Why is this important
Mortgage bonds are a new tool for refinancing mortgages, reducing interest rates, and increasing housing affordability. Securitization will free up bank capital for issuing new loans. The 1-trillion-soum issuance is a pilot project, and if successful, it will be scaled up. The “regulatory sandbox” allows testing the mechanism without risks for the market.
What happened
- The NAPP approved the Regulation on Mortgage Bonds;
- UMRC SPV will issue 1 trillion US dollars in bonds under a pool of loans from 5 banks;
- “Regulatory Sandbox” — pilot project;
- Regulations: securitization, requirements, issuance, circulation, REPO.
Mortgage bonds
- What is this: securities secured by a pool of mortgage loans. Investors buy bonds, receive income from borrowers’ mortgage payments.
- Why: mortgage refinancing — banks sell mortgage loans to the MRC, receive liquidity, and issue new loans. Lower rates — more capital and lower funding costs.
Securitization
- Process: banks transfer mortgage loans to the CPI, the CPI forms a pool, the UMRC SPV issues bonds under this pool, investors buy, borrowers pay for the mortgage — investors receive income.
- Credit requirements: the regulation establishes criteria for inclusion in the pool (borrower’s quality, LTV, term).
Members
- MRC (Mortgage Refinancing Company): buys loans from banks and forms a pool.
- UMRC SPV: issues bonds.
- Originator banks: 5 banks transferring loans to the pool.
- Central Depository: Bond Accounting.
- NAPP: “sandbox” regulator.
Regulating sandbox
- What is this: a special regime for testing new financial instruments without full regulation.
- Why: checking the operation of mortgage bonds, identifying risks, refining mechanisms before scaling.
Why mortgage bonds
- Refinancing: banks sell MRC loans, free up capital for new loans — increase in mortgage volume.
- Reduction of rates: more capital, lower cost of funding — rates from 18-20% to 15%.
- Housing affordability: lower rates, more loans — more families can buy housing.
Context
- Mortgages are growing: the volume of mortgage loans is growing due to subsidies (7% for primary housing), income growth (+19% of wages).
- The problem: banks are limited in capital — they can’t give more loans. Securitization solves the problem.
- Mortgage bonds — world practice: US (Fannie Mae, Freddie Mac), Europe use them for refinancing mortgages, reducing interest rates.
- 1 trillion pilot: a test before scaling. If successful, the output will increase to 5-10 trillion.
