On 18 September 2009, the Mongolian Mortgage Corporation (MIK) registered a MNT 25 billion bond with the Financial Regulatory Commission (FRC) in Mongolia and on the same day MNT 10 billion of the bond was fully subscribed. The initial bond investors include MIK’s shareholding commercial banks, Trade and Development Bank (TDB), Capitron Bank and Xac Bank. The proceeds of the bond were immediately used to purchase a similar amount in mortgages from the three banks in back-to-back transactions. This transaction is the culmination of four years of collaboration between the Mongolian banking community, USAID and MIK and represents the first issue of a fully registered tradable medium-term bond in Mongolia. This is a major step in the development of Mongolia’s capital markets which will eventually create longer term sources of funds and liquidity to finance home construction and ownership at more affordable rates.
At the request of the Office of the Prime Minister, in September 2005, EPRC conducted a study in the housing finance sector and issued recommendations for development of the primary and secondary mortgage markets, implementation of the Government’s “40,000 Housing Units” program including access to housing finance for low-income residents and the establishment of a second-tier housing finance institution to support the development of the secondary mortgage market in Mongolia.
Based on this recommendation and other previous work, EPRC assisted in organizing three working meetings with commercial banks and the Bank of Mongolia (BoM) and as a result, on 30 March 2006 nine commercial banks (Khan, Anod, Golomt, Mongol Post, Trade and Development, XacBank, Zoos, Capitron and Capital) signed a Memorandum of Understanding (MoU) to establish a Housing Finance Institution – later to be officially named the Mongolian Mortgage Corporation (MIK) – and appointed a Working Group to work on preparatory issues and to determine the activities of the proposed institution, its organization and funding issues until MIK was capitalized and a Board of Directors and management team were installed.
On 4 September 2006 ten commercial banks (the original nine plus Ulaanbaatar City Bank) and the BoM signed the Founding Agreement for the second-tier mortgage company, which is now commonly known by its Mongolian acronym, MIK. EPRC had been working with the commercial banks and BoM as an advisor to establish the institution. The banks and BoM each contributed MNT 1 million to provide MIK’s initial total capitalization of MNT 11 million with all banks and the BoM having equal shares in the company,
As specified in the Founding Agreement, the core activity of the new institution would be to lay the groundwork for secondary mortgage market development; and raise medium to long-term funds both through the sale of its securities or as a direct borrower itself. The company would also collaborate with the Government on legal, regulatory and institutional issues necessary to promote the development of the primary and secondary mortgage markets; standardize underwriting policies and documentation for issuance of loans on the primary mortgage market; conduct open market activities to support its core activities; provide services on securities; and effect foreclosure of mortgaged items.
After the signing of the Founding Agreement and during MIK’s initial phase as a company, the project provided continuous technical and advisory assistance to MIK and seconded a senior Mongolian professional staff member as interim Chief Executive Officer to guide the development of underwriting policies and procedures, standard mortgage documentation, procedures for portfolio management and for issuance of mortgage-backed securities. The project brought two international experts to provide technical assistance to the BoM and MIK. An internationally recognized expert on securitization transactions acted as the Securitization Advisor to the BoM. An investment banker and former senior officer of Fannie Mae acted as an Advisor for MIK and worked with interim management and the Board of Directors to finalize the corporate structure, composition, duties and responsibilities of the committees.
After obtaining legal registration on 14 November 2006, MIK opened its first offices and registered its domain name as www.mik.mn. On 20 June 2007, shareholders held a special meeting and unanimously approved further capitalization of MIK in the amount of MNT 2.2 billion and issued a call for capital, which was fully subscribed by the existing shareholders. On 4 September 2007 a ceremony was held where MIK’s Chairman of the Board presented shareholders with certificates verifying their increased shareholding.
As a result of MIK’s increased capitalization and with EPRC guidance, MIK completed its initial transaction, purchasing a portfolio of qualifying mortgages from XacBank on 5 November 2007 in the amount of USD 1,033,898.04 representing the first agreement in the secondary mortgage market in Mongolia. Over the next 19 months, MIK followed this historic transaction with the acquisition of five more portfolios, brining its total mortgage purchases to the equivalent of MNT 4.1 billion prior to the 18 September 2009 purchase of MNT 10 billion.
From the time of the acquisition of its first mortgages in November 2007, MIK has been able to operate profitably while developing its capacity to evaluate, purchase and manage an increasingly larger portfolio. The registration of this MNT 25 billion bond positions MIK to provide much needed liquidity to Mongolian mortgage markets while helping to develop the Mongolian capital market by providing an attractive opportunity for investors to participate in the success of Mongolia’s first second tier mortgage company.
At the request of the Office of the Prime Minister, in September 2005, EPRC conducted a study in the housing finance sector and issued recommendations for development of the primary and secondary mortgage markets, implementation of the Government’s “40,000 Housing Units” program including access to housing finance for low-income residents and the establishment of a second-tier housing finance institution to support the development of the secondary mortgage market in Mongolia.
Based on this recommendation and other previous work, EPRC assisted in organizing three working meetings with commercial banks and the Bank of Mongolia (BoM) and as a result, on 30 March 2006 nine commercial banks (Khan, Anod, Golomt, Mongol Post, Trade and Development, XacBank, Zoos, Capitron and Capital) signed a Memorandum of Understanding (MoU) to establish a Housing Finance Institution – later to be officially named the Mongolian Mortgage Corporation (MIK) – and appointed a Working Group to work on preparatory issues and to determine the activities of the proposed institution, its organization and funding issues until MIK was capitalized and a Board of Directors and management team were installed.
On 4 September 2006 ten commercial banks (the original nine plus Ulaanbaatar City Bank) and the BoM signed the Founding Agreement for the second-tier mortgage company, which is now commonly known by its Mongolian acronym, MIK. EPRC had been working with the commercial banks and BoM as an advisor to establish the institution. The banks and BoM each contributed MNT 1 million to provide MIK’s initial total capitalization of MNT 11 million with all banks and the BoM having equal shares in the company,
As specified in the Founding Agreement, the core activity of the new institution would be to lay the groundwork for secondary mortgage market development; and raise medium to long-term funds both through the sale of its securities or as a direct borrower itself. The company would also collaborate with the Government on legal, regulatory and institutional issues necessary to promote the development of the primary and secondary mortgage markets; standardize underwriting policies and documentation for issuance of loans on the primary mortgage market; conduct open market activities to support its core activities; provide services on securities; and effect foreclosure of mortgaged items.
After the signing of the Founding Agreement and during MIK’s initial phase as a company, the project provided continuous technical and advisory assistance to MIK and seconded a senior Mongolian professional staff member as interim Chief Executive Officer to guide the development of underwriting policies and procedures, standard mortgage documentation, procedures for portfolio management and for issuance of mortgage-backed securities. The project brought two international experts to provide technical assistance to the BoM and MIK. An internationally recognized expert on securitization transactions acted as the Securitization Advisor to the BoM. An investment banker and former senior officer of Fannie Mae acted as an Advisor for MIK and worked with interim management and the Board of Directors to finalize the corporate structure, composition, duties and responsibilities of the committees.
After obtaining legal registration on 14 November 2006, MIK opened its first offices and registered its domain name as www.mik.mn. On 20 June 2007, shareholders held a special meeting and unanimously approved further capitalization of MIK in the amount of MNT 2.2 billion and issued a call for capital, which was fully subscribed by the existing shareholders. On 4 September 2007 a ceremony was held where MIK’s Chairman of the Board presented shareholders with certificates verifying their increased shareholding.As a result of MIK’s increased capitalization and with EPRC guidance, MIK completed its initial transaction, purchasing a portfolio of qualifying mortgages from XacBank on 5 November 2007 in the amount of USD 1,033,898.04 representing the first agreement in the secondary mortgage market in Mongolia. Over the next 19 months, MIK followed this historic transaction with the acquisition of five more portfolios, brining its total mortgage purchases to the equivalent of MNT 4.1 billion prior to the 18 September 2009 purchase of MNT 10 billion.
From the time of the acquisition of its first mortgages in November 2007, MIK has been able to operate profitably while developing its capacity to evaluate, purchase and manage an increasingly larger portfolio. The registration of this MNT 25 billion bond positions MIK to provide much needed liquidity to Mongolian mortgage markets while helping to develop the Mongolian capital market by providing an attractive opportunity for investors to participate in the success of Mongolia’s first second tier mortgage company.