Bonds (mortgage) occupy more than 80% of all real estate transactions in the USA, in Russia - less than 10%. The prospect of securities is obvious. However, many are not only aware of what mortgage-backed bonds are , but also basic concepts.
The basics
Bonds are securities that give the right to receive a fixed guaranteed profit.
They are of two types:
- Upon presentation - bought cheaper, sold more expensive.
- Fixed interest - assumes for the investor income (coupon) after a certain time.
Bonds are debt securities. Return guaranteed by company rating. The more stable the company, the more likely it is to receive the promised income.
What are bonds (mortgage)?
A mortgage bond is a debt paper that refinances investments in real estate loans.
For example, AAA Bank provides housing loans. Capital, of course, is limited. Having 1 billion rubles, the bank can issue, for example, 1000 loans. Naturally, the real estate market will stop when the credit institution runs out of funds.
Who benefits?
The issue of mortgage bonds is beneficial to all market participants:
- Bank - increases the amount of loans issued on a mortgage.
- Investor - invests money in an asset, which, depending on housing prices, should grow.
- To the borrower - sky-high mortgage rates are reduced by 1.5-2%. Of course, the numbers are small, but in the face of a large loan amount, the benefit is obvious.
- For developers - construction companies do not “freeze” their facilities, but continue to work.
- To the state - taxes are received from buildings and sales.
- Workers - they are not reduced from lack of work.
How are debt obligations secured?
Now about how this market works. AAA Bank issues a loan for the acquisition of property in the amount of 5 million rubles. On them he issues bonds (mortgage) and sells them on the stock exchange. Money from investors go to new loans. Securities are provided by payments of citizens on a mortgage.
Alternatives
Bonds (mortgage) are not the only instrument for investors in this market. There are alternatives:
- Mortgage certificate of participation - a share of the loan amount for the acquisition of an asset. The investor receives the right to profit from real estate.
- Mortgage - a security that confirms the right to receive money from the borrower. The difference from a bond (mortgage) is that the security on the mortgage is the acquired property.
Features of securities in Russia
Of course, an idea coming from the USA can bring positive moments in our market. However, mortgage bonds in Russia raise many questions both among investors and specialists. The term "stability" is not applicable to the development of the economy of our country, especially with regard to the real estate market. Over the past 1.5-2 years, he not only stopped growing, but also fell significantly. Bonds (mortgage) cannot generate income from the real estate market if it does not grow.
The second problem is the high cost of securities. Private commercial companies and ordinary citizens will not be able to become investors for this reason. All hopes are placed on non-state pension funds, banks with free funds that supposedly do not know where to invest them.
The third problem is the lack of a sound legislative framework.
We can summarize: the high cost of securities, the instability of the mortgage market, as well as an ill-conceived legal base, are unlikely to allow this type of securities to develop in Russia.
Why did mortgage bonds crash the system in 2008?
The crisis in 2008 began precisely with mortgage bonds (CDO). The fact is that many investors began to acquire securities, knowing that the real estate market is constantly growing. This influenced the strategy of banks, which were indifferent to the solvency of their customers. The main thing is that they be. There were cases when a mortgage of 500 thousand dollars was issued to people who did not have a regular income. For the bank, the risks are minimal - they received this money on stock exchanges from the sale of mortgage bonds.
Also, banks issued credit swaps, that is, insurance if debt is not paid.
But the pyramid twisted so much that they began to issue bonds (synthetic CDOs) under them. Since the analytical companies did not know what it was, they relied on the data of the investment companies that issued them. Some knew, but were afraid to lose large customers. The BBB made an even more problematic asset out of bonds of a risky level, but its degree of threat was already equal to AAA (as a government bond of the US federal loan), that is absolutely safe. This allowed investors who own millions of dollars to invest in unsecured securities plus raise funds from pension funds that are prohibited from investing in assets less than this rating. Naturally, such a pyramid would sooner or later collapse when housing prices began to fall. This is what happened. Large investment companies, investors and insurance agents went bankrupt.
This was earned by investors who bet on mortgage swaps, that is, mortgage insurance, which they sold at low prices. That is, by investing a million dollars in them then, you could get several hundred million, since no one simply believed in default.