Recently I attended a seminar in Berlin on the financing of houses in poor and middle-income countries. Most of the seminar came down to a very interesting duel between the extreme rationality of the Danish Mortgage System (with its almost magically low 0.5% margin of intermediation) and the very gung-ho attractiveness of the cooperative type Bausparkasse system of Germany.
Close to the end I, daringly, made the following comment:
”The final purpose for building a house for a poor person is not to have him starve now under a roof. So, before we build, we need to be certain that there is a reason for him to live there, since otherwise, with the house, we might just be shackling him down to misery.
In this respect and in relation to your interesting mortgage systems, I would like to know whether a Danish or a German citizen could finance through his own financial system the purchase of a second home for vacation or retirement, for instance in Central America. If your answer is yes, then we might be able to sell you some houses and not only find thereby the reason to build for our citizens, but also generate the sources of income they need to pay for it.
Many of the immigrants in your countries frequently want to buy a house back in their own homeland, which is great. This, unfortunately, puts a lot of pressure on the very scarce financing resources available in these poor countries from which they emigrated. If they could access your credit markets for this purpose, this should bring benefits for everyone. I know it’s not easy but, tell me, what do you need? Expropriation-risk insurance, for instance … We could get you that!
As you can suspect, my intervention did not produce any immediate response, but I believe that at least I got some interested head-scratching going.
(Jim, my editor observes: “Suppose a crooked Mexican gets a mortgage from a German bank to buy land and build a house in Mexico. He takes the money, buys the land, builds the house, and sends the bank a letter saying he’s not paying them a cent, and what can they do about it? Would the Mexican government have the sheriff evict the guy who cheated the German bank on his mortgage?”
I: “Jim, if there are thousands of Mexicans whose chances of buying their houses depend on how this Mexican services his loan with the Germans, you will see them all putting some pressure on fellow Mexicans and their own government to behave better.”)
Back in Washington, I found a brochure from our Bank Fund Staff Federal Credit Union titled “DREAMING of a second home for vacation or retirement?” Great! However, further down we can read, in bold italics, “anywhere in the U.S.” Well, colleagues, shame on us! Are we not just being a very a local World Bank?