Mortgage Programs as a Driver of Modernization

Abstract

Lilia Ovcharova — Vice Director, Independent Institute for Social Policy. Address: 3, Glinishchevsky Ln., Moscow, 125009, Russian Federation. E-mail: l.ovcharova@socpol.ru

Modernization and mortgage loans are set as priority goals for the nearest future. This article analyses current household demand for credit resources and how it is determined by long-run trends and by the economic crisis of 2008. The author also considers some possible ways to develop mortgage loans as a tool to strengthen social support for modernization policy: first, by enhanced access to traditional mortgage loans; and second, by addressing particular groups of potential borrowers with specially designed mortgage products. Some specific housing mortgage programs aimed at boosting labor migration or narrowing the gap in the quality of life of those in their working age and the retired could become the drivers of modernization. The author assesses the scale and structure of potential demand for new mortgage products.

This article is based on joint research of the Independent Institute for Social Policy and the Agency for Mortgage Loan Modification. The results show the objective need to provide alternatives to traditional housing mortgage products at lower costs and with insurance for periods of unemployment, in case of child birth or divorce. The possibility of the mortgage product aimed at engaging qualified personnel in public education and health service has yet to be considered.

The article also discusses the effects of economic crisis on mortgage borrowers’ ability to pay out their debts. The crisis aggravated the issue of bad mortgage loans, which had emerged earlier, during economic growth; but the problem did not reach a critical level due to increased pensions, family transfers, efforts to find a new or secondary job, and loan modification. The crisis has improved the situation on the housing mortgage market — lenders and borrowers experienced difficulties in the beginning of the crisis, but later they adapted to the new economic circumstances. The most common model was for households to mobilize internal resources and become more active on the labor market; for banks, to modify threatened loans. Potential borrowers preferred to accumulate savings and wait for a better price or more profitable terms of credit.