The Federal Law on Mortgage-Based Securities was signed on November 11, 2003. Its essence lies in the fact that now every person or organization can become investors in a housing mortgage fund. Securities are secured by collateral and repayable loan obligations of borrowers. Risk insurance is provided by large insurers.
Federal Law No. 152 is intended not only to regulate the financial relations of lenders, borrowers and potential investors in the housing construction market. This normative document was developed primarily to obtain an instrument for effective investment of funds from various government funds.
Thus, if you look at the experience of Western countries, you can see that up to more than half of the funds accumulated for pensions are placed in mortgage and housing securities. Today in our country the effect of this law is limited to certain circles. Mutual funds do place a portion of their investment funds in mortgage-backed securities. However, this financial instrument never fully worked.
The crisis of 2015 had an impact with a sharp drop in the denomination of the national currency. Investing in housing construction has become unprofitable due to the high risk of bankruptcy. The Law on Bankruptcy of Individuals has only aggravated the risks of potential investors.
Basic concepts of the Federal Law on mortgage-backed securities
To begin with, it is worth understanding the basic basic concepts on which the Federal Law on mortgage-backed securities is built. This regulatory document operates with the following concepts:
- By mortgage-backed securities, the law understands documents secured by collateral that give the right to receive a certain profit in the future;
- predominantly mortgage-backed bonds are securities that are issued by financial credit institutions secured by their portfolio of mortgage agreements and fully secured by collateral real estate;
- a housing bond is secured only by collateral risks and is not a document giving the right to share participation in the distribution of credit profits;
- a mortgage agent can be a specialized organization operating within the framework of a license issued by the Central Bank of Russia; its activities are aimed at the formation of packages of mortgage-backed securities and mediation between banks and potential investors in the housing market of the Russian Federation;
- A mortgage participation certificate is also a security, but with limited validity, so its holder cannot claim distribution of profits received from the sale of collateral property.
These basic terms are at the heart of the federal mortgage-backed securities law. They can only be used to secure the obligations assumed by the creditor. Financing is carried out within the framework of concluded investment agreements. The amount of dividends to be paid is determined during a meeting of the board of directors of the credit institution and in agreement with the mortgage agent.
What is mortgage coverage?
According to the Federal Law on Mortgage-Based Securities, they are all mortgage-backed and insure the investor against possible risks of losses due to the presence of collateral and credit obligations of borrowers.
What is mortgage coverage under the federal law described? These can be real estate, mortgages, loan obligations to repay the principal amount of debt and interest accrued for the use of financial resources. Everything that guarantees the safety of an investor's investment in securities is mortgage coverage. The bank that issues the mortgage securities is responsible for the safety of these funds. Responsibility for compliance with legislation in this area lies with the mortgage agent, who has a specially issued permitting license.
Thus, the mortgage agent has the opportunity and direct responsibility to conduct full audits of the financial organization and respect the rights of investors in the area of safety of invested financial assets.
An exception to mortgage coverage is the amount that covers more than 80% of the assessed value of the collateral property. In practice, this means that if a borrower takes out a mortgage loan without a down payment, then when including this asset in its package of mortgage securities, the bank is obliged to cover 20% of the amount from its financial assets.
A residential mortgage loan agreement is mortgage coverage for the issue of securities, certificates and bonds. But there are a number of federal law requirements for the preparation of this document:
- the form of the agreement must indicate that it only involves settlement in the form of a transfer of cash or non-cash funds (settlement by barter is not provided for by current legislation);
- the mortgage agreement must be accompanied by an insurance policy against the risks of damage and loss of the purchased property;
- the mortgage loan agreement is concluded for a certain amount of financing, it should not exceed 80% of the appraised value of the property being purchased;
- The contract is accompanied by an assessment of the market value of an apartment, house, room, or detached commercial building;
- it is mandatory to formalize collateral obligations with the receipt of the mortgage and its transfer for safekeeping to the credit organization that is the mortgagee;
- the agreement must indicate that the mortgagor does not have the right to alienate this property without the appropriate permission of the creditor until full fulfillment of all financial obligations to the bank.
All real estate for which an insurance policy has not been issued for all points and risks provided for by the law on mortgages is subject to exclusion from mortgage coverage. All other types of insurance are optional. And if the borrower does not take out a mortgage insurance policy for the property, then the bank does not have the right to include this agreement in its loan portfolio and transfer it to the database of mortgage securities. Thus, the credit institution does not receive a return of funds and loses its working capital for the entire period of lending to its borrower. This becomes a legitimate justification for raising interest rates. 
Mortgage agent: form of organization, rights and obligations
A mortgage agent is a specialized organization whose rights and responsibilities include regulating the Russian mortgage securities market. A mortgage agent can work in the legal form of an organization in the form of an open joint stock company and closed type, limited liability companies. To start activities, it is necessary to register a legal entity, issue all the required permits and obtain a license from the Central Bank of Russia, which gives the right to conduct financial activities in the territory Russian Federation.
The mortgage agent has the following rights and responsibilities:
- it can purchase loan obligations from banking institutions;
- check the bank’s work in the field of managing collateral assets and ensuring the safety of mortgage coverage in order to comply with the principles of limiting the risks of potential investors;
- after repurchase of loan and collateral obligations, form a separate package of investment proposals;
- attract borrowed funds from the disposal of both individuals and legal entities located on the territory of the Russian Federation or abroad;
- control the process of distribution of means of profit;
- participation in meetings on the distribution of dividends received.
In another way, the agent may be called a specialized mortgage organization. One of the two names that reflect the main essence of economic activity must be included in the formation of the full name.
A mortgage agent is not a full-fledged commercial organization and does not have the right to enter into contracts with individuals on a reimbursable (paid) basis. Any business activity related to the sale of information or the transfer of valuable information entails liability in the form of judicial liquidation of the organization.
Voluntary liquidation of a specialized mortgage organization is possible only after it has fulfilled all its obligations. 
Mortgage cover register
Each mortgage agent is required by the federal mortgage-backed securities law to maintain complete records. The mortgage cover register is a database in which all accepted objects must be entered for investment of borrowed funds.
The register of mortgage coverage is maintained simultaneously in electronic and paper format. The deadline for entering the received information is 24 hours after receipt and processing. Controlling government bodies (Central Bank of Russia), credit organizations on whose balance sheet this collateral is located, investors and holders of certificates and bonds have access to information from this register.
The following information must be entered into the mortgage coverage register:
- full address of the property location;
- its estimated cadastral and market liquid value;
- provision of collateral obligations;
- validity period of the concluded mortgage loan agreement;
- types of insurance applied to this property;
- potential profit margin on an annualized basis;
- a note on attracting borrowed funds to refinance a loan;
- the remaining share subject to restructuring by attracting investment packages.
All this information must be provided to holders of mortgage-backed securities upon their written request. All information regarding the loss of collateral, replacement, increase or decrease in its market liquid value must be promptly entered into the register.
Forms of certification of rights
When issuing a mortgage-backed bond, a special form of certification of the rights of its holder is used. As security, paper and electronic denominations may be issued indicating the collateral coverage and obligations.
The main form of ensuring the right of the owner of a security is its inclusion in the state register. This register is maintained by government agencies. Even if the paper or electronic version of a bond or certificate is lost, an investor can contact the Central Bank of Russia with a request to restore his legal rights. After which an identification document will be issued. This certificate makes it possible to receive interest and dividends. You can also use it to order the issue of duplicates with the denominations of previously issued bonds and certificates.
Interest and security for its payment
After issuing mortgage-backed securities and placing them on the financial market, the mortgage agent is required to make interest payments. the amount of profitability is determined in advance in agreement with the financial institution that is the mortgagee real estate. Then, when attracting investments from legal entities and individuals, the contract specifies the date of payment of accrued interest and the amount of profitability. throughout the entire period of raising investment funds for the issue of mortgage securities, a decrease in the specified percentage of yield is not allowed.
Payments cannot be made less than once a year. Otherwise may be stipulated by the terms of the contract. But paying interest less than once every twelve months is not allowed by the law on mortgage-backed securities.
Ensuring guaranteed payments to holders of bonds and certificates is carried out through collateral mortgage coverage. Each bank has authorized capital funds. If these reserves decrease, the Central Bank initiates the revocation of the license and termination of the credit institution. The non-reducibility of the balance of own assets is a guarantee of the ability to fulfill all the bank’s obligations under its financial obligations to investors.
Issue (issue) of mortgage securities
The issue or release into circulation of mortgage-backed securities is strictly regulated by the current version of the Federal Law. Quite stringent requirements are imposed already at the stage of forming the initial package of proposals for potential investors.
In particular, you should pay attention to the following parameters:
- before issuing mortgage-backed bonds, a register must be compiled that contains all the basic information regarding the collateral real estate;
- the volume of issue is limited to 80% of the liquid market value of the collateral included in the register;
- collateral mortgaged property and the bank's own assets are accepted as collateral;
- After the sale of the entire package of the investment proposal, the register is closed and changes are made to it only in the event of replacement of property or change in its value.
When issuing a bond or mortgage certificate, the most important information is indicated in its face value:
- the validity period of this security (usually it is limited to the term of the mortgage lending under which the collateral real estate was received);
- full name legal entity or surname, name and patronymic of an individual, holder of a security;
- face value and mortgage coverage;
- the amount of interest accrued and paid to the holder annually.
- also, upon issuance, all conditions of security and additional financial guarantees to the investor are prescribed.
When issuing mortgage-backed securities, preference in their placement is given to a single redemption of the entire nominal value. Therefore, most often such investment packages fall into the hands of mutual funds and other funds.
Mortgage coverage requirements
The Federal Mortgage-Backed Securities Act imposes increased coverage or collateral requirements. In particular, the bulk of the coverage cannot contain objects with low market liquidity.
It is for this reason that all banks draw up their own requirements for real estate loans. This is due to the fact that apartments located, for example, in dilapidated housing stock, do not have market liquidity and cannot be included in the register of mortgage coverage. Accordingly, it will not be possible to attract investment funds from third-party investors against the issued mortgage loan.
Requirements include cost. It must be less than 80% of the face value of the issued bonds and certificates. The rest of the collateral value must be compensated by the bank from its own reserve funds.
If a consumer characteristic is lost, any property included in the register for the issue of securities mortgage securities must be replaced with a similar one at a liquid market value. This clause forces banks to act in the event that a client pays off a mortgage early.
In such a situation, the collateral must be removed from the register of mortgage-backed bonds within 30 days. After this, the fact of termination of the pledge agreement is registered in the registration chamber and the information is entered into the electronic database. By this time, another property should appear in the register of mortgage coverage, covering the resulting shortfall at its liquid market value.
The second case is the occurrence of an insured event. if, for example, the wall structures of a building collapse and the property is destroyed, then the insurance company pays the bank the full amount of damage caused. In such a situation, a gap is formed in the register of mortgage coverage.
Turnover of mortgage bonds and certificates
The existing turnover of mortgage certificates and bonds implies their repayment, foreclosure of a property nature, sale and other methods of sale, including in the event of bankruptcy of the issuer.
So, in accordance with the Federal Law on mortgage-backed securities, they are the property of those holders who are indicated at par and entered in the state register of securities. Accordingly, owners of mortgage bonds have the right:
- withdraw your financial assets ahead of schedule by redeeming the security;
- through the subsequent resale of the bond to a third party, but only with the assistance of a mortgage agent;
- require early fulfillment of obligations in the event of bankruptcy of the issuer.
Mortgage certificates and bonds may be foreclosed on in favor of injured persons in order to compensate for property damage caused. This is usually done at the request of the bailiff service when attaching a copy of the court order, writ of execution and other legal forms of documents.
Early repayment of issued mortgage bonds and certificates is possible both at the request of the issuer and at the request of the security holder. If significant irregularities are detected in the work of a financial institution or a specialized mortgage organization, early repayment of mortgage-backed securities may be initiated by the Central Bank of Russia. The basis for early termination of a mortgage security may be a significant change in the structural part of the mortgage coverage register.
Watch the main points of the Federal Law on Mortgage-Based Securities in the attached video, where an expert lawyer talks about all the possible difficulties of its implementation in practice for potential investors:
Payment of debt and interest in this case is carried out using funds received from secured loans.
MBS are a type of secondary securities. They are used as a universal tool for refinancing investments and contributions to the construction of new residential properties.
There are 4 main stages of working with securities:
- release;
- issuance;
- appeal;
- fulfillment by the borrower of its obligations.
Peculiarities
- Payments to security holders occur regularly. As a rule, they are carried out monthly (sometimes quarterly). Late payments are extremely rare.
- Payments from the combined assets are summed up in two parts. The first (interest) includes the fee for using the loan provided, the second (amortization) includes repayment of the principal amount of the debt. Depreciation payments can be early and regular.
- Regular amortization payments are calculated in such a way that the entire amount of debt obligations is paid in full over the life of the mortgage loan. This differs from payments on corporate bonds, which require payment of the entire balance only at maturity.
- The level of profitability of securities directly depends on the period of their circulation, as well as the degree of risk of non-payment of payments. In turn, such risks depend on the security of securities.
- To carry out premature repayment of debt obligations, the borrower is given the right to sell real estate, which acts as security for the loan obligation.
Kinds
MBS are divided into:- Mortgages are registered securities secured by real estate that confirm the owner’s rights to fulfill the borrower’s obligations. The main function of such securities is to accelerate the turnover of real estate based on the assignment. An important advantage of such documents is the ability to adjust and change their content. Mortgages may be declared invalid if the procedure for their issuance is violated.
- Mortgage-backed bonds. With their help, potential investors receive guarantees that their requirements will be met. The main feature of this type is the presence of collateral that allows the borrower to fulfill its obligations. In most countries there are legal provisions according to which the total amount of obligations under such financial documents cannot exceed the amount of the mortgage cover;
- Mortgage certificates. They confirm the rights of their holders to receive interest on the appraised value of mortgage properties, as well as quality management from organizations that issued and issued mortgage coverage (such activities can only be carried out by commercial organizations that have received the appropriate license to manage various investment properties).
Advantages and disadvantages
The main advantages of MBS are:- long term;
- general availability;
- transparent and understandable work mechanisms;
- high level of legal protection.
- high probability of long-term repayment makes it impossible to calculate additional subsidies and income;
- low liquidity.
Mortgage bonds are bonds of obligation that are secured by rights of claim under mortgage loans.
A bank that has issued a certain number of mortgage loans receives at its disposal a certain number of claims. And the bank needed money. And the bank decides to borrow money by issuing bonds. But the bank wants to get credit at a low rate. The rate is lower when the risks are lower. Therefore, the bank decides to leave something as collateral, thereby reducing the risks of creditors.
And so we have the following chain:
- The bank receives credit by issuing bonds and selling them to holders.
- The rights of claim under mortgage agreements act as security for the bank’s obligations to bondholders.
- The rights of claim themselves are secured by real estate.
I’ll also digress to explain the concept of mortgages and mortgage lending. So, mortgage– this is the borrower’s real estate, which becomes collateral with the lender, who issues the loan to the borrower mortgage. In this case, this property remains in use by the borrower. Also, a mortgage loan can be issued both for the purpose of purchasing this very real estate, and for other purposes... And accordingly, if the borrower does not fulfill the loan agreement, the lender has the right to sell the collateral real estate in order to return the amount of the debt. In general, the loan agreement is right of claim secured by collateral. It is also important that claims under contracts can be transferred, sold, and so on.
Issuers of mortgage-backed bonds
Two types of organizations can issue bonds secured by mortgage loan agreements - these are, naturally, credit organizations, as well as mortgage agents.
The regulator sets special requirements for credit institutions. In general, we can say this - at the time of issuing mortgage bonds, the credit institution should not have financial problems.
If for some reason the bank does not meet all the requirements, the law allows the establishment of a special organization - a mortgage agent - to issue bonds. In this case, the diagram will look like this:
Mortgage agent- an organization in the form of a joint stock or limited liability company established by a bank exclusively for the issue of mortgage bonds. The established organization is transferred the rights of claim, which will serve as security for the issued bonds.
A number of restrictions are imposed on the activities of a mortgage agent. Control and maintenance functions accounting this organization is assigned to two different specialized organizations. And the mortgage agent himself cannot hire employees. All this is done to increase the transparency of reporting and simplify possible legal disputes.
In Western practice, such a procedure for transferring assets and obtaining financing against them is called securitization. Used to rescue credit institutions on the verge of bankruptcy.
Reliability of mortgage-backed bonds during bankruptcy proceedings
Now, regarding the reliability of these bonds. As already mentioned, the entire amount of the bank’s obligations to bondholders is secured by assets in the form of claims on mortgage loans. Certain restrictions are placed on these assets so that these assets cannot be alienated in favor of any claims other than claims on the bonds. For this purpose, a register of collateral for mortgage bonds is maintained.
The register includes rights of claim; they must cover at least 80% of the obligations under the bonds. Other assets (real estate owned by the bank, OFZ) may also be included in the register.
Actually, the registry is needed for the following reasons. Since mortgage borrowers regularly repay their debt to the bank, the amount of debt (claim rights) is reduced, i.e. the value of the collateral decreases.
It is also important to note here that funds contributed to repay loans cannot be included in the register, since funds cannot act as collateral.
At the same time, the requirement for mandatory full coverage of obligations by bondholders must be observed. Therefore, in replacement of retired claims, the register includes either other claims, or reliable bonds (the law allows only OFZs), or real estate.
If the issuer of these bonds is declared bankrupt, the following occurs:
1 bankruptcy trustee does NOT include all property listed in the register of claims in the bankruptcy estate;
2 bondholders do not fall into the queue of creditors;
3 The bankruptcy trustee, within 9 months after declaring the issuer bankrupt, is obliged to sell the collateral property and pay off the bondholders with the proceeds.
And if, after paying all the funds received from the sale of the pledged property, some obligations to bondholders remain unpaid, then they have the right to stand in the creditor’s queue and claim repayment of their claims (in the amount not satisfied) from the sale of the remaining property of the issuer. And vice versa, after satisfying the demands of all bondholders. If there are excess funds remaining from the sale of the collateral, they are included in the bankruptcy estate to pay off the claims of other creditors.
Early repayment at the request of mortgage bond holders
Apart from the worst that could happen to the bank or mortgage agent that issued the bonds, bondholders have rights to call mortgage bonds early in several cases.
First. Violations of the procedure for fulfilling obligations, for example, late payment of the next coupon.
Second. Violations of the rules for maintaining a register of mortgage coverage or violation of the rules for the replacement or amount of mortgage coverage.
Third. Violation of operating rules. This mostly applies to the mortgage agent; in his case, any activity not provided for by the Federal Law “On Mortgage Securities” entails the right to early repayment of bonds.
The issuer must report each case of the right to demand early repayment of bonds on the information disclosure page on the Internet, with a description of the procedure and deadline for submitting such demands.
Also, the bond issue prospectus may establish other (in addition to the listed) cases, upon the occurrence of which bondholders have the right to demand early repayment.
Issues of mortgage bonds traded on the Moscow Exchange
Mortgage bonds of four banks are traded on the Moscow Exchange: UniCredit Bank, DeltaCredit, VTB24 and Gazprombank. But for mortgage-backed bonds, both VTB24 and Gazprombank, the situation is this: since the placement there has not been a single purchase and sale transaction. That is, those who purchased the securities of these banks during the placement do not sell them. Therefore, we will not dwell on these papers of these organizations.
UniCredit Bank is one of the largest banks in Russia, fully owned by UniCredit Bank Austria AG, Vienna, Austria, part of the UniCredit financial group.
UniCredit has one issue traded - non-convertible interest-bearing documentary bonds with mortgage coverage, series 02-IP ( YunKr 02-IP). Repayment – 09/16/2020. Denomination 1000 rubles. The yield is a little more than 10% per annum. Documents related to the issue of these bonds can be found by scrolling down.
DeltaCredit Bank is also a large bank (in the top 50 by assets), specializing in mortgage lending. It is owned by RosBank, which in turn belongs to the French Societe Generale. 8 issues of mortgage bonds are traded. Delta09IP(repayment 06.12.2017), Delta10IP(repayment 07/04/2018), Delta12IP(repayment 08/30/2018), Delta16IP(02/04/2018) - traded with a yield of about 9% per annum.
Issues Delta14IP, Delta15IP, Delta16IP will be repaid in 2024. The current yield is a little more than 10%.
Delta17IP with maturity on March 30, 2019, it also has a yield of about 10%.
All documents on bond issues of DeltaCredit Bank can be found on this page.
Residential Mortgage Bonds
Everything is simple here. This is a type of mortgage bond with only one difference. Coverage can only be claims on those mortgage loans in which residential premises are collateral. That is, in the general case, a mortgage agreement with security in the form of an unfinished construction project (an unfinished apartment) can act as security for mortgage bonds, but cannot for housing bonds.
Profits from the sale of mortgage-backed bonds are used to issue new loans. The rules for the issue and circulation of bonds are prescribed in Federal Law No. 152 of November 11, 2003.
Characteristics
Bonds are debt and income securities that are issued in documentary or non-documentary forms. The collateral for mortgage-backed bonds is real estate. The repayment period ranges from one year to forty years, but cannot exceed the term of the mortgage agreement. Until full repayment, mortgage bonds are freely traded on the secondary securities market.Issuers of mortgage-backed bonds can only be credit institutions, or mortgage agencies. The process of raising funds against mortgage payments is called securitization. This mechanism allows you to select loans that are reliable in terms of repayment level and convert them into mortgage-backed bonds. They may include obligations that meet the following requirements:
- the residual debt is no more than 80% of the market valuation of the collateral;
- replacement of property can only be carried out with the consent of the creditor;
- pledged property is subject to insurance against the risks of complete destruction or significant damage;
- The subject of the loan agreement is money.
Advantages
The issue of mortgage bonds contributes to economic development. All market participants have direct or indirect benefits:- credit institutions are increasing lending volumes;
- investors receive liquid assets with a high degree of profitability and reliability;
- lower interest rates benefit borrowers;
- financing of objects under construction allows creating new jobs.
Bond yield
During the entire period of ownership of mortgage-backed bonds, the holder receives a coupon income, which is a certain percentage of its face value. Coupon income is calculated daily, but payments are made annually, semi-annually or quarterly. At the end of the specified period, the bonds are redeemed at par.Advantages and disadvantages
Mortgage bonds have the following advantages:- n reliability of investment;
- d availability and liquidity;
- With income stability.
- With relatively low yield compared to other types of securities;
- V the likelihood of early termination of obligations.
- O obligations on bonds exceed the amount of mortgage coverage;
- V violations were identified in the procedure for replacing property with mortgage coverage;
- P other violations of the rules for issuing Central Banks.
Interest and principal payments on such securities are made from funds received under secured loans.
Mortgage-backed securities(ancient Greek ὑποϑήκη - pledge, instruction) - a type of secondary securities that serve as a universal tool for refinancing investments in housing construction, that is, a means for short-term restoration 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 mortgage construction due to the fact that the return of funds to the investor is carried out within a period shorter than the repayment period of the mortgage loan amount.
Relations arising in connection with mortgage-backed securities differ in the issue, issuance, circulation of such securities and the fulfillment of obligations under them. On the territory of the Russian Federation, all of 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-Based Securities”.
Purpose of mortgage-backed securities
The purpose of mortgage-backed securities is to minimize the risks of untimely repayment of borrowed funds when investing in mortgage construction, carried out through the securitization mechanism (from English securities - 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 of implementing one of two tactics. In the first case, credit institutions engaged in mortgage lending issue secured securities. In the second case, there is a sale by mortgage investors of 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 law provides for the issuance of mortgage-backed bonds by banks providing mortgage loans. But it is also possible for banks to cede to mortgage agents rights of claim under credits (loans) secured by mortgages and/or mortgages. And finally, it is possible to assign these rights of claim to the management company in exchange for mortgage participation certificates.
Characteristics of mortgage-backed securities
Despite different kinds mortgage-backed securities, typically most MBS have the following general characteristics:
1) in almost all cases, payments paid to holders of securities are periodic. More often the period is monthly, less often quarterly;
2) payments from a pool of assets usually consist of two parts: interest (fees for using loans) and amortization (repayment of loans). Amortization payments can be scheduled or early, full or partial;
This is the amount of money that all of its mortgage borrowers must pay the bank (lender) under the loan agreements they have entered into, including payments of principal and interest. This indicator is used by the bank as a basis for calculating the possible volume of issue of mortgage securities.
Types of mortgage-backed securities
Mortgage-backed securities include mortgage notes, mortgage-backed bonds, and mortgage participation certificates.
Mortgage
A mortgage is a registered security that certifies the right of its legal owner to receive fulfillment of 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 mortgagee's ability to quickly satisfy their claims. The transfer of rights under a mortgage by the mortgagee is carried out on the basis of 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 is given priority over the contract, so if there is a discrepancy between the contents of the contract, the contents of the mortgage must be followed.
Unlike most other securities (such as promissory notes, warrants, etc.), the contents of the mortgage may be changed or the mortgage may be replaced; 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 replacements are made only on the basis of an agreement between the specified parties. Replacement or modification of a mortgage is usually practiced in the case of private execution of the main obligation.
A mortgage is declared invalid in court in two cases - 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 mortgagee. A duplicate of the mortgage is issued by the body that carried out the state registration of the mortgage.
Mortgage-backed bonds
A mortgage-backed bond is a security the fulfillment of obligations under which is secured in whole or in part by the mortgage security. This paper is issued in both documentary and non-documentary forms. Mostly housing bonds are traded on the market, that is, they have covered claims secured by the mortgage of residential premises. At the same time, housing bonds cannot be secured by collateral of real estate, the construction of which is not completed.
Thus, distinctive feature bonds as a type of mortgage-backed securities is the fact 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 the mortgage.
It follows, in particular, that in order to confirm the requirement for the obligation secured by the mortgage as part of the mortgage coverage, the presence of a mortgage is sufficient. Therefore, in the event of a violation of the obligations that arise from such bonds (say, when the bank issuing mortgage bonds refused to pay on them), the owner of these securities has the right to foreclose on the mortgage coverage, which is the subject of the pledge. Meanwhile, the mortgagor (the owner of the residential premises) is liable for failure to fulfill only his obligation arising from the loan agreement secured by the mortgage of the residential premises.
The amount of liabilities for all outstanding mortgage-backed bonds should not exceed the amount of the mortgage coverage, which serves as an essential condition for protecting the rights of the owners of these bonds. At the same time, the amount of mortgage-backed claims included in the mortgage coverage of the bonds should not be less than 80% of the nominal value of the issued bonds. At the same time, the principal amount of claims under a loan agreement or credit agreement secured by a mortgage or pledge must not exceed 80% of the market value of the real estate constituting the subject of the mortgage and assessed by an independent appraiser.
The issue of mortgage-backed bonds can be carried out exclusively by credit institutions and mortgage agents, whose role is played by specialized commercial organizations (joint-stock companies), whose main activity is the acquisition of claims and the issuance of mortgage bonds. In the latter case, the bank that provided the mortgage loan assigns 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 in the shortest possible time due to the rapid return of mortgage loan amounts (except for the interest specified in agreement between the bank and the mortgage agent).
Mortgage participation certificates
A mortgage participation certificate 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 person who issued 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 participation certificates thus act as an exchange instrument when a credit institution transfers the rights of claim arising from loan agreements into trust management of the management company.
Only a commercial organization (joint stock company) that has a license to carry out activities related to the management of investment funds, mutual funds and non-state pension funds has the right to issue mortgage participation certificates. Management of the property complex constituting 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 participation certificate acquires common shared ownership of the mortgage coverage, which is under trust management. This share includes a pool of property and liability rights, which consists of monetary claims, financial assets, 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 the mortgage coverage in the interests of the owners 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-Based Securities
Typically, the following types of mortgage-backed securities are distinguished:
- Residential mortgage-backed securities(English) Residential Mortgage-Backed Securities - RMBS listen)) is the most common form of securitization. The collateral for such securities is a pool of homogeneous mortgage loans secured by residential real estate.
- Commercial real estate mortgage-backed securities- (English) Commercial Mortgage-Backed Securities - CMBS ) - Securities backed by one or more pools of mortgages. Collateral for such securities may consist of one or more loans secured by