- Loans refinanced by TMRC should be fully disbursed and should be for the purchase, refinance, construction or renovation of a residential building.
- Loans refinanced with TMRC should have 11.11% over collateralization unless additional collateral is provided in the form of fixed deposits, pension benefits/entitlement, collateral replacementindemnity or government
- securities whose total value shall be atleast 10% of the value.
- TMRC will accept only first liens.
- The mortgage loans are up to date at the point of refinance.
- The mortgage loan refinanced should at the time of refinance/replacement have a remaining life which expires on or after the maturity date.
- The mortgage loan will have performed for a minimum of 6 months prior to being used for refinancing/replacement.
- The mortgaged property is insured against fire up to its full insurable value with a loss payable endorsement designating the PML as the first loss payee.
- To the best of the knowledge of the mortgage originators, the borrower is not a discharged bankrupt or no bankruptcy proceedings have commenced against the borrower.
- To the best knowledge of the mortgage originator, the borrower is not deseased.
- The loan has been extended in local currency only.
- The borrower is natural person.
- There should be adequate provision in the mortgage instrument enabling the mortgagee to share information and/or transfer the charge or assign all the rights, interest and obligations under the mortgage instruments to any person as the mortgagee deems fit.
- TMRC shall refinance mortgage loans up to the value of TZS 500 million. TMRC can partially re-finance mortgage loans with values exceeding TZS 500 million as long as it re-finances only that portion up to TZS 500 million limit. However such loans (i.e. with values exceeding TZS 500 million shall not exceed a maximum of 25% of any given re-finance mortgage portfolio).
- Maximum loan to value (value being the lower of property price and appraisal value) of 90%. Loan-to-value of 100% can be accepted provided additional collateral is provided in the form of fixed deposits, pension benefits/entitlement, collateral replacement indemnity or government securities whose total value shall be at least 10% of the value.
TMRC serves as a secure source of long-term funding at attractive rates while ensuring sound lending habits amongst banks. This would help reduce any maturity mismatch risk for banks and increase available loan terms.This would in turn help improve the affordability of mortgages and extend the range of qualifying borrowers which would result in the expansion of the primary mortgage market and thus home ownership in the country.
In times of credit crunch, TMRC can also help a bank cover any unexpected short-term deposit outflow (or other temporary losses of funds), thereby avoiding potentially costly short-term borrowing or asset liquidation.
Additionally, TMRC can act as an efficient way of connecting long-term investors with the institutions generating long-term assets in Tanzania, thus helping develop a debt market and a longer term yield curve. TMRC's existence may also lead to the establishment of specialized housing finance companies in the private sector. This has been evidenced in Egypt where at least four such companies got established once the mortgage liquidity company was established there in 2006. TMRC can also facilitate increased competition in the mortgage market by creating a longer term funding source.
Overall the key benefits of a Mortgage Liquidity Facility can be summarized as:
- The provision of secure long term funding at attractive rates. Lowering the cost of funds, which can lead to a lowering of mortgage rates, thereby improving affordability and extending the range of potential borrowers.
- The availability of long term fixed rates can help provide a degree of certainty, which can help the markets develop with confidence.
- Allows for greater competition in the mortgage market. The introduction of TMRC means new institutions to enter a market which was previously restricted to those with either a good credit rating or to those who had invested in a branch network and had significant deposit collection capabilities. TMRC will therefore enable a more diversified set of lenders to develop than just like large commercial banks, and can be a driving force for competition on the primary market, another factor promoting efficiency and affordability.
- Typically TMRC customers will be a deposit taker, often carrying a large supply of short term liabilities. Whether it is for regulatory reasons, economic instability, inflationary environment or general risk averseness, the short term liabilities are not always easily converted into longer term assets. TMRC provides a back up and allows for better management of the balance sheet. The short term deposits can therefore be used for long term lending, safe in the knowledge that TMRC will be there as a lender of last resort.
- By acting as a central refinancing platform, TMRC is able to act as a force for standardization in the market, pushing Member banks to adhere to best practice. TMRC will be able to set a criteria for the types of loans it will refinance, including standardized documentation, processes, risk characteristics, etc. Standardizing market practices allows for greater transparency, allows the creation of market information systems, which in turn can lead to better risk management better market and consumer regulations and an overall lowering of the risks associated with mortgage lending.
- Acts as an intermediate step on the path to a full secondary mortgage market.
- Whether it is the lack of adequate legislation, the absence of credit bureaus or the absence of rating agencies, many countries are not able to directly make the leap from funding mortgages through short term deposits to refinancing them on secondary mortgage markets using covered bonds or securitization.
- Act to deepen the financial market more generally by providing a long term investment to institutions with long term liabilities. Institutions such as pension funds, social security funds or insurance companies which have long dated liabilities are not always able to match that adequately solely using public debt issuance. So often they engage directly in the mortgage market or real estate markets (both commercial and residential) often with poor results. TMRC will act as an efficient way of connecting long term investors with the institutions generating long term assets.
- TMRC is a tool for delivering policy objectives such as the promotion of affordable housing or the promotion of local currency lending.