Financing for affordable housing

Millions on earth do not earn enough to afford a house. Housing prices have spiraled up, and would continue to do so as pressure of population and nuclearisation of families continues. As there is a humanitarian angle to affordable housing finance, this topic is very dear to me, and I wish to do much more work in this field... Here is a modest beginning.

Housing finance systems:

“Housing finance system” consists of several elements, mainly:

• Primary mortgage lending institutions
• Secondary markets in mortgages
• Capital market investors in mortgage securities
• Supportive agencies, such as servicers, rating agencies, due diligence agencies, etc.

 The word “mortgage” is used here in broad sense encompassing all those possible funding devices whereby people using finance to buy or lease-in their houses. Of course, short-term rental option is not intended to be included in this term.

Primary market:

This refers to the market for origination of mortgages. Typically, mortgages are originated by retail banks, specialized housing finance entities, building societies, etc. In most countries, mortgages are originated through a network of branches of the originators, as well as mortgage brokers or direct selling agents. Brokers originate mortgages and then place them with a housing finance entity.

Secondary market:

The term “secondary mortgage market” consists of the system through which primary mortgage institutions refinance themselves. Broadly speaking, primary mortgage institutions may rely on the following sources for refinancing themselves:

• Traditional sources such as deposits, loans.
• On-balance sheet capital market sources such as bonds, covered bonds, etc.
• Securitization

 In addition, mortgage originators may use one or more devices of risk transfer, such as synthetic securitization, mortgage insurance, etc.

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