Mortgage securities are entering the market

Recently, on 29 July 2006, the law was published, which aims to increase the availability of mortgages for the citizens. It is a federal law amending the Law "On Mortgage Securities", adopted in 2003. Development of a new document has been provided an action plan of the Russian Government on the implementation of socio-economic development of the Russian Federation in 2006-2008. The Act aims to remove obstacles to issuance of mortgage securities. Their entry into the market will allow banks to more actively use the mechanism of refinancing, which in turn lead to lower rates on loans to the public. The greatest response among market participants was normal, excluding provision for compulsory insurance of the borrower (individual) life and health. It's no secret that insurance significantly increases the cost of obtaining a mortgage loan. According to the Russian Government, the requirement for life insurance and health of the borrower is excessive, since the promisee with citizens already have adequate security of their property claims in the form of a pledge of real estate. However, with this position do not agree, many banks and insurance companies that intend to preserve life and health insurance along with other types of insurance as a requirement for borrowers. Recall that, to date, banks offer mortgage borrower comprehensive insurance: property (make a mandatory basis in accordance with Art. 31 of the Law "On Mortgage (mortgage)", life and health (required if the mortgage refinance by issuing planned mortgage-backed securities, now that obligation has been lifted), the risk of loss of ownership of the property (title insurance that provides compensation for loss of ownership of the acquired property.) Total cost of insurance for mortgage borrowers are 0.3-2 % of the loan amount annually for life and health insurance goes from 0.2% (depending on age and health of the borrower). But insurance companies are constantly reducing tariffs under pressure from banks and other market participants who indicate a negative attitude of citizens to these costs, which charged in the appendage to the payments on a mortgage. Another important change in the law "On Mortgage Securities" became the norm, the more specific part of the mortgage collateral. Now it may not include claims collateralized by real property if the property within six months or more not insured against the risk of loss or damage. In this case, the issuer of mortgage-backed securities (the organization producing them) can replace the requirement for more. Earlier in the Law "On Mortgage Securities" was not provided for the legal consequences for breach of insurance requirements for real estate the term of the obligation. Other changes to the Law "On Mortgage Securities" securities are as follows. 1. allowed the possibility of the mortgage collateral requirements for the return of principal payments on credit agreements and loan agreements separate from the requirement to pay interest on them. This is motivated by the inability establish in advance the actual rate of interest on mortgages (loans). 2. Issuer of mortgage securities are allowed to use are part of the mortgage collateral funds for the fulfillment of obligations to holders of mortgage-backed securities (the right to repay the costs by mortgage collateral shall be provided by the decision to issue bonds .) 3. is allowed to issue two or more issues of mortgage bonds on the basis of a mortgage collateral, which will issue securities with different levels of risk and return for all categories of investors. 4. Managing mortgage has an opportunity to realize the right to demand that make up the mortgage cover mortgage participation certificates, if such a requirement does not comply with the law or on it permitted delay in performance. Changes to the law under discussion, allow market participants to produce and to purchase mortgage-backed securities of varying degrees of reliability and profitability, as well as creating favorable for refinancing appropriate credit (loans). Collateralized mortgaged real estate will be able to buy banks, organizations and even individuals who invest in securities.