Madrid conference brings together key mortgage industry players

by Julian Ryall

MADRID — Changes in Japan’s mortgage industry are likely to cause a spurt in mortgage lending and a great deal of price competition, ultimately leading to a shakeup in the the country’s mortgage industry, according to Michael Lea, president of Countrywide International Consulting Services.

Lea was speaking on the eve of the EuroCatalyst 2002 conference in Madrid, an effort to find solutions in light of globalization and ensuing difficulties the industry currently faces — including dilution within the financial services industry.

Asian countries such as South Korea, where the market has been historically repressed, and China, which did not even have a mortgage sector until five years ago, are experiencing rapid growth in this area, but Japan finds itself in a unique situation, Lea said.

The government is still a housing loan provider through directed credit, a model that used to be common around the world until the early 1980s but has since been dropped. Japan is the last to continue it, although it is being phased out now, resulting in banks considering mortgages an “uninteresting” and “backwater activity,” he said.

The changes that are coming about now, however, are likely to lead to an increase in mortgage lending and more price competition and could rewrite Japan’s mortgage industry, Lea said.

The really interesting thing, he added, is that if the government forced banks to disclose their true capital positions, the outcome would be on a par with the Savings & Loan crisis that struck the industry in the United States.

Lea is in the Spanish capital to attend the the unprecedented EuroCatalyst 2002 conference, which is being organized by Toni Moss. Moss, the founding partner of Netherlands-based EuroCatalyst BV, has united the key players in the European mortgage industry — as well as a good number from the rest of the world — for the first time.

“The aim is to create a new context to understand and accelerate common goals as a result of globalization,” she said.

“Housing finance and mortgage lending are oxymorons if you look in terms of globalization because housing and everything related to it is local, while finance is global,” she said. “There is a huge disconnect because housing finance is a long-term product and the capital markets are extremely volatile.

“Through this conference, we hope to drive individual European market spaces to a pan-European marketplace by focusing on mortgages as a strong European asset class as opposed to a series of national products.

“Right now, there is no homogeneity between products, producers or processes because there hasn’t been a requirement to do that. All of the practices that have protected home market advantage are now the very opportunities that foreign market entrants are trying to exploit.”

EuroCatalyst 2002 features one of the most powerful lineups of European mortgage players ever assembled, with sessions focusing on the most critical issues facing the industry, including regulation, covered bond markets, product design, distribution, customer retention, administration, funding and secondary market activities, including securitization.

Moss expects the inaugural conference, at the Westin Palace Hotel in the Spanish capital, to develop into an annual gathering that enables those in the industry to communicate and network, enabling them to “find cross-border markets in Europe more rapidly” and build business relationships across borders in an increasingly global marketplace.

Part of her goal in Madrid, Moss said, is “to distinguish the local from the world-class and create a new context based on a world-class scale as opposed to national identity.”

But the question, she adds, is who is going to set the standards for defining world class. “But I think we’re going to find that out at this event,” she said. “What those standards should be, who those leaders are and which industry segments hold the key to the solutions.”

“I see a fundamental split in the industry now over what is a funding issue,” she said. “All existing practices really surround the creation of products that will fit into a covered mortgage bond that defines the strength of European lending and the new players represent securitization, which is a risk-management tool.”

“Bonds and mortgage-backed securities are compatible, parallel and complimentary, as globalization accelerates,” she emphasized.

Underlining the need to accelerate common goals and the implication of common solutions, Moss added that, “We’re aiming to reposition the role of mortgages in Europe’s financial services.”

“We also believe that Europe’s historically fragmented position can become an advantage in the future because we can benefit from other markets,” she said.