This report is in response to a request from the Ministry of Economy and Foreign Trade (MEFT) to the Development Economic Policy Reform Analysis (DEPRA) Project, under contract to the United States Agency for International Development, Cairo, Egypt (USAIDI Egypt) (Contract No. 263-C-00-96-00001-00) with Nathan Associates Inc. The DEPRA project is intended to encourage and support macroeconomic reform in Egypt through the provision of technical assistance and services to the MEFT with a particular focus on international trade and investment liberalization, deregulation and financial sector strengthening. The Ministry of Economy and Foreign Trade and the Egyptian banking and business sectors have recognized the importance of a well-functioning housing finance system to the financial and economic development of Egypt. The Ministry is addressing mortgage market reform to implement an important element of overall financial sector reform as well as provide an opportunity for more Egyptian families to purchase a home. An additional incentive for taking action today is the oversupply of unsold housing units, particularly in the new cities , which residential real estate developers have been unable to sell, in part, due to the lack of any source of longer-term mortgage finance in the Egyptian financial system. As a result of the overhang in the housing market, real estate prices have been falling and developers, and their banks, are facing the very real risk of financial impairment or even bankruptcy. Many developers who have taken out construction loans to build large blocks of flats and extensive villa projects lack the financial resources to repay their debts. Some have exhausted their ability to finance purchases of units in their projects through installment sales or lease-purchase plans. In other cases, the purchasers of housing units who had made deposits or even several payments during construction, have walked away from their units, leaving the developers without a sale and no ready market of buyers.