Saudi Fannie Mae to Start Buying Mortgage Portfolios From Banks

(Bloomberg) -- Saudi Arabia's first mortgage-refinancing firm has started approaching banks to buy their mortgage portfolios as the state tries to boost lending for homes.

The state-run company, created to develop a secondary market for home loans, will have 5 billion riyals ($1.3 billion) of its own capital and will work with the government's Real Estate Development Fund (REDF) to invest another 5 billion riyals buying mortgage portfolios, Housing Minister Majed al-Hogail told reporters in Riyadh on Wednesday.

“We expect to start buying the portfolios from the banks in late May or mid-June,” al-Hogail said. “Hopefully by the end of the year, we will securitizing this portfolio."

Saudi Arabia is taking a number of measures to increase home construction and lending as it seeks to overcome one of the world's lowest mortgage penetration rates. The absence of a mortgage-finance firm similar to Fannie Mae and Freddie Mac in the U.S. has limited the ability of banks to expand their mortgage books amid central-bank restrictions on concentrations of loans from any one sector.

“The value of mortgage portfolios in the banks is currently around 116 billion riyals,” the minister said. “We will start buying shares of that gradually.”

Saudi Arabia is aiming to boost the country's total mortgage loans to 550 billion riyals, the minister said. He estimated the housing shortage as high as 1.5 million within the next five years.

The remortgage company is waiting for central bank approval for some products before it can formally launch its operations, the minister said. It will buy portfolios “based on strategic criteria” to power the market's growth, Al-Hogail said.

To contact the reporter on this story: Zainab Fattah in Dubai at zfattah@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Ross Larsen, Andrew Blackman