Relationship

Securitisation
Residential
Mortgage
Market
Fixed-income
securitiesbetween
markets are
functioned to and
reduce
the dependence
of private
institutions on banks, the equity market and external resources.
Recognising the limited supply of tradable debt instruments in primary markets and the
severe liquidity problem experienced by secondary markets in the region, the government
has created mortgage-backed securities. This can help to develop and deepen fixed income
securities.
There are a lot of benefits for financial institutions which gain from securitization. These
advantages include the removal of asset from the balance sheet, retention of servicing
revenues as its continues as a service, lower financing cost than if it could issue security by
itself, reduction in regulatory capital requirement, reduction in assets, and improved assetliability management.
Hence, financial institutions, by holding a mortgage-backed security rather than the
mortgage itself, would achieve greater liquidity.
Therefore, we believe that securitisation of the residential mortgage market has transformed
the financial institution liquidity in Malaysia.

Factors Affecting the Price of Housing in Malaysia

Population - the population in Malaysia is continuing to increase, people need
more houses to live in but the production of housing is slow due to the many
laws, regulations and procedures related to the building of houses.
GDP - the demand for houses generates housing industry investment and
helps the recovery of the GDP growth rate.
Labour force - if a large amount of the labour force is involved in
construction, the cost of housing will increase. Besides, construction involving
a lot of professional workers with a high level of education, this will cause the
housing price to increase because the cost of building a unit increases.
Inflation - During inflation, most things in the economy will increase their
price. However, the cost of the raw material for building a house will increase.
In future studies, other measurements of the increase in the housing price in
Malaysia, such as investment, economy and personal income, can be used.

Mortgage Market Design

Asset pricing economists view mortgages as contracts that share various types of risk between
mortgage lenders and borrowers.
Long-term mortgages protect borrowers against deteriorations in their own creditworthiness or
in credit market conditions.
Behavioral finance confronts the fact that borrowers vary in their personal circumstances, and
in their ability to manage their financial affairs in their own long-run interest. Three particularly
important types of heterogeneity are in moving propensity, financial sophistication, and
present-biased preferences.
Mortgage loans must be funded, and this requires the involvement of financial intermediaries
who originate loans and either hold them or repackage them for sale to ultimate investors.
Other intermediaries may provide guarantees, insuring certain mortgage risks. Whatever risks
borrowers do not bear must be allocated to originators, ultimate investors, or guarantee
providers. Different mortgage systems allocate these risks differently.
The form of the mortgage system has the potential to influence macroeconomic outcomes,
principally by altering the transmission mechanism of monetary policy and the political
constraints on the central bank.