УНIА

Until 2001, mortgage in Ukraine were not regulated separately.

In 2002, Ukrainian banks merged into the Ukrainian National Mortgage Association (UNIA) to create market conditions for mortgage development.

In 2003, on the UNIA expert platform, Mortgage Lending Standards were developed and agreed with banks, which included requirements for borrowers, the subject of the mortgage, recommended unified legal forms of agreements, etc.

In 2004, the World Bank opened funding for the government’s technical assistance Mortgage Development in Ukraine, under which UNIA experts, together with US experts, drafted the Mortgage Law, which legally defined mortgages as a special form of financial security, registration of the mortgage, the rights of creditors and borrowers are determined, the procedure and methods of assignment of the mortgage-backed debt are determined.

In 2005, with the funding of the World Bank and US experts, the Mortgage Bonds Act was drafted, which defined the issuance and circulation of two types of mortgage bonds: covered bonds and structured bonds (MBS).

With the assistance of the WB, the State Mortgage Institution (SMI) was also set up to launch a process of refinancing mortgage lenders through mortgage bond issues based on consolidated pools of mortgage loans from banks.

In 2006, a USAID technical assistance project was launched to provide expert support for the development of Coordinated Bonds regulations by the National Securities and Stock Market Commission (NSSMC) (no such documents have been developed for MBS). At the expert level, USAID facilitated a pilot issue of ordinary mortgage bonds by the commercial bank Ukrgasbank in the amount of UAH 50 million ($ 9,9 million).

International banking groups enter to Ukraine and began massive long-term mortgage lending to foreign currencies (mostly US dollars). The ban of the National Bank on retail lending in foreign currency was lifted. Market volumes are growing dynamically (100% annually), the share of mortgages in foreign currency – more than 90%. Competition between foreign banks is intensifying. The Investment Fund (Western NIS) has created a specialized International Mortgage Bank.

In 2007, the SMI issued the first issue of corporate bonds under state guarantees for UAH 1 billion, the proceeds of which were planned to form the initial pool of mortgage coverage for subsequent issues of ordinary mortgage bonds.

In 2008, the SMI issued the first and last issue of mortgage bonds of UAH 200 million (all subsequent issues were only corporate bonds under state guarantees).

Commercial Bank Khreschatyk  also made an unsuccessful attempt to issue mortgage bonds worth UAH 70 million. The global financial crisis began as a result of the devaluation of the hryvnia against the US dollar from 5,05 to 7,9 UAH. The share of NPL is growing. Banks have curtailed mortgage lending activities.

In 2010, the Law on Overcoming the Consequences of the Financial Crisis in the Construction Industry was adopted, which introduced rather dubious amendments to the Law on Mortgages. SMI continues to place corporate bonds under government guarantees with the direction of borrowed funds to banks secured by retail loans without assignment of the right of claim (total amount of UAH 5 billion, of which UAH 4 billion is default).

In 2013, with the assistance of the National Bank, the government program “Affordable Housing” was launched. The State Bank has established a joint-stock company, the Housing Loan Refinancing Agency (HLRA), a financial company with limited powers to issue mortgage bonds to refinance banks participating in the government program. HLRA issued two mortgage bonds with about 8,000 loans totaling $ 500 million (both fully repaid)

2014 is a political and financial crisis. Annexation of territories and aggression by the Russian Federation. Devaluation of the hryvnia against the US dollar (from 7,9 to 26 UAH). Mass NPLs (almost all foreign currency mortgages). Introduction by the parliament of a moratorium on the alienation of housing-subject mortgages on foreign currency loans. Complete cessation of mortgage lending. Mass closure and bankruptcy of banks.

2017-2021 due to the complete lack of bank financing, begins a dynamic increase in debts of developers to private buyers. Sales of housing in installments as a substitute for a mortgage are also growing.

2021, launch of the government program “Affordable mortgage at 7% interest rate “, which provided loans amounting to UAH 1.1 billion. The total amount of bank mortgages as of 01.01.22 in hryvnias amounted to UAH 19.9 billion, problem loans in foreign currency – UAH 28.7 million. (Average market interest rate 20%)

2022. Armed aggression of the Russian Federation. Termination of all programs and projects.

Resume

Mortgages in Ukraine exist in primitive form and only at the primary level of the market. Attempts to launch a second level of the mortgage market through the lender refinancing system have failed. Mortgage legislation is outdated and has not been adapted to post-crisis standards.

General legislation contains many conflicting provisions that do not promote the protection of creditors’ rights, in particular those relating to the protection of the rights of minors in the event of default on credit.

At the level of government and financial market regulators, the professional level is not high in terms of understanding the basics of the mortgage market. The current state of affairs is complicated by the lack of proper forms of housing finance. The market was negatively affected by external factors. The risks are extremely high.

International technical assistance is fragmented.

Government programs focus on subsidizing borrowers from the state budget without guarantees of sufficient funding.

Reasons for the unpopularity of mortgage securities

The Ukrainian mortgage securities market is not developing for many reasons, the main one being the complete dominance of government bonds. Government bonds, in addition to their high yields (above interest rates on bank deposits), have a number of preferences for investors. This includes exemption from tax revenues, inclusion in the refinancing instruments of the National Bank (which increases liquidity for banks), preferential ratios for calculating the capital ratio (“0”), no need for provisions.

There are no institutional investors preferences for mortgage bonds, which reduces demand compared to government bonds. The Mortgage Bonds Act contains a number of inconsistencies that block issues. In particular, there are no clear rules for the separation of mortgage coverage, there is no clear procedure for the use of coverage in the event of default of the issuer, unclear rules for special issuing companies, and so on.

Issues of mortgage bonds are overburdened with various requirements, some of which cannot be met, in particular, within one day to make the necessary and very expensive notarial actions to encumber the mortgage as part of the security coverage, and so on.

HLRA has solved most of the problems in some way, but the small size of the mortgage portfolio of Ukrainian banks does not encourage them to refinance to attract additional liquidity.