained, so that the investors will regard currency
risk to be minor.
3.4 Pricing analysis
The model ensures a very transparent pricing for the
borrowers. The interest to be paid by the borrowers will
consist of two elements:
• Cost of funding, i.e. the coupon paid to investors.
• Spread, which consists of:
- Insurance premiums (if relevant)
- Fee to MCI, covering origination cost, guarantee
fee and profit
- Administration fee to the Mortgage Service
Provider
Note that the bonds normally will be sold at a discount,
giving a real interest rate a little higher than the coupon
rate plus spread.
The costs will, apart from the discount on the bond
price, be known in advance, so the borrower will know
the payments to be paid in the future. The spread is
expected to be lower than the current, due to efficient
procedures, higher volume and more competition. (In
Denmark the total spread on mortgages to private
dwellings is around 0.5-0.6%. In the UAE it is expected
to be higher than that due to lower volume, at least in
the beginning).
3.5 Competitors
The mortgage market today is relatively small. The two
main players in the current market in Dubai are Amlak
and Tamweel. Those two have both expressed interest
in joining the model because they experience now
difficulties in providing sufficient funding.

Also the big commercial banks are active in the market,

and the ones we have met also express interest in
joining the model.

In general the Mortgage Service Provider will act

as a centralized utility that delivers a standardized
funding mechanism for mortgage loans and a set of IT
administrative functions that are available to all parties
that comply with the standards and participant policies
for the company.

Competition will be outside the Mortgage Service

Provider between the different participants, and based
on factors like marketing efforts and access to possible
customers, pricing of spread and service offerings in
accordance with the mortgage loan.

13
4. COMPANY STRUCTURE AND IMPLEMENTATION
It is the intention to establish a Mortgage Service Provider
company to handle all centralized IT procedures as well
as business processes in relation to the implementation
of the UAE Mortgage Securitization Project.
As the prerequisites for the model to work is not
currently present at a federal level, it is suggested to
implement the model so that it in any case will work
at a UAE level, but the ability to issue mortgages in an
emirate will be implemented in a one-by-one order in
the sequence that an emirate have the prerequisites in
place. The individual credit scoring will make it possible
to issue mortgages in the same trusts across different
emirates, to ensure large mortgage bond pools to
support a liquid market.
So the suggested step-by-step implementation will
just stimulate the emirates to get the prerequisites in
place to join the model and get started, rather than the
project needs to wait until all emirates are ready, or a
joint federal legislation is in place.
Figure 4. Roles in the suggested UAE Mortgage Model
9 See chapter 2.2 for roles and responsibilities for key stake holders
14 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
4.1 Mortgage Service Provider
The MSP will as such operate as a Shared Service Facility
with the objective to make the services needed to
administer the IT- and business procedures to support
the UAE Mortgage Model available to the MCI’s as
efficient and cost effective as possible9. All legal and
most practical aspects in relation to the implementation
of the UAE Mortgage Model will be handled by the MSP,
and terms and conditions related to those areas will
be allocated to the MCI’s in the relevant Participation
Agreements.
This structure will ensure that all generic procedures
are managed in a centralized manner at the MSP
level and that all interaction with the borrowers and
individual services to the borrowers will be handled in a
decentralized manner by the participating MCIs. With
this structure there is no need to introduce more MSPs
in the UAE, as the services that the suggested MSP will
deliver are neutral in their nature to the participating
MCI’s, and the competition to attract customers for the
individual MCIs are related to their ability to market
their services to the customers compared to other
MCIs. The basic price of funding and products offered
are the same, but different service offerings could be
developed by the individual MCIs.
It is important to notice that it will be the IT- and
business procedures of the MSP that will be rated by the
international rating agencies. Therefore by definition
the mortgage bonds that will be issued by the MSP
as a consequence of an approved loan application will
be rated as sovereign debt locally, which is the current
objective for the rating. The handling of mortgage
bonds from issuance to maturity inclusive payment of
instalments to investors and giving market information
to investors and regulators will be done by the MSP.
All companies that comply with the terms and
conditions to act as a MCI can be a member of the MSP
and utilize the services of the MSP. The MCIs can join
the model without the need to modify their systems.
In a later stage they could chose to make system-to-
system connections between their own IT systems and
parts of the functionality from the MSP systems.
The Mortgage Service Provider will receive its income
from three different types of fees:
1. Membership fee from MCIs: One time payment
plus an annual fee
2. Securitization fee: A percentage of the amount
securitized
3. Administration fee: A percentage of the
outstanding mortgage debt (part of the spread
paid by the borrowers)
The size of these fees will decided during the
establishment of the company after further analysis of
the size of the market and the cost of establishing and
operating the MSP.
4.2 Implementation – alternative 1:
Government Related Entity
If the MSP is established as a Government Related
Entity (GRE), this will kick start the introduction of the
Mortgage Model in the UAE, as it is then assumed that
the funding and governance of the MSP is given and
also that the needed changes in business practices and/
or legal matters more easily can be done.
This alternative will ensure that there is no doubt about
who is the project owner and therefore many decisions
in relation to the foundation of the company and the
implementation of all the systems and procedures
can be done very efficient in this model. Also it is the
impression that many companies in the UAE has this
ownership structure, so it’s a commonly used approach
to enforce activities that government would like to
introduce to the community.
4.3 Implementation – alternative 2:
Market Owned Entity
The MSP could also be established as a market owned
utility, where local financial institutions jointly could own
the Shared Service Facility. Financing of the MSP is not
regarded as a problem, but foreign investors could be
considered as founding members to bring knowledge
regarding mortgage financing to the board of the
company. Also relevant government related entities
on the UAE level could have an ownership in the MSP
without having a dominant position.
In this alternative there is an initial phase where the
project has to be presented to interested parties and the
founding of the company needs to take place before
the funding of the project can be committed.
This approach introduces some financial and governance
issues to overcome before the company actually can
be founded. A project owner needs to be identified to
finance and manage the needed activities listed below:
1. A more in-depth analysis needs to be performed
regarding the introduction of the project in the
UAE to prepare a business case to present for
possible investors.
2. Identify possible founding members of the MSP
and develop investment plans and shareholder
agreements to them
15
5. FINANCIAL OUTLOOK

This Initial Feasibility Study has not been focused
on preparing a financial analysis of the costs of
introducing the Danish Mortgage Model in the UAE,
but rather focused on the prerequisites for the model
to work and the benefits to the UAE of introducing
the model.
The development of the housing market in the UAE
and the outlook for further development indicates
that there will be a good opportunity to introduce
the model in the UAE.
The amount that is currently being mortgaged in
Dubai during the current situation is worth 250
million USD monthly10 (30% of all sales in Dubai)
and this amount is estimated to be 25% of the level
before the crises started.
Based on the experiences from Mexico and under
the prerequisite that the model can be implemented
as described in this study including the sharia
compliance, it is expected that the implementation
costs for the project including the setup of the MSP
and the finance of the initial operational losses will
be in the area of 12-15 million USD.
A more in-depth analysis as part of the suggested
project to create an implementation plan will prepare
a better projection of the costs to establish the
project as well as the income. The project to create
a detailed implementation plan is expected to cost
maximum 250.000 USD.

We need to further analyse the demand for mortgages

in Abu Dhabi and the other emirates in the UAE as
a total.

10 According to information from Tamweel and Amlak

16 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
6. DEVELOPMENTAL PERSPECTIVES

The UAE is not unfamiliar with the development of
mortgage products and services. During the last 5-10
years the mortgage business has developed and both
commercial banks and more specialized mortgage
banks have provided mortgages. Tamweel and Amlak
in Dubai and Abu Dhabi Finance in Abu Dhabi are
examples of such specialized mortgage banks. The
problem that has arisen as a consequence of the
current crises is that the mortgages are financed
through the balance sheets of the involved banks,
which are now stressed due to the crises.
The study has assumed that that a model following
the principles in the Danish Mortgage Model should
be implemented in the UAE but other alternatives
could be considered. As part of the study the
mortgage models in Singapore and Hong Kong11 have
been briefly examined. It is our opinion that these
solutions will not bring the same benefits to the UAE
as the Danish Mortgage Model. The Singapore model
is based primarily on subsidies from government and
the Hong Kong model is equivalent to the US model,
where the problems in that model recently have been
disclosed by the so called “subprime crise” within
the real estate market in the US.
The mortgage market will become more competitive,
loan terms will be more flexible for the borrowers,
the cost structure will be transparent and the loans
are expected to be cheaper which will open the doors
to more people to take on mortgages and own their
own houses.
Further on the introduction of the model would ease
the current situation where access to funds is limited.
Therefore many investors in housing today are stuck
with their investments and are unable to sell due
to the fact that potential buyers have no access to
affordable mortgage financing.
It is though necessary that government supports the
model and is willing to invest in the mortgage bonds,
at least in an initial phase, to launch the model and
assist in creating a liquid mortgage bond market in
the UAE.

The Danish Mortgage Model12 will introduce a

mortgage model where the mortgages are financed
through the capital market by issuing mortgage
bonds directly into the market.

The Danish Mortgage Model is developed during

more than 200 years of operation. The model has
successfully been exported to Mexico, where the first
Danish Style Mortgages were issued before Christmas
in 2007. Based on the experiences from Mexico the
securitization project in the UAE is meant to leverage
on this experience and stimulate the economy in the
UAE.

11 Appendix 4
12 Appendix 2

17
7. SWOT ANALYSIS AND ISSUES
As a concluding part of the study, the projected
MSP has been subject to an analysis of strengths,
weaknesses, opportunities and threats (SWOT).
7.1 SWOT analysis
Strengths
• Introduce a mortgage model that is financed
through the capital market
• The UAE real estate market will be less dependant
on access to bank liquidity
• Cheaper funding for borrowers of private houses
• More flexible funding for borrowers with
transparent prepayment options at par and at
market price
• Banks can free some capital by issuing Danish
Style Mortgages which allows for other business
opportunities with the same amount of equity
Opportunities
• There is a need for mortgage financing now and in
the future
• According to several sources independently the
level of need for mortgage financing is around
25-30% of all sales of new units.
• Future need for mortgages is expected to be
higher due to more focus on middle class and also
due to a growing secondary housing market
• The current (low) level of mortgages amounts to
around 250 million USD per month according to
two sources
• The study has indicated that it will be possible to
use the Danish Model as basis for Sharia compliant
lending.
• There are plans in place both in Dubai and Abu
Dhabi to continue the construction of private
homes to drive growth
18 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
Weaknesses
• No debt capital market established in the UAE,
meaning there is no yield curve for government
bonds to set the guideline principles for pricing of
the mortgage bonds
• No federal mortgage law supports taking over the
house as a collateral if the borrower defaults
• Low demand for long term investments in bonds
due to current limited need for savings in pension
funds and insurance companies
• Strata legislation is not fully implemented
• Land Department functionality is not fully
implemented
Threats
• High number of expatriates compared to Emiratis
(85/15%)
• Expatriates has to leave the UAE with short notice
if they loose the job/work permit
• Expatriates can only acquire a house/apartment in
Freehold and Leasehold Land
• Emiratis get land (Granted land) from government
to build their house which can not be transferred
to others (not possible to take as collateral if
financed through the mortgage model)
7.2 Issues and gaps
The study has identified some major issues and gaps
that need to be addressed for the project to succeed
in the UAE.

Capital There needs to be established a capital market in the UAE, where government will issue
Market
government bonds to act as benchmark for the mortgage bonds.

A government bond market is a prerequisite for the model to work properly. Initiatives are
on their way in the UAE. First issuances expected in late 2010 or early 2011. New status on
November 2010 is that the issuance is 1 year delayed.
Stock There needs to be a market place for the trading of the mortgage bonds.
Exchange
As the mortgage bonds are suggested to be issued in the local currency (AED), and the
majority of investors in the bonds are expected to be domestic, it should be investigated
further how the bonds could be listed at an UAE level, either at DFM and/or ADX.
Central There will be a need for a function at the UAE level for the registration of ownership to the
Securities Government Bonds and the clearing and settlement after trading.
Depository
(CSD) It is preferable that the mortgage bonds also are registered at this CSD to make tight
connections to the central bank for clearing purposes.

If a federal solution will not be in place from the beginning of the project, the CSD
functionality should be utilized at local emirate level.
Registration The Danish Mortgage Model is built on the prerequisite that the house/apartment is registered
of as collateral for the mortgage until the mortgage is fully redeemed.
ownership
To ensure the integrity of the mortgage model there shall be no question regarding ownership
to the property. This is essential for the markets evaluation of the quality of the collateral.

No federal function exists today. Dubai Land Department manages this in Dubai. In Abu Dhabi
this functionality is managed by the developers.
Mortgage The Danish Mortgage Model is built on the prerequisite that the house/apartment is registered
law as collateral for the mortgage until the mortgage is fully redeemed and that the mortgage
can be financed by issuance of mortgage bonds. If the borrower is not able to fulfil the
commitments to the mortgage, the MCI can through legal steps get access to the house and
sell it in a forced sale to cover for the defaulted mortgage.

It should be possible to take the collateral into possession and make a forced sale.

No mortgage law exists on a federal level. A mortgage law is passed in Dubai.

Sharia Many local investors will only invest in financial products that are Sharia compliant.
compliance
Adjustments to the model should be made to ensure Sharia compliance to stimulate domestic
investors.

Solutions around bankruptcy and forced sales should be developed to cope with sharia
compliance.

19
 Market The model requires some financial institutions to act as Market Makers to ensure having a
Maker liquid bond market with actual and fair buying and selling prices.

Some of the major players in the financial market should be urged to act as market makers.
We have received positive feedback from many banks and the following banks were
mentioned to us as potential market makers:
• Emirates NBD
• Abu Dhabi Commercial bank
• National Bank of Abu Dhabi
• First Gulf Bank
• Mashreq Bank
• Dubai Islamic bank
• Abu Dhabi Islamic Bank
Credit The model requires a realistic evaluation of the borrowers’ financial ability to fulfil the
Scoring obligations towards the mortgage.

Giving that more and more transactions need to be financed through mortgages in the future,
the need for the introduction of a viable model for credit scoring of the individual borrowers
increases. The process is furthermore complicated by the fact that expatriates can be asked to
leave the UAE with a short notice if they loose their job or by other ways loose their work permit.
Appraisal of The properties need to be appraised by strict procedures to determine a realistic value, as the
property mortgages are backed by the value of the collateral (the property).

In an economy where the housing sector is driven by development plans for growth in the area
there is a tendency that the natural demand for housing is less than the supply. When a crises
occur this turns into a problem, as there is too little “domestic” demand and there is a huge
oversupply of housing. How can a realistic evaluation process be established in the UAE?
Investors Mortgage bonds are long term, stable investments. We learned that short term investments
were the preferred investment form in the UAE currently.

There is not a tradition for long term investments in the UAE in debt instruments. Basically this
might be due to the fact that there is only limited demand for pension funds, life insurances
and similar kinds of services that requires long term investments.

Investors should be trained in this new investment possibility as well as government though
different institutions should be urged to invest in the mortgage bonds. Maybe the mortgage
bonds should have shorter maturity than what is the normal 30 years fixed rate mortgage
bond in Denmark.

Training of the investors should make them realize that a very liquid market makes long term
bonds suitable also for shorter term investments.

20 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
8. CONCLUSION AND NEXT STEPS
8.1 Conclusions
During the analysis results we have found that:
• The project idea is well received by all parties
visited, which has included commercial banks,
mortgage banks, construction companies and
developers, regulators, investors and Stock
Exchanges. Most visits have been made to
companies and institutions in Dubai, but also
several visits have been made to federal offices
in Abu Dhabi including the Securities and
Commodities Authority and the Central Bank of
the UAE.
• Major gaps between the prerequisites for the
Danish Mortgage Model to work and the current
legal and practical infrastructure in the UAE have
been identified. Especially issues in the following
areas needs to be solved or clarified before a
decision to start implementation could be made:
- Lack of federal mortgage law
- Lack of federal bankruptcy law
- Lack of full implemented strata law
- Expatriates limited rights to stay in the UAE (work
permits, tourist visa, retirement)
- Unclear legal framework for expatriates
• It has been recommended that the study should
cover the whole of the UAE and with the aim to
expand the model to cover the GCC region at a
later stage. At this stage the implementation focus
should be the UAE.
• The model can be implemented to issue traditional
mortgages, ljara mortgages or a both types
dependant on the feedback from the market. The
main objectives is to create as large and liquid
bond series as possible.
• Also the lack of a capital market in the UAE is
considered a major issue for the introduction the
mortgage model in the UAE. On the other hand
there are initiatives on their way to create such
a market, and federal government bonds are
expected to be issued in late 2010 or early 2011.
• The need for mortgage financing has been
estimated in Dubai at the current market
conditions, and those findings indicate that there
will be a viable business case for introducing the
Danish Mortgage Model in the UAE.
• It is the impression that also Abu Dhabi would
benefit from joining the model but we have
had no direct contact with current suppliers of
mortgages in Abu Dhabi like Abu Dhabi Finance.
8.2 Recommendations
Based on these findings it is our recommendation to:
• Establish the project with joint ownership on a
UAE level, at least with participants from Dubai
and Abu Dhabi.
• Decide on a stepwise implementation plan: Dubai
first then Abu Dhabi and then on a UAE level.
• Prepare a more detailed implementation plan in
accordance with the overall strategy along with a
project budget:
• Identify the need for changes in legal and/or
practical aspects in the mortgage industry in the
UAE for the introduction of the Danish Mortgage
Model.
• Address the issues and gaps raised in this report
and give practical solutions to overcome the
issues.
• Address the impact to the UAE on a macro
economic level of the introduction the Danish
Mortgage Model
8.3 Next Steps
To bring the project forward a project team should be
established to deliver a detailed implementation plan
according to the recommendations above:
A project team could be staffed with:
• Wagn Erik Norgaard, Absalon CTO
• Henrik Hogsaa, Absalon Product Manager
• Legal advisor from the UAE with knowledge of the
housing market and the mortgage area
• Finance expert in the investment area from the
UAE
• Mortgage expert from the UAE
• Economist from the UAE for macro economic
analysis.
21
 Absalon and DIFC have financed this initial step. The
project to create an implementation plan is estimated
to cost around 250.000 USD. A project sponsor is
needed to finance the work of the project team
to make the detailed implementation plan. So the
immediate next steps are:
• Identify sponsor to finance the next steps
• Identify members of the project team
• Identify governance of the project including
budget and timetables

22 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
APPENDICES

Appendix 1: Organizations and companies that participated in the Initial feasibility Study

Appendix 2: Mortgage Model in Denmark

Appendix 3: Implementation of the Danish Mortgage Model in Mexico

Appendix 4: Mortgage Model in Singapore and Hong Kong

23
Appendix 1: Organizations that participated in the Initial
Feasibility Study

24 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
 Appendix 2: Mortgage Model in Denmark

The Danish Mortgage Model has existed for more than
200 years and has undergone only few minor changes
throughout the years. The model is still a viable,
strong solution to provide funds for housing through
continuous issuance of mortgage bonds in the same
quantity and nature as the underlying mortgages.
The Danish Mortgage Model is supported by legislation
and market practices.
During the 200 years of existence no single investor
has ever had a loss due to default of the mortgages,
and the model has survived several crises though the
years, including the current one, which started in
autumn 2008.
• International Monetary Fund (IMF): (2007)
A technical Note on the Danish Mortgage Market -
A comparative Analysis
It’s important to notice that during the financial crises
the Danish Mortgage Credit institutions have been able
to continue to issue new mortgage bonds in the market
on a daily basis and that the ratings of the Mortgage
Credit Institutions have not been changed during the
current crises.

A more explanatory description of the model and how

it works in Denmark is available under “Publications” at
www.rkr.dk where also market practices and the legal
foundation are described. Realkreditraadet (RKR) is the
Association of Danish Mortgage Banks.

Also reports and assessments of the Danish Mortgage

Model are available at this site from amongst others:

• Moody’s: (2002)
“Moody’s believes that Danish mortgage bonds
are very strong and very low-risk financial
instruments”.

• Mercer Oliver Wyman: (2003)

“The Danish mortgage credit in a European
context has high efficiency, low prices and large
product offers”.

• Bank for International Settlements (BIS): (2004)

“However, in the Danish case the institutional
structure, the regulatory approach and monetary
policy together have resulted in a market which,
relative to the US market, has shown little or no
stress in periods with significant refinancing”.

25
Appendix 3: Implementation of the Danish Mortgage Model
in Mexico
Introduction
This memo gives a short introduction to the Danish
Mortgage Model, including a practical example of
establishing a Danish Mortgage Credit Institution.
Further on, the memo describes how a Danish mortgage
will function, seen from the borrowers’ perspective.
Finally, the memo describes in brief how the Danish
Mortgage Model is implemented in Mexico. It is not the
intention to outline this as the only way to implement
the system in another country, but to let it serve as an
example on how it has been possible to adapt the system
in a country with its own habits and regulations.
Main Principles in the Danish Mortgage Model
The Danish Mortgage Model is based on the following
principles:
• Mortgage Law: Mortgages are issued by the
MCIs (Mortgage Credit Institutions), which are
regulated by legislation and practice in the market:
- Careful counselling of the borrower before the
credit is accepted
- Forma credit scoring of the borrower
- Regulated procedures for appraisal of properties
- Regulated maximum loan to value (LTV)
The MCI performs independent checks of
documentation and appraisal using agreed criteria,
and helps enforce consistency. This ensures high
quality of all mortgages and makes it possible to
pool mortgages with the same maturity and interest
rate together and to securitize them by issuing AAA
international rated mortgage bonds.
• Principle of Balance (PoB): The Danish Mortgage
Model is based on the Principle of Balance (PoB),
meaning that securitization of each individual
mortgage is done by issuing enough additional
bonds in an existing bond pool to fund the full
amount of the new mortgage at the time when
the mortgage is disbursed. Further on, when
the borrower repays his mortgage (by principal
payments as part of the normal instalments
or by prepayments), an equivalent amount of
bonds are cancelled by calling them at par. As a
26 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
consequence the nominal value of the bonds in
circulation always matches the nominal value of
the mortgages issued.
• Prepayment options: Borrowers having a
mortgage based on the Danish Mortgage Model
normally have two prepayment options:
- Prepayment by paying the nominal value of the
mortgage (without paying any penalty except
a minor prepayment administration fee). The
MCI then cancels the corresponding amount of
bonds by calling them at par price. This option
will be used if interest rate has decreased, and,
as a consequence, price on the bonds have risen
above par.
- Prepayment by buying the corresponding
amount of bonds at the open marked, and
delivering the bonds to the MCI, who cancels
both the mortgage and the bonds. This option
will be used if interest rate has increased, and
price on bonds have decreased (or is still possible
to buy with a discount).
• Responsible Lending: The mortgages are
serviced by the same MCI which issues the
mortgage. This means that the MCI has an
incentive to only grant mortgages to borrowers,
who will be able to pay the instalments.
• No credit risk: The MCI must ensure that credit
risk is kept within the MCI. That can be done in a
combination of some of the following:
- The owner(s) of the MCI capitalize the MCI with
sufficient equity (regulated in Denmark).
- The MCI is further capitalized by issuing 1st loss
junior or mezzanine bonds.
- The owners of the MCI give guarantees to the
investors for the payments from the borrowers.
- The MCI takes out a mortgage insurance policy.
If a mortgage defaults, the mortgage bonds
are removed from bonds in circulation by the
MCI, technically by making a prepayment of the
mortgage. In this way only the interest risk (including
a prepayment risk) is left to the investor.
• Borrower’s protection of equity: A borrower
has with the Danish Mortgage Model, because of
the prepayment options, a possibility to protect
Model : Danish Mortgage Model
the equity in his home. If interest rate in the
market goes up, price of property tends to fall.
But with the option of prepaying the mortgage by
buying bonds at market price, it will be possible
to sell the home at a lower price and still repay
the mortgage by the sales price, and even leave a
remaining amount to the seller.
The model works best if certain conditions are met by
the market:
• It should be possible to tap issue bonds every time
a new mortgage is disbursed, either by selling the
bonds directly in the secondary market (as done in
Denmark) or by having frequent auctions.
• It should be possible to redeem bonds by calling
a certain proportion of the outstanding bonds
at par price. The redemption should be split
equally between all the investors by performing a
mathematical drawing that randomly selects the
bonds to be redeemed.
• It should be possible to cancel bonds which have
been used to prepay mortgages.
• The bond market should be liquid and pricing of
the bonds should be fair, ensuring market interest
rates to the borrowers. Further on, the borrowers
should be able to make a fixed price agreement
with a transparent price, and the borrower should
be able to buy a small amount of bonds in the
market at a manageable transaction charge in 

order to enable prepaying the mortgage. Ideally
this is done by having a market maker system,
where one or several players guarantee to buy and
sell bonds with a specific margin to the official
price of the stock exchange – and such an official
price should exist.
• The security depository should have sufficient
precision to handle interest payments on small
denominations of bonds.
• New bonds should be able to be issued to the
market makers at the last trading price for bonds
in the same series.
• Loans should be able to be refinanced without the
borrower having to pay for the registry of complete
title work related to ownership of the property.
As a result, the model gives:
• A very transparent system for the borrower,
leaving credit and interest rate risks with people
who understand them, and ensuring him a fair
interest rate
• Unique prepayment options, which are protecting
the borrowers equity
• Bonds with no credit risk to the investors - during
more than 200 years of history, no investor has
ever experienced a loss on Danish mortgage bonds
27
Totalkredit – a Danish Mortgage Credit Institution
In 1990, when the large banks in Denmark were working
on establishing “financial supermarkets”, more than
100 Danish local and regional banks decided to establish
a jointly owned MCI to enable them to offer mortgages
to their clients. Until that time the mortgages had only
been sold through sales offices of the MCI’s. Also the
MCI’s were turned into limited liability companies from
being owned by the members (borrowers).
The idea behind the decision was that the local
banks had the close contact with the client and often
performed the counselling of the client if he wanted to
buy a house, an apartment or a summer cottage. For
this reason, it was an obvious idea to enable the bank
to offer the client a mortgage instead of sending him to
one of the established MCIs.
So Totalkredit was established as a small, centralized
MCI, which left all direct client contact to the banks.
To be able to do this, Totalkredit developed IT systems,
which enabled the banks to perform counselling of the
borrower, and to do the administrative work of making
the loan offer and having the mortgage deed signed
and registered at the Land Registration. Totalkredit’s job
was then reduced to take care of the issuance of bonds
and collecting the payments from the borrowers.
The banks were paid a fee to perform the administrative
work, and, in addition, they issued a first loss guarantee,
for which they received a guarantee fee. So they had an
incentive to make business, but only with borrowers,
who they believed, could pay the instalments.
The concept showed up to be very successful.
Totalkredit took market shares from the old established
MCIs. In 2003 Totalkredit was acquired by Nykredit,
one of the biggest MCIs in the Danish market. Nykredit
had lost market to Totalkredit, and decided to buy
the competitor. However Totalkredit continued as a
separate brand and maintained the original business
concept under Nykredit’s ownership.
The concept of creating a small, centralized MCI and
28 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
leaving the client contact and most of the administrative
work to established units already in contact with
potential clients makes the model very suitable to be
implemented in other countries.
A Danish mortgage seen from the borrower’s
perspective
From the borrowers point of view the Danish Mortgage
Model has the following characteristics:
• The mortgage is (normally) granted as a bond
loan. This means that the cash paid to the
borrower will be less than the principal amount
of bonds issued in those cases where the bonds
are trading at a small discount, and equal to the
principal amount of bonds issued in those cases
where the bonds are trading at par. (The bonds are
callable at par, so a mortgage will never be funded
by bonds traded with a premium).
• The price of the bonds will vary over time before
issuing the bonds, implicating that the actual cash
amount to the borrower can change compared to
the amount of the loan offer.
• The interest rate of the mortgage will be the
coupon rate of the bond, plus a (fixed) margin to
cover servicing and 1st loss risk.
• A borrower, who wants to avoid uncertainty
about the cash amount to be received from
the mortgage can elect to sign a fixed price
agreement, i.e. to take advantage of the fact that
the new bonds are identical to bonds already
trading in the market and strike an agreement
with an investor (normally a market maker),
stating that the investor will buy the bonds and
pay a certain price for the bonds, when they
are issued and sent to the market. In that way
the borrower knows his cash amount from the
mortgage, but he will have to pay a small service
fee to get that certainty and cover market losses
if any in the event he decides not to borrow after
fixing the price..
In Denmark, where the mortgage market is very
mature, a number of other products are offered to the
borrowers, for example:
 • Variable interest rate mortgages (funded in
variable interest rate bonds)
• Variable interest rate mortgages with a cap (upper
limit for the interest rate)
• Adjustable rate mortgages (funded in short
term balloon payment bonds and with frequent
refinancing)
The mortgages are given as level payment loans or as
a loan with up to ten years interest only, followed by a
(shorter) period during which the fixed loan payment is
increased and capital amortized.
Example of a mortgage to a Danish borrower
A person buys a house at a price of 1,000,000 DKK.
Normally in Denmark he will be able to get a mortgage
of 80% loan to value, provided that his credit score
is satisfactory. So he will be entitled to a mortgage of
800,000 DKK.
However the Danish legislation allows for increasing the
mortgage with the discount when selling the bonds.
So if the price of a 30 years 5% mortgage bond is 98
percent at the time for making the loan agreement, the
MCI will book the mortgage at an amount of 816,327
(= 800,000 / 0.98).
The borrower then has an option to make a fixed price
agreement, ensuring him to get the 800,000 DKK, or
he can choose to gamble on the change on price until
the bonds are issued and sold, and the loan is disbursed.
There are of course some costs connected in making
the fixed price agreement.
The borrower will pay an interest rate of 5%, equal
to the coupon rate of the bond, plus a fee to cover
origination, servicing, and credit protection. In Denmark
this spread on mortgages in private homes is normally
around 0.5%, giving a total interest rate in the example
of 5.5%.
The monthly payment will be calculated as a level
payment during the 30 years maturity, giving a monthly
payment of 4,730 DKK. As an alternative, the borrower
can choose interest only (if his credit score is satisfactory),
giving a monthly payment of 3,741 DKK during the first
10 years.
Protection of the borrower’s equity
It has been mentioned earlier that because of the
prepayment option, the Danish Mortgage Model has
an ability to protect the borrower’s equity. This can be
illustrated using the facts in the above example.
If the borrower in the example was able to pay the
down payment on the house without having to borrow
anything except the mortgage, his situation could be
illustrated by:
The loan to value at the time of buying the house is
81.6% when looking at the mortgage and 80% when
looking at the bonds. Because of the prepayment
option the real loan to value is only 80%, leaving 20%
as equity.
Three years later, the debt has been reduced to 778,315
DKK because of principal payments every month. If, in
the meantime, the interest level in the community has
raised dramatically, e.g. 300 bp, this could result in a
decrease of house price of maybe 25%, meaning that
the value of the above property is now only 750,000
DKK. So in a traditional mortgage system, the LTV
would have risen above 100, and the borrower would
be technically insolvent.
29
But the increase of interest level means that the bonds
used to fund the mortgage will now be traded at a
lower price in the market, e.g. 80 per cent. The result
would then be:
The borrower will be able to prepay his debt at a cost
of 622,652 by buying up bonds equal in amount to the
bonds he still has the obligation to pay in the market
and delivering them to the MCI. So instead of a loan of
over 100% of the value of the property his real LTV in
the example is 83.0%, leaving an equity of 17.0%.
So the borrower’s equity has been protected through
this crisis. However, it should be noted that this
protection only works, if a liquid and transparent bond
market exists, enabling the borrower to actually buy
bonds in the market at a fair price.
Refinancing
In order to give the borrower the full advantage of the
prepayment option, it should be possible to refinance
the mortgage without the cost of registering a
mortgage deed in the property again (the charge
already paid should be allowed to be transferred to
the new deed). In the above example, the borrower
should be able to prepay the mortgage as mentioned,
and then to finance the prepayment by getting a new
mortgage, for example financed with 8% bonds. The
interest rate is higher, but the debt will be substantial
lower, ending up with approximately the same
monthly payment.
30 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
If, in the example, the 8% bonds are traded at a price
of 97, the borrower will be offered a new mortgage of
622,652 / 0.97 = 641,909. Then the picture will be:
If the maturity of the mortgage and the loan type are
not changed, and the borrower uses the new loan
entirely to refinance the old one, a new appraisal of the
property is not required, and the borrower is entitled to
the loan, even though the loan to value will be above
the upper limit of 80%. (In fact the borrower is entitled
to have the cost of the refinancing financed by the new
mortgage as well).
If the interest rate in the market later decreases again,
the borrower can make the opposite refinancing. This
time the borrower can prepay the mortgage at par price,
financing the prepayment by getting a new mortgage
with a lower interest rate. Normally this will mean a bit
higher debt, but the decreased interest rate means that
the monthly payments decrease substantially.
If, in the above example, the crisis is over another
three years later, the borrower at that time will have
an outstanding debt of 619,822 DKK. He will be able
to prepay this loan by calling at par, and he will be
able to get a new mortgage at a lower interest rate.
If a 5% bond is now traded at a price of 98 again,
he will be able to get a new mortgage of 619,822
/ 0.98 = 632,471. By doing this, the borrower will
increase his debt a bit, but he will get a substantial
lower monthly payment.
If the value of the property after the crisis has gone up
to 1,100,000 DKK, his situation is now:
The result for the borrower is that not only did the
Danish Model protect his equity during the crisis; it
also helped him to get out of the crisis in a much
better position.
During the 6 years, his principal payments were 47,450
DKK, but he reduced his debt during the period with
174,418 DKK. (In reality his gain will be a little bit
lower, because he will have to pay some costs for each
refinancing).
Model : Danish Mortgage Model in Mexico
Implementation in Mexico
Separating the originator and the issuer of bonds
During the implementation of the Danish Mortgage
Model in Mexico, it turned out that in Mexico the MCI
itself is often financially fragile. So to make the bonds
safe, they are issued by a trust instead of the originator
itself. So the below model was implemented.
The mortgage is issued by the originator, who afterwards
transfers the mortgage to the trust, for which the
originator is beneficiary. Then the trust will issue the
bonds, which are sold at the market, and the money
is transferred back to the originator (in Mexico some
of this money is withheld in the trust to build up the
necessary level of equity).
Another Mexican speciality is that even though
mezzanine bonds are forwarded to the originator
instead of cash which is used to capitalize the trust,
the mezzanine bonds are not sent to the open market.
The consequence of this is that the demand for capital
supplied by the originator is quite high.
31
The servicing of the mortgage (borrower contact,
collection, handling of prepayments etc.) is handled by
the originator on behalf of the trust (but the money is
paid directly by the borrower to the trust).
Two layer trust structure
Totalkredit was founded by a number of regional banks,
who joined together to form only one MCI. To be able
to do this, the banks had to accept joint liability towards
the engagements of this MCI.
In Mexico this model turned out to be impossible
to implement. Each strong bank or Sofol (issuer of
mortgages in Mexico) wanted to form its own MCI
to avoid joint liability with other banks or Sofols.
Another reason for demanding separated bond issuers
was a demand for separating the mezzanine bonds
“belonging” to the different issuers.
That is not very consistent with the Danish Mortgage
Model, which requires great liquidity in the bonds to
create transparency and to enable the borrower to
make prepayments by delivering bonds. For this reason,
a two layer trust structure was defined.
Each originator forms a first level (sub-) trust for each
bond series. The trust issues private mortgage bonds,
and it is set up as a requirement, that these bonds can
be locally AAA rated by some selected international
rating agencies. This is obtained by defining different
requirements for equity and mezzanine bonds,
depending on the risk of the originator’s portfolio of
mortgages.
Prepayment by delivering bonds is done by the borrower
buying public bonds and delivering these to the 2nd level
trust. The trust cancels the bonds and sends back the
corresponding amount of private bonds to the 1st level
trust, who cancel both the bonds and the mortgage.
As part of the model, a credit score system has been
established with frequent scores of all borrowers within
an originator. Every time a credit score is performed,
a new figure for required equity within the trust is
recalculated, and the originator needs to fulfil the new
requirements. In this way, the credit risk is kept within
the first level trust, ensuring that the private bonds
issued by this trust can maintain their AAA rating. Early
in the life of a performing loan, capital will be released
when the revaluation validates payments.
In the Mexican model, each originator needs to form a
sub trust for each bond series. If a new bond series needs
to be opened, e.g. because a new coupon interest rate
is needed, the originator will have to create a new 1st
level sub trust. In order to help keeping the credit risk
within the sub trusts belonging to a certain originator,
a capital centre structure has been formed. In order
for excess profits to be distributed to the originator, all
series in the trust must have adequate capital.

Then all AAA bonds with identical characteristics

(coupon interest rate, maturity, amortization plan etc.)
are transferred to a second level trust as a private bond,
who on the other hand issues an equivalent amount of
public bonds, which is sold on the market. In this way
it is possible to pool bonds from different originators
into one single standardized public bond, making the
volume much higher, and the bonds more liquid.
Every time private AAA bonds are cancelled (because
of principal payments or prepayments by calling at par)
the similar amount of public bonds are cancelled.

32 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
Model : 1st Level

Originator 1st level trust

Model : 2nd Level


 


33
Model : Structure
The above structure implicates that if one sub trust
defaults (sub trust 1B in the example), excess liquidity
from other sub trusts associated with the same originator
will be used to cover the deficit in this sub trust before
any spread is paid out to the originator.
In order to administer the many trusts in an effective
way, a mortgage service provider, HiTo (Hipotecaria
Total or Totalkredit in Spanish) was established. So
when a bank or Sofol wants to set up a trust using
the Danish Mortgage Model, they sign a contract with
HiTo, who takes care of all legal and administrative
work to establish and administer the model. HiTo
offers web based IT systems to be used directly by the
originator, or alternatively HiTo offers an interface,
enabling the originator’s own system to interact with
HiTo’s IT systems.
In Mexico, most originator s prefer the solution using
their own system to interact with HiTo’s system through
the interface, but the process of making the changes to
their systems has turned out to be very time consuming.
So the fastest way to get started will be to force the
34 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
originator s to use the systems directly (as was the case
with the banks joining the Totalkredit cooperation).
Other differences between Mexican and Danish
market
Denmark has a very efficient payment system, meaning
that the payments can be transferred from borrower to
investor overnight. In Mexico neither payment system
nor payment habits makes this possible, so it was
necessary to ask the originator to make deposits in the
trust to cover next payment to investors.
Also the Danish foreclosure system is very efficient,
while in Mexico forced sale can take several years
since the culture considers it a harmful step which one
should avoid. Both these factors increase the cost for
the borrower as well as the capital demand in the issuing
trust (again increasing the cost for the borrower).
Another aspect is the demand for preparing all
documentation before accepting the mortgage. In
Denmark, Totalkredit grants the banks six months after
the disbursement of the loan to finish all documentation.
If the bank fails to comply with that demand, the bank
will have to take over the mortgage.
In Mexico, HiTo decided to demand that all
documentation is present and accepted before the
mortgage is accepted. This makes the process less risky
for the originator, but also more time consuming.
Finally, in Denmark the size of the spread on a
mortgage is lower, if LTV is lower. In Mexico this
concept was refined, so that better credit score of
the borrower means lower spread to be paid by the
individual borrower.
Basic Principle
Principle of Balance
Tap Issuance
Transparency
Originator services the loan
Quality of lending – high rating of bonds
Liquidity through large bond pools
Conclusions
The implementation of the Danish Mortgage Model
in Mexico showed that it is possible to implement a
model that is true to the main principles of the Danish
Mortgage Model in other countries. On the other hand,
it showed that it is not possible to move the system
directly from Denmark to another country as it is.
How it is implemented in Mexico
Maintained
- Weekly vs daily
- Auction vs direct sale to the secondary market
Maintained
Maintained
- Maintained through strict credit scoring procedures
- Originator services the loan
Maintained through multiple layer trust structure
35
Appendix 4: Mortgage Model in Singapore and Hong Kong
Singapore
Singapore has a high rate of people living in own
homes (88.8% in 2009). This is due to a mandatory
saving scheme, Central Provident Fund (CPF), which
has provided funding of mortgages since mid 1970s.
The ownership is segmented into public housing and
private housing. Public housing, though owned by
the individual, is regulated by Housing Department
Board (HDB), and they receive public subsidies both
on the price of the dwelling and on the loan in the
property through CPF.
Private homeowners will have to provide funding
through commercial banks, but they account for
less than 10% of all house owners. This proportion
is however increasing, as people tend to prefer the
less regulated private housing. So Singapore might
experience an increasing need for funding from other
sources than CPF.
Sources:
http://www.economywatch.com/mortgage/singapore.
html
http://www.singstat.gov.sg/stats/keyind.html
36 Initial Feasibility Study: Mortgage Securitization Project In The United Arab Emirates (UAE)
Hong Kong
The distribution of housing in Hong Kong in 2009 was
29% in rental flats, 18% in public subsidized sales
flats and 52% in privately owned dwellings. There
are around 1.4 million privately owned flats in Hong
Kong. Hong Kong has a very well developed mortgage
market with outstanding debt of 535 billion HKD (69
billion USD), provided by 23 authorized institutions
(on the balance sheet).
During the crisis, approval of new mortgages has
dropped, and the Hong Kong Mortgage Corporation
(HKMC, wholly government owned) has started a
program to build up a secondary mortgage market to
attract insurance and pension funds by offering them
Mortgage Backed Securities. The mortgages are bought
from the originating banks (the American Model).
HKMC also provides mortgage insurances to the
originators on the proportion between 70-95% LTV.
Sources:
http://www.economywatch.com/mortgage/hong-
kong.html
http://www.housingauthority.gov.hk/hdw/content/
document/en/aboutus/resources/statistics/HIF2009.
pdf
http://www.hkmc.com.hk/eng/index.html
Dubai International Financial Centre (DIFC)
The Gate, Level 14
P.O.Box 74777, Dubai, UAE
Tel: +971 4 363 2222
Fax: +971 4 362 2333
Email: info@difc.ae
Web: www.difc.ae

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