State Support of Building Complex through Mortgage Rate Reduction: Prospects and Risks

Abstract

In February 2020 the Russian government decided to develop public incentives for the mortgage rate reduction at least to 8%. What is the supposed economic effect of this decision? Can implementation of the new state program trigger another large-scale crisis on the market? The author makes an attempt to answer these extremely relevant questions by tapping into the experience of creation, development and a relatively recent failure of similar programs in the United States. The research done has revealed that the Russian government’s urge to harness the priming of economy through the support of mortgage lending, which was used in developed markets long ago, gradually gives rise to the same alarming symptoms that proved to be the forerunners of the world financial crisis in 2008-2009. Already available in Russia is an increasingly bulky and non-transparent system of mortgage loan securitization, a rapidly growing number of approved loans, mortgage rate reduction vigorously stimulated by the Russian government that brings about the gradual easing of claims on the quality of mortgage loans issued by retail banks in the backdrop of stiffening competition between banks and, as a consequence, the bank margin reduction. Thus all factors of the possible future collapse are on hand. The author comes to the conclusion that in order to prevent the situation getting out of control, the urgent development and adoption at the state level of scientifically grounded methodology is needed, whereby the development of real estate and contiguous sectors (banking infrastructure, in the first place) is to be put in sync with mechanisms of state support for the building complex.