Structured mortgage bonds-What is a mortgage bond? Mortgage bonds – this is a long-term securities issued under the provision of real estate. Issue of mortgage bonds allow banks who are active in the mortgage market, attract refinancing bail already granted loans and direct the proceeds to the issuance of new loans. In fact, the scheme is very simple: let’s say, the bank issued a loan for a certain amount at 13% per annum.
To issue a new loan for the same amount, you have to wait at least a few years until the amount of payments the borrower on the loan reaches 100% of the cost of housing. More profitable to issue securities secured by loans issued, the yield on which is, say, 10% per annum. That’s how much the bank will pay the holder of the bond, and in return receive a portion of the profits from the first loan (in this case 3%) and cheap resources for the issuance of new loans.
It turns out a kind of ladder diagram. However, in reality, mortgage bonds are issued not by a single loan and a so-called mortgage pools formed of a plurality of credit with a uniform yield. The cost of one such a pool could be $ 100 million. Above. In this case, according to the Law “On Mortgage Bonds” the bank has the right to issue collateralized mortgage portfolio of bonds in the amount of 75% of the coverage.
Themselves as mortgage bonds – is an IOU, which suggests the introduction of organization or individual funds, thus confirming the obligation of the issuer (in this case the bank) to compensate it for the cost and profits. If the bank has issued securities that have not complied with its obligations under the bonds, their owner can recoup their losses due to the mortgage collateral, that is, the right to demand for mortgage loans.
And according to the Law “On Mortgage Bonds” banks will be responsible for the security is not only the mortgage-backed securities, but also the rest of the property – credit cards, installment, corporate loans and any other assets held by the financial institution. Thus, borrowers issuing bank are not at risk – change the lender will not affect the amount of their obligations, and the bondholders often remain satisfied, because they invest resources in a reliable fixed-income instruments.
Holders of mortgage bonds may be both organizations and individuals who already have a securities account opened in any institution. To purchase mortgage bonds do not necessarily apply to their issuer. However, private investors mortgage bonds are rarely interesting because of low profitability. But they are actively investing pension funds, insurance companies and other organizations that need to protect their capital against risks and ensure that it at least slow, but steady growth.