Last week, Turkey's president Ahmet Necdet Sezer signed a series of mortgage amendments into law. The package aims to stimulate origination and create a secondary market (ASR, 3/5/07). The idea is that either covered bonds or RMBS or a happy mix of both will eventually spring forth from banks craving Turkish lira funds.

Critics contend that the legislation is hostile to borrowers, while market observers note, rightly, that interest rates are still too steep for the new rules to make a difference.

Whatever happens, don't expect the government to get involved. Turan Erol, the acting president of the Capital Markets Board, told the Turkish Daily News that "People should know that this system is not one that works with state guarantees and subsidies. If the system works, people will benefit from the improvement of markets."

It's hard to argue with Erol, but it's interesting to note that in Mexico, a country often compared to Turkey, the government's hands-on approach has often greased the market's wheels.

Over the past few years, the Mexican government has prodded and fine-tuned to promote a secondary mortgage market and RMBS. Its main instrument has been Sociedad Hipotecaria Federal (SHF), a government agency that branched out from directly funding origination to providing mortgage insurance and partial guarantees on RMBS.

Some argue that by providing these products first, the SHF opened the door for private companies to follow suit. Genworth, Ambac, MBIA, FGIC and multilaterals are now operating in Mexico.

It's true that Mexican originators don't always want the government in their hair - for instance, SHF's efforts to standardize RMBS has raised hackles. But locals, on balance, appreciate its role. "The SHF helped [players] lose their fear of getting involved," an official at one originator said.

Certainly, a hands-off policy can work too. Russia's government watched from a distance as Russian banks supplied eager investors with a debut batch of RMBS last year.

Of course there are a vast number of other variables shaping the fate of Turkey's mortgage market. Mexico just serves as a reminder that a well-placed nudge from the government isn't automatically a bad thing.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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