Saudi Arabia plans to set up a Fannie Mae-style company to buy mortgages from financial institutions and help develop national sukuk and debt markets, Saudi Arabia's finance minister said. The company would be formed in conjunction with Saudi Arabia's first mortgage law, which should come into effect before the end of the year, Ibrahim Al-Assaf said in an interview in Oman on Saturday. In the United States, Fannie Mae, or the Federal National Mortgage Association, is a primary purchaser of eligible home loans from issuers. It securitizes the loans into mortgage-backed securities and sells them to investors, and was created to establish a secondary market for government-backed mortgages. “One of the elements of the mortgage laws is to create this institution. It is one of the components,” Al-Assaf told Reuters, adding the company, which would be tailored to local market needs, should be formed before the end of the year. The Public Investment Fund (PIF), the Saudi finance ministry's investment vehicle, plans to take stakes of up to 40 percent in new mortgage lenders, industry sources said. At 62 percent of the population, home ownership in Saudi Arabia is comparable or exceeds that of advanced markets, but most home financing has up to now been done through traditional family financing means and government loans, Al-Assaf said. The minister said with a mortgage law in place, borrowers would be able to secure loans at lower costs because of the legal backing. Saudi Arabia is home to about 25 million people. The government has pledged to spend $400 billion on development projects in the coming five years to support the growing population. “I think mortgage financing will be big,” Al-Assaf said. “Once you develop the market, it will be big for a good reason ... In any culture, owning a house or a unit is significant.” The mortgage law would also be a key trigger for the development of the local bond market, as developers issue bonds or sukuk, the Islamic alternative to conventional bonds, to raise funds for home finance, the minister said. “It will be like for example the US or other developed markets where you have (institutions) that can buy those loans, reissue them in the form of bonds and sell them to bondholders whether they are banks, pension funds, governments,” he said. In March, Saudi Arabian Real Estate Financing Co (Refco) said it planned to start offering home loans in the Kingdom in 2010 and wants to raise SR1 billion ($267 million) selling shares to investors. SR600 million will come from the founding private investors and SR400m from institutional investors. Once the law is in place, the Saudi mortgage finance industry could generate annual turnover of SR150-SR180b, Strategic Mortgage Finance Group Inc, said in March.
