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On mortgage-backed securities. A mortgage bond is a reliable financial instrument backed by real estate

Mortgage-Backed Securities - MBS) - debt securities refinanced by liabilities on one or more mortgage loans. Interest and principal payments on such securities are derived from funds received on collateral loans.

Mortgage-backed securities(Old Greek ὑποϑήκη - pledge, instruction) is a type of secondary securities that serve as a universal instrument for refinancing investments in housing construction, that is, a means for short-term recovery of financial investments in residential properties that are purchased on the market through a mortgage. At the same time, the securities support the stability of refinancing of mortgage construction due to the fact that the return of funds to the investor is carried out in a period shorter than the maturity of the mortgage loan amount.

Relationships arising from mortgage-backed securities differ in the issue, issue, circulation of such securities and the fulfillment of obligations under them. On the territory of the Russian Federation, all the listed types of relations regarding any mortgage-backed securities, with the exception of mortgages, are regulated by the Federal Law of November 11, 2003 No. 152-FZ "On Mortgage Securities".

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Mortgage Securities Review

Mortgage-backed securities, part I

Evgeny Chepenko: mortgage and mortgage-backed securities

IncomePoint.tv: mortgage-backed securities

38 Securities

Subtitles

Suppose I am an investment bank. I start working and buy a variety of mortgages. Here are the mortgage loans of the population. When I say I’m buying a mortgage, it means that the homeowners who borrowed money, instead of giving it to the mortgage broker they got the money from, or the middleman who’s paid the bills, will have to pay me because I bought the money. mortgage loans. I have, in effect, become a lender to homeowners. So now homeowners' mortgage payments will flock to me. To an investment bank. Now these homeowners owe me. But I don't want to be the ultimate owner of the bills. I want to be a middleman, so I start a special purpose company. This is just a corporation that I am founding. And then I tie all mortgages to this company. Now they are all attached to her. The special purpose company now owns the loans, and the investment bank, finally operational, will own all the shares in that company. Therefore, the bank can then sell the shares, split the special purpose company into a million or 10 million shares, and sell those shares to investors. He will sell them to investors. The shares would then be called mortgage-backed securities, or sometimes MBS. They form part of a general class called asset-backed securities. What will now happen is that all payments from homeowners will go towards paying off the mortgage that is now owned by a special purpose company. So they will all settle inside this company. Some borrowers will meet their obligations, some will not. But, on average, the company will be able to pay dividends. Basically, you can think of this as the interest the owner receives from the mortgage-backed securities.

Purpose of mortgage-backed securities

The purpose of mortgage-backed securities is to minimize the risks of untimely return of borrowed funds when investing in mortgage construction, carried out according to the securitization mechanism (from English securities). The essence of the securitization mechanism is the procedure for converting debt obligations associated with refinancing into securities with acceptable collateral and relatively high liquidity. The procedural side of securitization consists in the implementation of one of two tactics. In the first case, there is an issue of secured securities by credit institutions engaged in mortgage lending. In the second case, mortgage investors sell debt obligations to a mortgage agent - a specialized commercial organization that ultimately issues secured securities, since it has the right to issue mortgage-backed bonds.

The use of mortgage-backed securities in the process of refinancing mortgage capital is carried out in three ways. The legislation provides for the issuance of mortgage-backed bonds by banks providing mortgage loans. But it is also possible for banks to assign rights of claim to mortgage agents for credits (loans) secured by mortgages and / or mortgages. And finally, the cession of the specified rights of claims to the management company is possible in exchange for mortgage participation certificates.

Characteristics of mortgage-backed securities

Despite the different types of mortgage-backed securities, as a rule, most MBSs have the following characteristics in common:

1) in almost all cases, payments paid to holders of MBS are periodic. More often the period is monthly, less often quarterly;

2) payments from the pool of assets usually consist of two parts: interest (payment for using loans) and amortization (repayment of loans). Depreciation payments can be scheduled or early, full or partial;

This is the amount of funds that must be paid to the bank (lender) by all its mortgage borrowers under the loan agreements they have entered into, including payments on principal and interest. This indicator is used by the bank as a basis for calculating the possible volume of the issue of mortgage-backed securities.

Types of mortgage-backed securities

Mortgage-backed securities include a mortgage-backed bond and a mortgage-backed certificate of participation.

Mortgage-backed bonds

A mortgage-backed bond is a security, the fulfillment of obligations under which is secured in full or in part by a mortgage-backed bond. This paper is issued in both documentary and non-documentary forms. Mainly, the market trades housing bonds, that is, covered rights of claim secured by a pledge of residential premises. At the same time, housing bonds cannot be secured by a pledge of immovable property, the construction of which has not been completed.

Thus, a distinctive feature of bonds as a type of mortgage-backed securities is the sign that the fulfillment of obligations under such a bond is secured by a pledge of mortgage coverage (instead of a pledge of real estate), and this coverage in most cases is made up of claims secured by a mortgage.

It follows from this, in particular, that to confirm the claim included in the mortgage coverage on the obligation secured by the mortgage, it is sufficient to have a mortgage. Therefore, in case of violation of obligations arising from such bonds (for example, when the bank issuing mortgage bonds refused to pay on them), the owner of these securities has the right to foreclose on the mortgage cover, which is the subject of the pledge. Meanwhile, the mortgagor (the owner of the dwelling) is only liable for failure to fulfill only his obligation arising from the loan agreement secured by the mortgage of the dwelling.

The amount of liabilities on all mortgage-backed bonds in circulation must not exceed the amount of mortgage coverage, which serves as an essential condition for protecting the rights of the owners of these bonds. In this case, the amount of claims secured by a mortgage included in the mortgage coverage of bonds should not be less than 80% of the par value of the bonds issued. At the same time, the principal amount of claims under a loan agreement or a loan agreement secured by a mortgage or mortgage must not exceed 80% of the market value of the real estate that is the subject of the mortgage and assessed by an independent appraiser.

In 2011, the volume of issue of mortgage-backed securities amounted to 46 billion rubles.

So far, not many mortgage securitization deals have been carried out. From 2006 to 2012, there were only 16 internal securitization transactions of Russian mortgage assets worth over RUB 122 billion. and 13 cross-border transactions worth more than RUB 61 billion, Semenyaka notes. At the same time, AHML conducted six transactions worth 59.2 billion rubles, VTB and VTB24 - six transactions worth 45.3 billion rubles, GPB Ipoteka - four transactions worth 22.8 billion rubles. DeltaCredit bank had two transactions for the amount of 10.8 billion rubles, the bank Unicredit and Vozrozhdenie - one transaction each for the amount of 5 billion rubles. and 4.1 billion rubles. respectively.

Links

1. Galanov V. A., Basova A. I. Securities market. - M., 2006. - Banking Library.
2. Bushuev A. Securities in the system of mortgage lending. // Lawyer and accountant. 2004. No. 3.P. 6
3. Berdnikova TB Securities market and exchange business. - M., 2002. - Banking Library.
4. Galanov V. A., Basova A. I. Decree. op. - Library of banking.
5. Galanov V.A., Basova A.I. Decree. op. - Library of banking.

We have to admit that the domestic securities market is in its infancy. Most of our citizens have never heard of any papers, let alone mortgage - and even more so.

This overseas miracle appeared in our area after the formation of the institution of real estate and, in fact, mortgage.

A mortgage bond is a claim on a mortgage loan that is transferred by the bank and is repaid as the borrower repays the debt. Its high reliability is guaranteed by mortgaged real estate.

Unfortunately, due to the imperfection of the legal framework, this highly liquid investment instrument is not yet as popular in our country as in developed countries.

Read more about the features and advantages of its use in practice - read the article.

Mortgage-backed securities

Mortgage-backed securities (MBS) are an investment vehicle. Their owners can profit from the change in the prices of the real estate on the basis of which these securities were issued. Today MBS are one of the most demanded financial instruments in the financial markets of many countries. Investors receive a guaranteed income from the dynamics of growth in prices for apartments and other housing.

Recently, prices in the Russian Federation for real estate have risen from 30 to 50% on average. Real estate is one of the few assets that shows almost no decline in value. This attracts investors and contributes to the development of the mortgage-backed securities market. Let us consider in more detail what MBS is, what types and conditions are there for.

What it is

MBS is a debt security that refinances bank investments in mortgage loans (one or more). An example of the MBS operation mechanism: the bank issues a mortgage for 10 million rubles. and immediately issues MBS for this amount.

The investor who purchased the paper returns the amount spent to the bank, which can already be given to another borrower. After the sale of MBS, the bank begins to repay it from those funds that the borrower returns to him.

This type of financial investment instrument is quite popular because it is provided by real estate. Their profitability is ensured by the value of real estate, which grows by several percentage points every year.

If we take the last years, then the growth has reached 50%. If we evaluate the last 10-12 years, then the growth has reached 200-400%. Not every financial mechanism can give such a percentage of profitability. Investments in MBS are mainly long-term (10-20 years). This practice is widespread in the West. However, in Russia, investors prefer shorter periods of time, from 3 to 5 years.

It should be noted that in Russia the MBS market is still at the initial stage of development. Some participants already want to massively issue mortgage securities, but the law "On Mortgage" has so many shortcomings that a lot of work still needs to be done so that the participants can have a good legislative basis for the development of the mortgage market.

There is also no practice of a unified approach to the issue of such securities. Banks have a good financial base for issuing mortgage loans, so they don't particularly want to get involved with securities. If we take the American market, the practice of issuing MBS has been used there for a long time.

Until now, mortgage certificates and bonds occupy a significant share in the stock market (about 40%). If not for this, America is unlikely to have survived at least one crisis. But due to the flow of money from stocks to the real estate market, the economy was able to withstand the jumps in stock indices during the crisis period.

Features of mortgage-backed securities:

The main debt on MBS is repaid periodically (once a month), and not at the end of the term in one amount, as is the case with ordinary securities.
The number of payments and the amount to be paid may vary, depending on whether the borrower repays the mortgage ahead of schedule. If the loan is closed before the due date, the bank repays the purchased security to the investor ahead of schedule.
MBS have low liquidity (low circulation) due to their high cost.
Mortgage-backed securities are one of the most reliable, since they have real collateral, and are purchased mainly by insurance companies, pension funds and the state.
The yield depends on the mortgage rate, from which the costs of servicing the loan, the share of the manager, the depositary, etc. are deducted. It is higher than income from bank deposits or investment in government securities.

Kinds

There are three types:

Mortgage.

She is declared with a registered c / b. It gives the right to its owner to receive the funds due to him, which are secured by real estate. The mortgage significantly accelerates the turnover of the collateral for faster receipt of funds to the owner of the collateral.

Mortgage-backed bonds.

This is a c / b, issued in documentary or non-documentary form. It is provided not by real estate, but by mortgage coverage, i.e. the amount that clients must pay to the bank under mortgage agreements, including the principal body of the debt and interest accrued on it.

If the bank refuses to pay the debt on such bonds, then the investor can declare a collection in the amount that the bank should receive from the mortgage borrower.

The bank cannot issue these bonds for more than it can receive from borrowers. According to the rules, the total volume of bonds should not exceed 80% of the value of the real estate collateral. These securities can be issued by banks and mortgage agents who purchase securities and issue MBS.

Mortgage certificate of participation.

This is a registered c \ b that has no par value. She specifies the investor's share of the mortgage coverage, for example, 30% of the total. Only special organizations licensed to work with mutual funds or NPFs can issue such certificates. They divide the acquired rights into several parts for the fastest return on investment.

For example, an investor acquired the right to reimburse him 10 million rubles. on bonds. This right was then divided into 5.3 and 2 million rubles. and sold to the next investors, which made it possible to recover the investment faster.

In the Russian Federation, there are mortgage participation certificates and mortgage-backed bonds in circulation:

The former are acquired by larger investors, due to their high cost (large state-owned companies, PF, NPF, investment funds, insurance organizations, etc.).
The latter are purchased by smaller ones (including individuals). These c / b attract attention not so much by their profitability, but by their reliability and guaranteed income.

Profitability

It depends on the average rate at which mortgages are provided. For example, if the rate reaches 15%, then the MBS income can reach 9-10%. The difference is used to reimburse intermediaries (agents, depositories, etc.).

With a decrease in the rate, profitability may decrease, since borrowers are refinancing at a lower interest rate or repay debts ahead of schedule. In case of early repayment of the mortgage, the bank also repays the issued bond ahead of schedule, which reduces the investor's income.

How to buy

Like other securities, mortgage bonds can be purchased on stock exchanges. The investor can do this on his own or with the help of specialized organizations: brokers, trustees, etc.

Source: "investor100.ru"

A mortgage bond is a security backed by a mortgage

Mortgage bonds are securities issued by specialized mortgage banks or mortgage credit institutions. Their main difference from other debt securities is that these bonds are secured by claims for mortgage loans.

Mortgage bonds allow private and institutional investors (such as insurance and pension funds) to reallocate funds to housing finance through the stock exchange. Mortgage bonds are attractive to investors because they are backed by mortgage loans.

It is a reliable liquid financial instrument, the high rating of which is supported not only by the reliability of the issuing credit institutions, but also by the high quality of the mortgage loan portfolio, which makes it possible to reduce the risks for investors in comparison with bonds that do not have such collateral.

Thus, mortgage bonds allow lenders to obtain long-term resources at a lower cost.

AI market in Europe

Currently, the mortgage bond market in Europe is concentrated in three countries. Germany, Denmark and Sweden account for 78% of the European mortgage bond market. The largest mortgage bond market in Europe was formed in Germany, which is the third largest market in the world after the USA and Japan.

Issuers

There are more than 80 issuers of mortgage bonds in Europe: 39 in Germany, 16 in Spain, 8 in Denmark, 5 each in Sweden and France, 3 each in Austria, Luxembourg and Finland, 2 in Switzerland. In almost all countries, mortgage bonds are issued by specialized credit institutions, whose activities are regulated by law and controlled by special organizations.

First of all, active operations of credit institutions and requirements for credit products are regulated. This approach is typical for Germany, Denmark, Sweden, France, Finland and Luxembourg. In some countries (including Austria, Spain, Portugal and Greece), the right to issue mortgage bonds is not limited to specialized credit institutions.

In Switzerland, any lending institution can provide mortgage loans, but mortgage bonds (Pfandbrief) can only be issued by two Pfandbriefe institutions.

The release of Pfandbrief in Germany is strictly regulated by law. In Germany, all mortgage bond issuers can be divided into three categories:

private mortgage banks, whose lending operations are limited to residential mortgage lending and lending to the public sector;
in addition to purely mortgage banks, there are two mixed banks that can also carry out operations of universal commercial banks;
credit institutions of the public (communal) sector (land banks, etc.), which in most cases are owned by regional savings banks;
two private ship mortgage banks.

In July 2005, Germany entered into force the Law on Amendments to the Law on Mortgage Bonds (Pfandbrief), which removes the mandatory specialization requirement for banks issuing German mortgage bonds (Pfandbrief), leaving the state with strict regulation of their activities.

In Denmark, mortgage bonds are issued by mortgage banks, which, in accordance with the law, are specialized credit institutions that carry out only mortgage and related transactions.

The capital of mortgage banks was formed at the expense of commercial and savings banks, as well as the National Bank.

In France, obligations foncieres are traditionally issued by two financial companies - Credit Foncier de France and Caisse de Refinancement de l'Habitat.

Starting from June 25, 1999, the issuers were credit institutions societe de credit foncier - specialized credit organizations engaged in real estate operations. There are now two such organizations functioning.

Loan financing

The mortgage bond market in these countries provides lenders with medium and long-term resources for home mortgage lending at lower and more stable interest rates acceptable to borrowers.

Mortgage bonds in Western Europe provide resources for about 20% of mortgage loans. Thus, the importance of mortgage bonds as a source of financing for housing mortgage loans varies significantly from country to country.

Countries that traditionally use mortgage bonds include Denmark, Sweden, Austria and Germany.

In Denmark, mortgage loans are almost entirely resourced from mortgage bonds, which are traded on the Copenhagen Stock Exchange. The law does not allow Danish mortgage banks to take deposits. Bonds are issued in series (or lots), the characteristics of which depend on the conditions of the mortgage loans that secure them (term, interest rate, repayment terms).

In Sweden, mortgage companies form 65% of their funds through the issuance of mortgage bonds. They can also request loans from other financial institutions (usually the parent company), but, as in Denmark, they are not allowed to attract deposits.

In Germany, mortgage bonds finance about 20% of mortgage loans (amounting to € 208,694 million in 2002). It should be noted that German mortgage bonds (Pfandbriefe) dominate the European mortgage bond market.

In France and Spain, mortgage bonds are the second largest source of financing for mortgage loans after deposits, accounting for 17%, respectively (44,351 million euros in 2002) and about 7% (25,266 million euros in 2002) of the total issued housing mortgage loans.

State and municipal sector

In a number of European countries, mortgage bonds are also used to finance loans to the state and municipal sectors. These loans are usually used to finance infrastructure projects.

Such bonds (often called government, regional or municipal mortgage bonds) are widely used in Germany and Austria. In these countries, loans to the public sector are mainly financed by this type of mortgage bonds.

In Germany, such public bonds, secured by collateral, account for 78% of the total volume of German mortgage bonds, in Austria - 59%.

Legislation

Mortgage bonds are regulated by law. First of all, mortgage loans, which back mortgage bonds, are regulated. There are requirements for LTV. So, in Germany and Austria LTV is 60%, in Denmark - up to 80% for residential mortgages and 60% for commercial real estate.

Banks must comply with the requirement of matching assets and liabilities in terms of maturity, as well as matching interest on loans and bonds. In most countries, the main investors in mortgage bonds are pension funds and insurance companies, as well as credit institutions.

Source: "textbooks.studio"

All about mortgage bonds in simple language

Mortgage bonds, a financial instrument known abroad for a long time, are now coming to Russia. Analysts have been talking about the imminent appearance of these securities in the Russian Federation since the end of 2015, however, more specific information was made public only in the spring of 2016.

K. Zakharin, Director of the Agency for Housing Mortgage Lending (AHML), “let slip” - he announced extensive cooperation with Sberbank and a bond issue worth 50 billion rubles. The scale of the cooperation is impressive, however, it is not yet clear whether the bonds will help the end consumer of the service and, if so, how.

There is almost no doubt that the new financial instrument will soon become available in Russia - in May, Putin spoke at a meeting of the State Council with a proposal to work out the issue of mortgage-backed securities. And no one, apparently, is afraid that it was the MBS that provoked the largest financial crisis in history.

Example, benefits and alternatives

Unfortunately, the securities market in Russia is at such a primitive stage of development that many Russians have no idea about bonds in general, and even more so about mortgages. Therefore, it is important to clarify what mortgage bonds are, in simple terms, to consider the types and general characteristics of mortgage-backed securities.

A mortgage bond is a debt paper that refinances investments in real estate loans.

It is easy to understand the essence of this financial instrument using this example:

Bank XXX issued a real estate loan for 5 million rubles and immediately issued a security, that is, a mortgage bond. The security is put up for sale - waiting for the buyer begins.
Investor S. is announced, who is looking for a sufficiently stable asset to maintain his impressive savings, while risking a minimum.
Investor S. transfers to bank XXX (issuer) 5 million rubles, receiving in return the coveted paper.
Bank XXX issues the sum of 5 million rubles again, financing another mortgage, and the bank begins to pay the bond that is in the hands of investor S. with the money returned by the borrower under the mortgage.

As a result, everything is in the black:

Bank - increases the number of transactions, which means it has a higher interest income.
Investor - invests money in a truly reliable asset and at the same time can count on a significant increase in funds. The MBS rate is traditionally lower than that of mortgages, so investors get the most profit from the rise in housing prices. Statistics say that over the past 10-12 years the value of real estate has increased by about 200%.
Borrower - an increase in the number of transactions should lead to the fact that banks will lower rates on mortgages, which at the moment look exorbitant. Nobody is talking about a significant decrease - it is predicted that lenders will "throw off" up to 1.5% - however, given the high cost of housing, the savings of borrowers in absolute terms may turn out to be quite impressive.

This is what a mortgage bond is in simple terms, not scientific theses.

Every investor should understand that a mortgage bond is just one type of mortgage-backed securities. There are also alternatives:

A mortgage is a security that confirms the holder's right to receive money under a financial obligation (from the borrower), as well as the right to property that was transferred by the borrower as collateral. The mortgage bond is a registered document and contains all the main parameters of the loan agreement, as well as a place for transfer records - with the consent of the borrower, the mortgage bond can change the "owner".
Mortgage certificate of participation - expressed as a share of the loan amount taken to acquire the asset. Accordingly, the holder of the certificate is also entitled to a share of the profit that the use of the asset purchased with borrowed funds gives.

De jure, mortgage-backed securities appeared in Russia much earlier than de facto: they began in 2003, when Federal Law No. 152 "On Mortgage Securities" came into force, where it was already mentioned, for example, about certificates participation.

Features and problems of MBS in the Russian Federation

It will hardly be possible to adopt foreign experience with mortgage bonds in the Russian Federation: in our country, perhaps, there is no such market that would be suitable for the characteristic “stable” - it does not suit the real estate market at all.

A. Bodrova, senior analyst at the well-known broker Alpari, notes that over the past 14 months, housing prices in the Russian Federation have seriously decreased - against this background, investors have doubts: is the MBS really such a reliable tool, as theorists say?

There is a risk that mortgage-backed securities in 2018 will not enjoy such popularity among investors at all, which AHML hoped for, when prices stubbornly “pearled” upward. Instability is the first problem with Russian MBS.

Another feature of mortgage bonds in Russia is their high cost - it is obvious that they will not be “affordable” for private investors (not to mention ordinary citizens).

It is planned that interest in bonds will be shown by NPFs, insurers and banks - organizations with a large amount of free funds and a burning desire to increase them. According to A. Bodrova, it is the first investors who can "skim off the foam" - receive an impressive income from securities, and in the future, as the MBS spreads and the market develops, the level of their profitability will decrease.

Finally, the final aspect that casts doubt on the prospects of mortgage-backed securities in the Russian Federation is the imperfection of the legislation. The Federal Law "On Mortgage Securities", alas, cannot be called a high-quality legislative framework for the development of the housing lending market.

What do we get in the "bottom line"? A rather crude idea - the intention to issue high-value bonds, in the future yield of which there is no certainty.

But there is still hope for the success of this idea, because AHML and, in particular, K. Zakarin understands the shortcomings of a financial instrument (as he speaks about in an interview) and sets the most ambitious goals: to make domestic mortgage bonds a more highly liquid and attractive asset from the investment side. than mortgages. However, according to experts, it can take up to 10 years to achieve these goals.

Source: "subsidii.net"

Mortgage-backed bond

In accordance with Art. 2 of the Federal Law "On Mortgage Securities", a mortgage-backed bond is a bond, the fulfillment of obligations under which is secured by a pledge of mortgage coverage.

The objects of mortgage coverage include claims arising from contracts of pledge of real estate (mortgage), including mortgage participation certificates certified by mortgages, cash (including foreign currency), government securities, real estate.

Under Russian law, a mortgage-backed bond is a “deep” type of collateralized bond, one of the types of which is collateral. Other possible types of bond security can be: surety, bank guarantee, state or municipal guarantee.

A collateralized bond is called a collateralized bond. When real estate is pledged as the basis for the latter, a mortgage-backed bond appears.

The presence or absence of this or that type of security for a bond does not have any effect on its essence as a bond in general. Collateral is important for reducing risk or increasing reliability, guaranteeing the fulfillment of obligations under a bond, and is reflected in its market price, level of profitability, and the composition of investors.

Main characteristics

The same as for any bond:

debt;
emission;
profitable;
documentary or non-documentary;
urgent. A mortgage bond cannot be issued for a period exceeding the duration of the original mortgage agreement, which cannot be less than one year and exceed 40 years.
bearer or registered;
nominated.

Release procedure

Unlike other types of bonds, the issue of mortgage-backed bonds can be carried out not by any market participants, but only by credit institutions and mortgage agents.

A mortgage agent is a professional market participant whose exclusive activity is the acquisition of claims for loans (borrowings) secured by a mortgage and / or mortgages.

Except for the indicated market participants, no one is entitled to issue such securities. Otherwise, the issue of this type of bonds is carried out in the manner common for all bonds.

Appeal

Mortgage-backed bonds are freely tradable in the secondary market until maturity.

The owner of this bond has the right to demand its early redemption by the issuer if:

the amount of mortgage coverage will be less than the amount of obligations on bonds;
the procedure for replacing property constituting the mortgage coverage has been violated;
there are other violations on the part of the issuer in comparison with the rules that are established by law or in the decision to issue this bond.

Source: "k2x2.info"

What are mortgage bonds

Mortgage bonds are an instrument of a single-tier secondary mortgage market.

A mortgage bond is a financial instrument secured by an appropriate mortgage bond that is evidence of guaranteed claims against the mortgage lender.

In world practice, various mortgage bonds are used, which differ in the types of assets with which they are secured, guarantees, etc. As with mortgages, the requirements for the form and content of mortgage bonds are not uniform across countries.

They are defined in legislative and regulatory acts governing the legal principles, conditions and procedure for the issue, placement and accounting of mortgage-backed securities. When issuing mortgage bonds, the mortgage lender keeps the mortgages on his balance sheet, that is, the risks of mortgage loans remain with the bank.

A special segment of the single-tier secondary mortgage market is large bond holdings worth at least € 500 million, which are based on loans to government agencies. For example, in Germany, local governments receive mortgages secured by the real estate they own.

They are considered reliable borrowers, therefore the issue and placement of mortgage bonds secured by property pledged by government organizations is considered the least risky, and their combination into large packages makes it possible to place them even on international securities markets, and strengthens the own position of German banks.

Source: "webinvesto.ru"

Mortgage Securities

Mortgage Securities is the generic name for securities backed by mortgage loans. Mortgage-backed securities differ from traditional debt instruments - corporate and government (treasury) bonds - primarily in that:

The balance of the principal debt (par value) on them is paid in part on a monthly or quarterly basis, and not in full at the end of the circulation period.
The size and number of regular payments on them changes during the period of circulation depending on the speed of early repayment of mortgage loans that secure the MBS.
The interest rate of the periodic payment on them can change over time, in contrast to the fixed coupon of the bond.

Varieties

Mortgage bond with coverage (Mortgage Bond, Сovered Вonds) - a bond secured as collateral by mortgage loans or mortgages on the balance sheet of the issuer.

To protect investors, the value of collateral is regularly checked and, if necessary, replenished so that it is sufficient to pay the face value and current interest on the bond.

Semi-annual interest payments are paid on mortgage bonds, and the par value is redeemed at the end of the circulation period. The maturity dates and payments for such a bond are known in advance.

Mortgage Backed Securities (MBS) are securities for which payments coincide with the cash flows from the pool of mortgages minus the fees for servicing these securities and their guarantees.

The most important feature of MBS is the fact that when they are issued, the pool of mortgage loans "leaves" the issuer's balance sheet, whereas when mortgage bonds are issued with coverage, the collateral remains on the issuer's balance sheet.

Pass-through mortgage-backed securities can be issued:

Directly by the bank through its portfolio of mortgages with Ginny Mae as the US government guarantee provider. In this connection, the securities guaranteed by Ginny Mae are assessed as risk-free (in terms of credit risk).
A specialized mortgage fund based on mortgages purchased from lender banks, with organizations such as Fannie Mae or Freddie Mac providing their own MBS guarantees. The papers guaranteed by Fannie Mae and Freddie Mac are called Agency Pass-Throughs.

End-to-end mortgage-backed securities differ from mortgage bonds in that the frequency and amount of payments, as a result, the exact period until their maturity, are not known in advance. This is due to the ability of the borrower to repay the loan early at any time and in any part. Thus, the final investor assumes the risk of early repayment of mortgage loans.

Prepayment Risk - the risk of a decrease in the profitability of investments due to the fact that part or all of the invested amount will be paid out before the due date.

Mortgage Pass-Through Сertificate is a registered security certifying the share of its owner in the ownership of a pool of mortgage loans.

A mortgage certificate of participation has no par value, is available for circulation on the securities market and cannot be used to issue derivative securities.

Unlike mortgage bonds, for which the face value is redeemed at the end of the term, both interest and amortization payments on the principal debt are paid on mortgage participation certificates (minus the pool service fee) on a monthly basis.

Mortgage Pay-Through Bond - bonds that combine the properties of mortgage bonds and mortgage certificates.

On the one hand, it is a debt paper secured by a pool of mortgage loans on the issuer's balance sheet. On the other hand, certificate payments are dependent on collateral pool payments.

Collateralized Mortgage Obligation (CMO) is a structured security consisting of pools of mortgage-backed securities grouped into classes depending on the type of payments (interest only, only principal, interest and principal), maturity and level of risk.

Payments for each class of securities are calculated monthly, and are distributed among in accordance with the established rules. Payments are first sent to the class with a higher rank, and then redirected to the next in rank. That is, first class "A" is extinguished, then "B", etc.

Source: "mindspace.ru"

A new vector in the development of the stock market

Buying real estate for a modern person has become not only a way of acquiring a home, but also a tool for investing free funds. The desire of investors to capitalize on fluctuations in real estate prices influenced the increase in financial instruments.

A new investment instrument - mortgage-backed securities - is going to be added to the line of offers of the securities market. In a number of countries, this type of financial instrument has already become widespread, but for the financial market of Kyrgyzstan they are still completely new.

Considering the existence of investment instruments already existing and circulating on the market, the question involuntarily arises: Is there a need to create mortgage-backed securities? In order to answer this question, first let us analyze the very concept of "mortgage security" and its main characteristics.

In simple terms, a “mortgage-backed security” (MBS) is a security backed by a mortgage loan. By buying it, the investor becomes the owner of a stable and reliable source of additional income, as they are provided with real real estate, which always grows in value.

MBS can be of two types: mortgage bonds and mortgage participation certificates. In both cases, these are secured securities. The only difference is that mortgage participation certificates are a mechanism for protecting investors and are issued only if the company that issued the mortgage bond fails to make payments on its obligations.

The level of profitability of mortgage bonds as a debt instrument depends on the level of risk of non-payment, as well as the maturity. The risk of non-payment on a mortgage bond, in turn, is directly related to its collateral. The provision of real estate and a government guarantee for mortgage bonds suggests that they will be less risky (and profitable) than corporate bonds, but more profitable than government bonds.

In general, MBS are characterized by such indicators as reliability, transparency, availability and durability.

The value of the new financial instrument

So what is the need for a new financial instrument - mortgage-backed securities? The main motive for creating MBS is to solve the problem of housing lending in the country. At the moment, high interest rates on mortgage loans do not allow the average citizen to purchase housing on a mortgage.

As a result, banks are unable to increase their mortgage loan portfolios, and there is also a stagnation in the country's housing sector.

With the help of the MBS, it is planned to reduce interest rates on mortgage loans, which, in combination with the state program of affordable housing, will enable ordinary people to become owners of their own living space, and will also serve as a stimulator for the country's housing and banking sector.

The MBS value for each of the financial market participants is high in its own way:

for investors - a way to generate additional income,
for banks - an effective refinancing mechanism,
for the population - the possibility of obtaining a mortgage loan at low interest rates,
for the country - a way to improve the state of the economy as a whole.

World experience

The MBS market is at the design stage. Mechanisms, procedures and regulatory legal documents are being developed, as a result of which all conditions must be created for the normal functioning of this market. Therefore, the study of foreign experience is of significant interest for the domestic MBS market.

In most European countries and the United States, it was mortgage loans that were the first assets turned into bonds and certificates. In world practice, the most widespread are two schemes for attracting financing through mortgage loans: "American" - through an intermediary, "German" - independently by the organizer of the loan.

The USA has the most developed MBS market. But its development began with the mortgage lending market. It was in the US mortgage market that various mortgage lending schemes began to be developed for the first time, allowing each borrower to choose the most acceptable option for himself. The next step in the evolution of mortgage loans in the United States was the creation of a completely new financial instrument - mortgage-backed securities.

Agencies controlled or owned by the state have played a major role in the MBS market. At the initial stage, large sums of budget money were invested in these agencies; perhaps this was the main impetus for the successful development of MBS in the market.

In Germany, the MBS market was developed thanks to credit institutions. A distinctive feature is that the securities are issued directly by the organizer of the loans under strict regulations.

Given the fact that the stock market has just begun to gain momentum, and the financial literacy of the population still requires close attention and support from the state, the experience of the United States, where state-owned mortgage companies were at the helm, may be most applicable to the domestic market.

But the possibility of a combination of both models is not excluded, which implies the creation of a state mortgage company and the empowerment of banks to issue MBS themselves.

MBS circulation scheme

The scheme of MBS circulation, with the participation of the state mortgage company, will look as follows:

A mortgage loan agreement is concluded between the bank and the borrower.
The borrower transfers the property acquired by him to the bank as collateral.
The bank, on the basis of the mortgage loans issued by it, forms a so-called "pool of mortgages" (a group of mortgages of the same type) and sells it to the Mortgage Company.
The mortgage company provides the bank with resources in the form of mortgage payments.
A mortgage company on the basis of a "mortgage pool" issues MBS.
Investors buy MBS from a mortgage company. Interest on them is paid by repayment of the mortgage loan by the borrower.

In general, MBS are a very promising investment tool that can expand not only the range of offers on the securities market, but also contribute to solving the problem of mortgage lending in the country.

In developed countries, it is the expansion of the volume of resources attracted for mortgages from the securities market that made it possible to lower the cost of mortgage loans. As a result, MBS have become the main mechanism for attracting funds from the capital market to the housing sector.

Interest and principal payments on such securities are derived from funds received on collateral loans.

Mortgage-backed securities(ancient Greek ὑποϑήκη - pledge, instruction) is a type of secondary securities that serve as a universal instrument for refinancing investments in housing, that is, a means for short-term recovery of financial investments in the construction of such residential properties that are purchased on the market through a mortgage. At the same time, the securities support the stability of refinancing of mortgage construction due to the fact that the return of funds to the investor is carried out in a period shorter than the maturity of the mortgage loan amount.

Purpose of mortgage-backed securities

The purpose of mortgage-backed securities is to minimize the risks of untimely return of borrowed funds when investing in mortgage construction, carried out according to the securitization mechanism (from English securities). The essence of the securitization mechanism lies in the procedure for converting debt obligations associated with refinancing into securities with acceptable collateral and relatively high liquidity. The procedural side of securitization consists in the implementation of one of two tactics. In the first case, there is an issue of secured securities by credit institutions engaged in mortgage lending. In the second case, mortgage investors sell debt obligations to a mortgage agent - a specialized commercial organization that ultimately issues secured securities, since it has the right to issue mortgage-backed bonds.

Characteristics of mortgage-backed securities

Despite the different types of mortgage-backed securities, as a rule, most MBSs have the following characteristics in common:

1) in almost all cases, payments paid to holders of MBS are periodic. More often the period is monthly, less often quarterly;

Types of mortgage-backed securities

Mortgage-backed securities include: mortgage, mortgage-backed bond and mortgage participation certificate.

Mortgage

A mortgage is a registered security certifying the right of its legal owner to receive performance under an obligation secured by a real estate pledge. The purpose of this paper is to accelerate the turnover of mortgaged real estate in order to expand the possibilities of the mortgagee in the soonest satisfaction of his claims. The transfer of rights under a mortgage by the mortgagee is carried out on the basis of an assignment (assignment of rights of claim). The presence of this paper does not exclude the need to conclude a mortgage agreement, the terms of which must provide for the issuance of a mortgage to the mortgagee. However, the mortgage deed is given priority over the contract, so if the content of the contract does not match, it is necessary to be guided by the content of the mortgage deed.

Unlike most other securities (such as a bill of exchange, warrant, etc.), the content of a mortgage bond can be changed or replaced by a mortgage bond; this right is given to the debtor under the obligation secured by the mortgage, the mortgagor and the legal owner of the mortgage. Any changes or replacement are carried out only on the basis of agreement between the indicated parties. Replacing or changing a mortgage is usually practiced in the case of private performance of the main obligation.

The mortgage bond is invalidated in court in two cases - in violation of the procedure for its issuance or in connection with its loss by the legal owner, and the fact of loss must be confirmed by issuing a duplicate of the mortgage bond to the mortgagee. A duplicate of a mortgage is issued by the authority that carried out the state registration of the mortgage.

Mortgage-backed bonds

The issue of mortgage-backed bonds can be carried out exclusively by credit institutions and mortgage agents, in the role of which are specialized commercial organizations (joint-stock companies), the main activity of which is the acquisition of rights of claim and the issue of mortgage bonds. In the latter case, the bank that provided the mortgage loan cedes the rights of claims arising from the loan agreement to mortgage agents, which is also considered as a direction for refinancing mortgage capital, since this capital is replenished as soon as possible due to the rapid return of mortgage loans (with the exception of interest specified in agreement between the bank and the mortgage agent).

Mortgage certificates of participation

A mortgage certificate of participation is a registered security without a par value, certifying the share of its owner in the right of common ownership of the mortgage coverage, as well as the right to demand from the issuer of it proper trust management of the mortgage coverage and other rights provided for by law and close to the rights of the owner of the investment share ... Mortgage certificates of participation, therefore, act as a tool of exchange when a credit institution transfers rights of claim arising from credit agreements to the trust management of a management company.

Only a commercial organization (joint-stock company) licensed to carry out activities for the management of investment funds, mutual funds and non-state pension funds is entitled to issue mortgage participation certificates. The management of the property complex that makes up the mortgage coverage is carried out in the interests of the owners of mortgage participation certificates.

A credit institution that becomes the owner of a mortgage certificate of participation acquires common equity ownership of the mortgage coverage, which is in trust. This share includes a pool of property and liability rights, which consists of monetary claims, funds, securities and real estate. Possession, storage and accounting of the components of the mortgage coverage are carried out in accordance with the competence of the manager and the specialized depository. The first (manager) owns, uses and disposes of mortgage coverage for the benefit of holders of mortgage participation certificates. The second (depository) exercises control over the activities of the manager by maintaining a register of mortgage coverage.

Types of mortgage-backed securities

As a rule, the following types of mortgage-backed securities are distinguished:

Household mortgage-backed securities(eng. Residential Mortgage-Backed Securities - RMBS ) is the most common form of securitization. These securities are secured by a pool of homogeneous mortgage loans secured by residential real estate.
Mortgage-backed securities secured by commercial real estate- (eng. Commercial Mortgage-Backed Securities - CMBS ) - Securities secured by one or more pools of mortgage loans. The collateral for such securities may consist of one or more loans secured by

Mortgage bonds are well known abroad. Securities are gradually coming to our country. Indeed, back in 2016, the director of AHML JSC announced cooperation with Sberbank and the issue of bonds in the amount of 50 billion rubles. In the future, real estate securities will become an effective mechanism for raising funds for long-term financing. This will allow large participants to expand their activities in the primary lending market.

What it is?

The securities market of the Russian Federation, unfortunately, is only at the very beginning of its development, so many citizens do not even know what it is. However, this is quite profitable for the holder of this type of securities.

Let's look at the release procedure using an example. The bank provided mortgage loans in the amount of 100 million rubles secured by real estate for a period of 25 years. For the same amount, a credit institution issues bonds to investors, including private ones. The maturity period for securities is 25 years, so after this time the investor who invested money in bonds will receive the money back. In addition, every year he will receive a coupon or interest for the use of his money.

For the payment of coupons, the bank directs funds that borrowers pay in the form of interest on mortgage loans.

Who benefits from mortgage-backed bonds?

The payout to investors depends on the rate. Today it differs in banks, but on average it is 9-9.5%. This is much more and more profitable than a private investor could get by putting funds on a deposit.

The bank itself wins, because the funds issued to the borrower are returned much earlier than after 20 years. The bank will provide the money received from the sale to another mortgage borrower. The number of deals is increasing, and so is the profitability.

For borrowers, the further growth of mortgage transactions, including bonds, is beneficial, since the likelihood of a decrease in the interest rate on real estate loans is high. Of course, no one expects the percentage to drop sharply. However, even a slight decrease to 1.5% will affect the final overpayment of the loan.

How are debt obligations secured?

For investors, mortgage bonds benefit from the liquidity of collateral, since mortgage-backed securities are most popular today. While the real estate market in the Russian Federation is in a stable state without sharp jumps and falls, investors are protected from the loss of their invested funds.

Mortgage bonds in Russia

Recently, the mortgage market has started to develop quite rapidly. All thanks to special programs for families with children, a reduction in the key rate, and the availability of military mortgage programs. Due to the sharp increase in mortgage transactions, banks simply do not have enough funds to issue more and more loans. That is why it takes a lot of investors willing to purchase mortgage bonds.

The market began to revive after major players: Sberbank, Raiffeisenbank, BinBank carried out several mortgage securitization transactions at once.

Alternatives to mortgage bonds

An alternative to mortgage-backed bonds is certificate of participation mortgage, which are not debt securities. They enable the investor to receive a certain percentage of the assets. On such certificates, the yield can be even higher than on bonds, but the risks are much higher.

Features and problems of securities in Russia

For a long time, mortgage lending has developed without the use of securities. This is why it takes some time to introduce mortgage bonds into the already established system. For investors, this will be a good step towards investing their own funds in a profitable enterprise. Banks are expanding opportunities for granting loans to new customers.
Impact of mortgage-backed securities on the 2008 crisis

After the 2008 crisis began in the United States, it was bonds that helped to get out of the crisis with minimal losses, since part of the funds was issued by the state, and the other part by private investors.

However, significant shortcomings of the system prevent the receipt of decent benefits:

The early repayment by the borrower of all or part of the debt has a negative effect on the market, since investors cannot receive the expected profit. Some banks compensate for the difference between expected and earned returns in order to retain investors.
Mortgage lending usually does not stand still, so income can either decrease or increase again.

The Russian mortgage bond market is developing thanks to the participation of major players such as Sberbank, VTB 24 and others.

Mortgage-backed securities include: mortgage, mortgage-backed bond and mortgage participation certificate.

Mortgage

A mortgage is a registered security certifying the right of its legal owner to receive performance under an obligation secured by a pledge real estate... The purpose of this paper is to accelerate the turnover of mortgaged real estate in order to expand the possibilities of the mortgagee in the soonest satisfaction of his claims. The transfer of rights under a mortgage by the mortgagee is carried out on the basis of an assignment (assignment of rights of claim). The presence of this paper does not exclude the need to conclude a mortgage agreement, the terms of which must provide for the issuance of a mortgage to the mortgagee. However, the mortgage deed is given priority over the contract, so if the content of the contract does not match, it is necessary to be guided by the content of the mortgage deed.

The mortgage is invalidated in judicial procedure in two cases Ї in case of violation of the procedure for its issuance or in connection with its loss by the legal owner, and the fact of loss is necessarily confirmed by the issuance of a duplicate of the mortgage to the pledgee. Duplicate the mortgage is issued by the authority that carried out the state registration of the mortgage.

Mortgage-backed bonds

Thus, a distinctive feature of bonds as a type of mortgage-backed securities is the sign that the fulfillment of obligations under such a bond is ensured pledge mortgage coverage (instead of real estate mortgage), and this coverage in most cases is made up of claims secured by the mortgage.

It follows, in particular, that in order to confirm the claims included in the mortgage coverage on the secured mortgage the obligation is sufficient to have a mortgage. Therefore, in case of violation of obligations arising from such bonds (for example, when the bank issuing mortgage bonds refused to pay on them), the owner of these securities has the right to turn recovery for mortgage coverage, which is the subject of the pledge. Meanwhile, the mortgagor (the owner of the dwelling) is only liable for failure to fulfill only his obligation arising from the loan agreement secured by the mortgage of the dwelling.

Emission mortgage-backed bonds can be carried out exclusively by credit institutions and mortgage agents, in the role of which are specialized commercial organizations ( joint stock companies), the main activity of which is the acquisition of rights of claim and the issue of mortgage bonds. In the latter case, the bank that provided the mortgage loan cedes the rights of claims arising from the loan agreement to mortgage agents, which is also considered as a direction for refinancing mortgage capital, since this capital is replenished as soon as possible due to the rapid return of mortgage loans (with the exception of interest specified in agreement between the bank and the mortgage agent).

Mortgage certificates of participation

A mortgage certificate of participation is a registered security without par value, certifying the share of its owner in the right of common ownership of the mortgage coverage, as well as the right to demand from the issuer of it proper trust management of the mortgage coverage and other rights provided for by law and close to the rights of the owner investment share... Mortgage certificates of participation, therefore, act as a tool of exchange when a credit institution transfers rights of claim arising from credit agreements to the trust management of a management company.

Only a commercial organization (joint-stock company) licensed to carry out activities for the management of investment funds, unit investment funds and non-state pension funds... The management of the property complex that makes up the mortgage coverage is carried out in the interests of the owners of mortgage participation certificates.

A credit institution that becomes the owner of the mortgage certificate of participation acquires the total share ownership of the mortgage coverage located in trust management... This share includes a pool of property and liability rights, which consists of monetary claims, funds, securities and real estate. Ownership, storage and accounting of the components of the mortgage coverage are carried out in accordance with the competence of the manager and specialized depository... The first (manager) owns, uses and disposes of mortgage coverage for the benefit of holders of mortgage participation certificates. The second (depository) exercises control over the activities of the manager by maintaining a register of mortgage coverage.

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