Mortgage Securities Research Articles

Anglo–Dutch financial connections and contrasts in the late eighteenth century: The Amsterdam phase of the 1772–3 credit crisis

AbstractWe examine the Amsterdam phase of the 1772–3 financial crisis using the British experience in the same episode as comparative context. We conclude that, notwithstanding some direct exposures by Amsterdam institutions to the principals of the London crisis, the main linkage between the two outbreaks was the requirement for cash margin on loans backed by British East India Company shares. No significant contagion via the bills of exchange network spread from London to Amsterdam in the period separating the two outbreaks, but some feeding back of distress to London is noticeable after the Dutch outbreak. The crisis was rooted in credit expansion, a deterioration in asset risk profiles, and speculation in West Indian mortgage securities and British equity markets. Speculators were enabled by information inefficiencies in the specialized and layered Amsterdam markets, and by the absence of a gatekeeper who could have regulated the provision of credit to them. To contain the outbreak, the Dutch drew on the cohesion of an informal club of insiders who led business and civic affairs. Though the credit markets resumed normal operations relatively quickly, the incurred losses were transformative for their long term prospects by devastating some of their most important firms.

Analysis of the Game Behavior of Real Estate Mortgage Securities Issuers Based on Reciprocal Preferences

In recent years, the Chinese government has gradually begun to pay attention to the development of real estate investment trusts (REITs) and hopes to use REITs to increase the securitization of assets in the real estate market, making it possible to accelerate the circulation of funds in the real estate market. In order to enable issuers to price REITs effectively to form a mutually beneficial transaction model with investors, to increase the willingness and success rate of both parties and to ultimately create a harmonious and efficient REITs market, it is important to study the pricing decisions of issuers when issuing REITs. This study analyzes and investigates the issue of pricing decisions of REITs based on reciprocal preferences and evolutionary game theory. It is found that when the proportion of REITs issuers choosing to construct a reciprocal initial pricing decision is greater than the equilibrium probability of REITs issuers choosing a reciprocal pricing strategy, and when the initial proportion of investors choosing a reciprocal investment decision is greater than the equilibrium probability of investors choosing a reciprocal investment strategy, the overall REITs transaction market tends to be a reciprocal and harmonious transaction market at this time, the overall happiness of the REITs trading market is the highest, and the success rate of trading increases and the capital circulation of the real estate market is accelerated. Therefore, it is recommended that issuers choose reciprocal competitive decisions when pricing REITs in order to increase the success rate of their own REIT holdings; and it is recommended that the government, when regulating the pricing of REITs, pays attention to the psychological factors of reciprocal preferences of issuers and investors and that the government penalizes REIT issuers and investors when they choose self-serving decisions and rewards them when they choose reciprocal decisions.

Securitization Enhancing Liquidity in Kenya

Purpose: This paper aims to explain the benefits of securitization in Kenya’s economy that is to both the government, the private sector, and the Kenya capital market. The paper provides a road map on how the government and private sector can diversify their funding sources, lower borrowing costs, improve liquidity, and transfer risk. It will help offer clear policy direction to government policymakers in efforts geared towards the introduction of asset securitization in the country which will increase liquidity, economic growth, and expansion of capital in the country. The regulator of the financial market Capital Market Authority (CMA) will therefore formulate guidelines and regulatory requirements that can enhance the performance of the securitization industry. The paper will also be useful to corporate strategists of companies as they seek to optimize return considerations in driving shareholder wealth margins. The paper is expected to motivate and be a key reference for future research work in the securitization industry in Kenya. Securitization is one of the innovative products that may be used by government and private firms and investors to increase wealth.
 Methodology: The study adopted a desktop methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library
 Findings: Securitization will bring benefits in terms of growth in the economy and expansion of capital markets and hence wealth creation. Securitization involves the conversion of a pool of assets with a regular and predictable cash income such as mortgage repayments receivables, and credit card receivables e,t,c into a security or marketable instrument that allows the institution to transact a large number of its assets, which would otherwise not be attractive as individual. The originator who will be the financial institution or the government then creates a legal entity known as a Special Purpose Vehicle (SPV). The special purpose vehicle may be in the form of a Limited Liability Company, a trust, a partnership, or even a subsidiary of the Originator. These selected receivables are then transferred to the special purpose vehicle which then becomes the owner of these receivables. The securities to be issued by the special purpose vehicle are usually rated by a rating agency. This is due to the fact that such instruments are unsecured, which will require that investors are protected.
 Unique Contribution to Theory, Practice and Policy: Profit maximising theory and theory of innovation can be used to anchor future studies on securitization enhancing liquidity. If the Government or the financial institution wants to issue 'AAA' rated asset-backed securities or mortgage-backed securities, collateralized mortgage securities, or collateralized debt obligations (CDOs)then they must choose first-class loans not prone to prepayment and default risk where originators conduct their own rating, they select all the best asset bundles for investment. In order to get a favorable rating, the special purpose vehicles can provide credit enhancement to the securities.

Monitoring System and Instruments for Risk Management in Commercial Banks

As social рractice shows, shortcomings in the system of management and control of the banking system can cause not only a worsening of the crisis state of the country's banking system but also the emergence of a systemic crisis at the national level due to the transfer of financial resources to other segments. In particular, as a result of allowing an unreasonable increase in the amount of non-рerforming loans (NРL) in the case of NPL in the case of loans from developed countries, US commercial banks and mortgage organizations led to a sharр increase in the number of non-рerforming loans in the grouр of unsecured borrowers, a sharр decrease in the investment attractiveness of mortgage securities on a financial basis, and the global financial and economic crisis has led to its exрansion around the world. In the course of the study, the effective organization and implementation of the “monitoring of a bank account” activity, which is an integral part of the activity of a bank account, as well as the scientific and theoretical foundations of the concept of “bank account” were studied scientifically and conceрtually.

IMPACT OF THE COVID-19 PANDEMIC ON THE DEVELOPMENT OF MORTGAGE LENDING IN RUSSIA

Relevance of the research topic. The coronavirus crisis has had a controversial impact on the mortgage market. On the one hand, mortgages during the Covid-19 pandemic have become more profitable due to lower interest rates and a decrease in the size of the down payment. On the other hand, for many citizens who are faced with the loss of work or a decrease in income, mortgages during the coronavirus period have turned into an overwhelming debt. Government support in the field of mortgage lending during the Covid-19 pandemic spurred the growth of mortgage loans, this support helped to meet part of the demand for mortgage transactions for 2021. Also, banks, from a decrease in interest on preferential mortgages on their proposed programs, received low income, in this situation borrowers who took out a mortgage under the state program in the first three or four months won. Mortgage lending is a very risky financing, both for lenders and borrowers, due to a number of interrelated reasons, such as imperfection of Russian legislation, reduced incomes of the population, and the COVID-19 pandemic. The situation with the COVID-19 pandemic has put many residents of Russia in a difficult position, especially those who, due to restrictive measures, faced disruptions in the activities of their organizations, having significantly lost income, but at the same time bears the burden of paying various kinds of loans, including including mortgage lending. Due to the introduction of the program for concessional mortgage lending, the dynamics of the mortgage market has increased, however, a decline in demand for mortgage loans is predicted after the completion of this program, which will lead to a decrease in the cost of housing. This trend will affect the collateral value of real estate purchased with a mortgage. The main problems of mortgages in the Russian Federation now are low incomes of the country as a whole and of each person individually, significant inflation, monopolization of the housing construction market, migration features, insufficient government participation in supporting mortgages and the underdevelopment of the mortgage securities market. The solution of the indicated restrictions will be possible only as a result of the general, progressive development of the country's economy in all its spheres: politics, social, construction, banking and other sectors. The purpose of the study is to assess the impact of the Covid-19 pandemic on the development of mortgage lending in Russia. Methods of comparison, generalization, analysis, tabular method were used in the work.

COVID‐19, trade and trade policy

COVID‐19, trade and trade policy

РИЗИКИ ІПОТЕЧНОГО КРЕДИТУВАННЯ ТА ШЛЯХИ ЇХ МІНІМІЗАЦІЇ В УМОВАХ ФІНАНСОВОЇ НЕСАБІЛЬНОСТІ

The article provides the author's definition of the terms "mortgage loan" and "mortgage lending risk". The classification of mortgage lending risks according to risks related mainly to real estate (systemic, non-systematic, random) and risks related to the capital market (banking risks) is given. The definition of each risk highlighted in the author's risk classification of mortgage lending risks is given. The distribution of risks between participants in mortgage relations (creditor, borrower, issuer of mortgage securities, investor) is presented, depending on the one- and two-level model of mortgage lending. The correlation between the level of risks and the cost of credit services is indicated. A detailed analysis of the following risks was carried out: credit risk, market risk, interest rate risk, liquidity risk, currency risk, operational and technological risks, reputational risks and legal risk. Attention is paid to one of the types of credit risk – the risk of early loan repayment, and an example of its minimization is given. It is described how credit risk directly affects the market value and profitability of the mortgage portfolio. The causes of mortgage lending risks are listed and their consequences for all participants in credit relations are listed. The close relationship between the macroeconomic situation in the country and the effectiveness of mortgage lending is substantiated using the example of real estate price fluctuations. The importance of the correct assessment of collateral property when concluding a credit agreement is explained. The experience of the banks of the leading countries of the world and the leading banks of Ukraine in managing mortgage risks is presented. The methods of risk management given in the classification are considered and proposed, and the ways of improving the effectiveness of the mortgage loan are given. The most adequate monthly payment for a mortgage loan is given as a percentage of the borrower's income to ensure his solvency. Possible scenarios of fraud in the field of mortgage lending are given and recommendations for their prevention are given. Real cases of scams from developers of Ukraine in the context of mortgage lending to the population are given.

ANTI-CRISIS POLICY OF THE LEADING CENTRAL BANKS AT THE PRESENT STAGE

According to a review of "Central Banks: Monthly Balance Sheets", prepared by the consulting company Yardeni Research, Inc., the assets of the four leading central banks in the world - the US Federal Reserve (FED), the European Central Bank (ECB), the Bank of Japan and the People's Bank of China (PBOC), increased by 4.8 times over the specified period. Consequently, the liabilities of the big four central banks increased by 4.8 times. As it is known, the bulk of the Central Bank's liabilities is money issued by central banks (in the form of cash and deposits, on which commercial banks place their funds). Therefore, the money supply issued by four banks in a quarter of a century has also increased by 4.8 times. The FED was especially distinguished by the fact that it began to sharply increase the issue of money in the midst of the financial crisis of 2008-2009. This was done under the flag of "quantitative easing" (QE). There were three "quantitative easing" programs, the last one ended in 2014. However, when the US declared a "pandemic" and began to impose quarantine restrictions, the Fed's printing press was again launched at full capacity. Now the Fed buys $ 120 billion a month in the securities market ($ 80 billion in US Treasury securities and another $ 40 billion in mortgage securities). Accordingly, the dollar supply is increasing by the same amount every month. The Bank of Japan is on the second place in terms of the growth rate of assets (and money supply). It began to build up assets and money supply earlier than other leading central banks, from the end of the 20th century to the beginning of the 21st century. At the end of February 2021, the picture has changed radically. We see a rapid rise in the value of the indicator at the Bank of Japan, at the turn of 2018-2019. It crossed the 100% bar. Now its assets are equal to 127.4% of GDP. The indicators of the relative level of assets of the Fed and the ECB have grown very much. But the Central Bank of China has reduced the relative value of its assets by about a third. This is both the result of curbing the activity of the Chinese Central Bank and the fact that China has experienced high rates of GDP growth. As for the other three leading central banks, their policy of increasing money supply will continue. The head of the US Federal Reserve, Jerome Powell, makes it clear that the US Central Bank, at least until the end of the year, will continue to buy securities in the same volumes (that is, $ 120 billion a month). ECB President Christine Lagarde said in March that the bank would accelerate asset purchases in the coming months under the Pandemic Emergency Purchase Program (PEPP). The volume of this program is 1.85 trillion EUR. In addition, the main ECB repurchase program continues to operate. Other central banks that are not included in the survey by Yardeni Research, Inc. are also pursuing an asset buildup course. Among them are the Bank of England and the Swiss National Bank. Leading central banks of the world, to justify the runaway money emission, refer to the "pandemic". The more money supply is created, the more likely it is that this currency will have a lower rate in relation to the competitor's currency. And the undervalued exchange rate of the national currency is a means of strengthening the international competitiveness of national business. However, such competition can lead to the collapse of the currencies of rival central banks

How Informed Were Non-Agency MBS Investors? Evidence from Mortgage Servicing Fees

This paper examines the informativeness of servicing fees regarding the quality of mortgage collateral pools in non-agency securitizations and, ultimately, the value of the mortgage securities. We find that servicing fees capture some unobservable credit risk that explains mortgage default and differentially affects the performance of various security classes. However, junior bond yield spreads at issuance account for this risk, which suggests that investors were more sophisticated than previously thought or that deal issuers were more transparent about collateral credit risk than recognized in the literature. The slow reemergence of non-prime lending as non-qualified mortgage lending makes this study still relevant.

Subprime Attention Crisis: Advertising and the Time Bomb at the Heart of the Internet

In 2020, Tim Hwang, a writer, lawyer and technology policy researcher based in New York, published a short book entitled Subprime Attention Crisis: Advertising and the Time Bomb at the Heart of the Internet, which seeks to analyse the issues that are developing around the business model associated with the continued operation of the Internet, at least in its current manifestation, and the weaknesses and potential instability associated with that model. The book is of particular interest because the problems and possible next developments of the “time bomb” are set out in a plausible manner, together with some discussion on possible solutions. In particular, the author makes a credible comparison of the business model of the Internet with the subprime mortgage securities sector, the collapse of which contributed to the Global Financial Crisis in 2008.

Globalization of mortgage-backed securities market in Russia: Legal impact on transaction economy

Research background: The exponential growth of mortgage lending has taken on increasing importance in development of securitization activities market for mortgage assets throughout the world. The difficulty of comparing mortgage-backed securities of different countries explained by varying national legal features is the reason why there is no international market for such securities. Since 2014, the mortgage securities market has entered the stage of nationalization; as a result, it slowed down and lost the necessary infrastructure, including its legal components. Since securitization of mortgage loans first originated and became common in developed economies, it is of interest to compare Russian and international experience of legal regulation of each transaction stage. Purpose of the article: The purpose of this paper is to analyze legal regulation features of mortgage securitization in different countries and their impact on economic characteristics of securities in order to develop a globalization strategy for this market. Methods: The study is based on open data from Russian, European, American, England Central Banks and uses methods of structural, statistical, dynamic analyses and abstraction which made it possible to form holistic and substantiated conclusions. Findings & Value added: As a result of research activities, key features of legal regulation of mortgage securitization transaction have been identified. Based on these findings, a strategy for globalization of mortgage securities market was proposed. It contributes to international cooperation development in the field of long-term projects financing, including support measures of mortgage lenders.

C & F Nominees Mortgage Securities Ltd v Karbotli

C & F Nominees Mortgage Securities Ltd v Karbotli

ИПОТЕЧНОЕ КРЕДИТОВАНИЕ СЕЛЬСКОХОЗЯЙСТВЕННЫХ ОРГАНИЗАЦИЙ РОССИИ

The authors investigated the problems and prospects for the development of mortgage lending in the agricultural sector of Russia. The study found that the level of mortgage and, especially, land-mortgage lending to agribusiness is not high enough. The reasons - agriculture is characterized by a number of specific risks, land plots (as collateral objects) are financially unattractive for banking institutions, which experience increased risks with long-term lending to the agricultural sector of the economy. As a result, the process of mortgage lending to agricultural organizations presents various difficulties for potential borrowers. In order to activate mortgages for agricultural formations, the authors propose that banks expand the practice of issuing such loans on the basis of the simultaneous purchase by agricultural borrowers of part of their shares, as well as issue mortgage securities on the security of financially attractive agricultural assets (unmanned agricultural equipment, pest control bioferms, grain quality measurement devices, digital doubles, drones, etc.).

Linear Programming and Its Application Techniques in Optimizing Portfolio Selection of a Firm

Optimization techniques have been used in this paper to obtain an optimal investment in a selected portfolio that gives maximum returns with minimal inputs based on the secondary data supplied by a particular firm that is examined. Sensitivity analysis is done to ascertain the robustness of the resulting model towards the changes in input parameters to determine a redundant constraint using linear programming. The challenge of determining the available funds and allocating each component of the portfolio to maximize returns and minimize inputs by portfolio holders and managers who are the major decision-makers in allocating their resources cannot be quantified. This optimization technique is used to obtain an optimal investment portfolio including financial risks of a firm with disposable of $15,000,000.00 invested in crude oil, mortgage securities, cash crop, certificate of deposit, fixed deposit, treasury bills, and construction loans. The model is a single-objective model that maximizes the return on the portfolio as the interests on the original data reduces by 5%; then, the return on investments also reduced by almost 15%, with the quantum of money on treasury bills and construction loans posing a significant reduction for the maximum return. The investment in the other options saw a slight decrease. Also, as the interest rates of the original data increase by 5%, the return on investments also grows by almost 17% while the quantum of money on the treasury bills and construction loans increases, and the quantum of money on the other options experienced a decrease except for mortgage securities which recorded a slight increase.

On the Diversification of Fixed Income Assets

This article introduces a new approach for dealing with the diversification/concentration risk of fixed income assets. Because Government bonds, corporate bonds, and mortgage securities constitute most of the assets of insurance companies in most countries, it is important to be able to determine the number of lines/issuers of such assets, not only for portfolio management, but also for risk management purposes. The approach that we introduce allows us to show the dependence of the critical number of lines of fixed income assets on the main interest rate risk and credit risk drivers. Specifically, we examine the importance of volatility risk, force of mean reversion, default risk, recovery risk, and default dependence risk on the critical number of fixed income assets in which an insurance business should invest.

НАПРАВЛЕНИЯИСПОЛЬЗОВАНИЯМЕЖДУНАРОДНОГООПЫТАДЛЯРАЗВИТИЯСЕКЬЮРИТИЗАЦИЯИПОТЕЧНЫХКРЕДИТОВВРОССИИ

The article is devoted to considering the current level of securitization of mortgage assets in Russia and the role that it can play in developing and strengthening the national financial system. The world experience shows that the issue of mortgage securities is a profitable source of financing for credit organizations and stimulates the developmentof the banking sector as a whole. Being one of the most effective economic innovations, the process of securitization of mortgage assets for over 40 years of use in the most developed economies of the world confirms its relevance and importance.Based on the analysis of international best practices in this area, those possible ways of developing securitization of mortgage assets in Russia were identified that would allow our country to maintain the liquidity of the Russian banking system in conditions of growing crisis processes in the world economy and financial markets and give it the necessary sustainability through reliable financial sources.

Understanding the Bases and Approaches of Mortgage Valuation in Ethiopia

In Ethiopia there is no mortgage valuation framework or a regulatory valuation institution. Due to this, financial institutions may value mortgage securities without any clear and consistent basis; resulting in confusion among experts and parties dependent on valuations for their business. Further, there is no previous empirical evidence on how banks or financial institutions value mortgage securities. This study is therefore intended to examine the practice of mortgage valuation adopted by Ethiopian banks by looking at valuation bases and their corresponding approaches. To meet this objective the researchers adopted a qualitative research approach where primary data were collected using key informant interviews from experienced valuers at four Ethiopian banks. The collected data were analysed and interpreted using clustering and the data were categorised into relevant themes. The study found that banks undertake mortgage valuation without any valuation basis, and they consider the cost approach as the only recognised valuation approach. Moreover, property valuers do not have sufficient professional competence in valuation and have no discretion to choose the appropriate valuation approaches. Based on the findings of this research, it is suggested that banks apply market value as a basis of valuation. The market value basis is compatible with the property market context of Ethiopia and international practices. The constitution of Ethiopia also supports it. Furthermore, banks should also adopt either the income, market or cost approaches depending on the nature and type of properties. But the cost approach can be applied as a check and balance on the reasonableness of the value determined using another approach and in cases where the two approaches are inappropriate. Valuers should also be able to use their discretion in selecting valuation approaches. These can be realised by establishing an independent national institution responsible for valuation regulation and certification.

Macroeconomic implications of mortgage loan requirements: an agent-based approach

It is a well-known fact that the housing market, with its associated mortgage securities, plays a crucial role in modern economies. The recent crisis of 2007, triggered by the U.S. real estate bubble, confirms this key role and suggests the importance of regulating mortgage lending. This paper investigates these issues by designing a housing market with a linked mortgage lending instrument in the Eurace agent-based model. Our results show that the presence of a housing market in the model has relevant macroeconomic implications, driven mainly by the additional amount of endogenous money injected into the economy by new mortgages. This additional money generally helps to support and stabilize aggregated demand, thus improving the main economic indicators. However, if the regulation of mortgage lending is too lax, involving an increase in the debt-service-to-income ratio (DSTI), then the additional supply of mortgages no longer enhances macroeconomic performance, and the stability of the economic system is undermined. Based on a number of recent discussions, a regulation of stock control that targets households’ net wealth (a stock), rather than income (a flow) is designed and analyzed. The results show that regulation of stock control can be combined effectively with DSTI to increase the stability of the housing market and the economy as a whole. Interestingly, the regulation based on stock control also directly affects mortgage distribution among households, avoiding excessive concentration. From a policy perspective, our results suggest that the use of a mild flow control regulation, coupled with a stricter stock control measure, fosters sustainable growth and eases first-time buyers access to the housing market, encouraging homeownership.

The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

This paper uses event study analysis to estimate the impact of the United States Federal Reserve Bank’s (Fed) quantitative easing (QE) announcements on the mortgage market during the zero lower bound (ZLB) period. A total of 35 QE announcements are identified and their effects are evaluated. The best-fitting integrated generalized autoregressive conditional heteroskedasticity (IGARCH) model with skewed t distribution is used to measure the QE announcement effects on daily changes of the 30-year mortgage rate, the 30-year Treasury rate and the spread between them. Announcements suggesting the start of a new round of QE reduced the mortgage rate tremendously, while the effects of further news diminished. Announcements of an increase in mortgage-backed security purchases decreased the mortgage rate more than the Treasury rate and reduced the credit risk of holding mortgage securities over Treasury securities. The delayed effects of QE announcements on the mortgage rate were less than short-run effects but persistent. We also find that the previous literature overestimates QE effects on interest rates in general.

Іпотечні механізми відтворення капіталу в аграрному секторі економіки: світовий досвід та Україна

Introduction – the relevance of the article is determined by the limited involvement of financial resources in the agrarian sector of the economy by providing loans secured by land for agricultural purposes through a moratorium on their alienation. In agriculture, land is a major factor in production, but in our country it is not defined by capital, its value is not reflected in the share capital in the balance sheet, and land income is not charged. Purpose – identification of the main characteristics of the mortgage mechanisms of reproduction of capital in the agrarian sector of the economy by the European and American type, and developing recommendations on this basis for Ukraine. Results – the characteristics of one-level and twolevel models of land-mortgage credit are generalized on the following features: openness, distribution, subjects, active mortgage operations, operations on resource formation, advantages, disadvantages, preconditions of functioning. The factors of the land market and banking activity, which hinder the development of land mortgages, are determined. Critical assessment of the attempt to create a specialized land bank in Ukraine is given. Conclusion – an iterative approach to the introduction of mortgage mechanisms of reproduction of capital in the agricultural sector of the economy is proposed, represented by bank credit under the bail of agricultural land and issuance of mortgage securities. The obligatory conditions for effective functioning of mortgage mechanisms of reproduction of capital in the agrarian sector of the economy are determined: a complete land market, on which all functions of ownership are implemented without restrictions; providing tax incentives to banking institutions that provide mortgage credit, as well as state guarantees for mortgage coverage.