A mortgage participation certificate is a completely new document for the Russian market, involving a rather complex financial mechanism. Each purchaser of such a security has his or her share in the common ownership of the property constituting the “cover” of the certificates. The owner of this certificate is, as it were, a co-owner of mortgage loans and at the same time acts as a founder and beneficiary under a trust management agreement for this property. He receives almost all the funds that the borrower pays on the loan, minus the manager's fee. />Mortgage participation certificates have much in common with securities such as investment shares. The fundamental difference between these two securities is the composition of the property to which they certify the right.
A mortgage participation certificate is a registered security certifying its owner’s share in the right of common ownership of the mortgage coverage, the right to demand from the person who issued it proper trust management of the mortgage coverage, the right to receive funds received in fulfillment of obligations, the claims for which constitute the mortgage coverage.
A mortgage participation certificate is a non-issue security, issued in book-entry form and has no face value. Each mortgage certificate
participation certifies the same amount of rights, including the same share in the right of common ownership of the mortgage coverage.
Mortgage participation certificates are freely circulated, including through trade organizers on the securities market. The number of mortgage participation certificates is specified in the rules of trust management of mortgage coverage.
Accounting of rights to mortgage participation certificates is carried out on personal accounts in the register of owners of mortgage participation certificates and, if provided for by the rules of trust management of mortgage coverage, on securities accounts by depositories, for which, for these purposes, personal accounts of nominal holders are opened in the register of owners of mortgage participation certificates.
The issuance of mortgage participation certificates can only be carried out by commercial organizations that have licenses to carry out activities related to the management of investment funds, mutual funds and non-state pension funds.
The issuance of mortgage participation certificates is the basis for the emergence of common shared ownership of the owners of mortgage participation certificates for the mortgage coverage under which they are issued, and the establishment of trust management of such mortgage coverage. Common shared ownership of the mortgage coverage arises simultaneously with the establishment of trust management of this mortgage coverage.
Trust management of mortgage coverage is established by concluding a trust management agreement for mortgage coverage. The validity period of the mortgage cover trust management agreement should not be less than one year and more than forty years.
The claims and other property constituting the mortgage coverage are the common property of the owners of the mortgage participation certificates and belong to them by the right of common shared ownership. The division of the property constituting the mortgage coverage and the allocation of a share in kind from it are not allowed.
Owners of mortgage participation certificates bear the risk of non-fulfillment or improper fulfillment of obligations, the requirements for which constitute mortgage coverage.
The mortgage coverage manager carries out fiduciary management of the mortgage coverage by: receiving payments for obligations, the claims for which constitute the mortgage coverage; transferring funds to owners of mortgage participation certificates from the specified payments; ensuring the proper fulfillment of obligations, the requirements for which constitute mortgage coverage, including foreclosure on the debtor’s property, including those pledged to secure these obligations, in the event of non-fulfillment or improper fulfillment of such obligations; performing other related actions that do not contradict Russian legislation and the rules of trust management of mortgage coverage.

Rice. 10.2. Approximate scheme for refinancing commercial banks - primary lenders through the issuance of mortgage participation certificates
The mortgage coverage of mortgage participation certificates may only include claims on obligations secured by a mortgage, mortgage participation certificates certifying a share in the right of common ownership of another mortgage coverage, and funds received in connection with the fulfillment of obligations, the claims for which constitute mortgage coverage, circulation collection of such claims and fulfillment of obligations under mortgage participation certificates constituting the mortgage coverage. Replacement of claims and other property constituting the mortgage coverage of mortgage participation certificates is not permitted.
At first glance, the diagrams presented in Fig. 10.1 and 10.2 are the same, but there are two fundamental differences: organizations that issue mortgage securities (in the first scheme, these are mortgage agents or credit organizations, and in the second, management companies), the second difference is related to the financial instrument offered to investors (in The first scheme is mortgage-backed bonds, and the second is mortgage participation certificates).
Table 10.2
Comparative characteristics of mortgage-backed bonds and investment participation certificates
The Russian market for mortgage-backed securities (especially mortgage-backed bonds and investment participation certificates) is in its formation phase. According to experts, this market is one of the most promising. The development of the mortgage securities market will naturally be accompanied by clarification of the procedure for regulating the issue and circulation of this type of securities. Therefore, the material presented above, like probably no other in this text of lectures, is subject to changes and additions, which requires special attention when studying this topic.
Security questions What mortgage models are there? Define mortgage. Under what conditions is it not permissible to draw up and issue a mortgage? How is the transfer of rights under a mortgage carried out? What are the required details of a mortgage? Define a mortgage-backed bond. What are the functions of a mortgage agent? What are the fundamental differences between mortgages and mortgage participation certificates and mortgage-backed bonds? What may constitute mortgage coverage?

The Law “On Mortgage Securities” provides for two types of mortgage securities that can be issued on the territory of the Russian Federation: mortgage-backed bonds and mortgage participation certificates. Mortgage-backed bonds and their variety, mortgage-backed housing bonds, are classified as equity securities.

■ Mortgage participation certificate – a non-issue registered security certifying its owner’s share in the right of common ownership of the mortgage coverage, the right to demand from the person who issued it proper trust management of the mortgage coverage, the right to receive funds received in fulfillment of obligations, the claims for which constitute the mortgage coverage, as well as other rights provided for by federal law.

Mortgage coverage is a set of claims secured by a mortgage for the return of the principal amount of the debt and (or) for the payment of interest under credit agreements and loan agreements, including those certified by mortgages, and (or) mortgage participation certificates certifying the share of their owners in the right of common ownership of another mortgage coverage of funds in Russian currency or foreign currency, as well as government securities and real estate.

The law determines that claims for obligations secured by a mortgage may be included in the mortgage coverage only if they meet the following conditions:

• 1) the principal amount of debt under the obligation secured by a mortgage under each agreement or mortgage must not exceed 70% of the market value (monetary value) of the real estate that is the subject of the mortgage determined by an independent appraiser;
• 2) the mortgage agreement securing the corresponding requirements must not provide for the possibility of replacement or alienation by the mortgagor of the mortgaged real estate that is the subject of the mortgage without the consent of the mortgagee;
• 3) real estate pledged to secure the performance of the relevant obligation must be insured against the risk of loss or damage in favor of the creditor under the obligation secured by the mortgage during the entire duration of the obligation. In this case, the insured amount must be no less than the amount (amount) of the claim secured by the mortgage for the return of the principal amount;
• 4) the subject of the loan agreement must be only cash.

The same property, including claims on the same obligations, can be included in only one mortgage coverage. Mortgage participation certificates cannot be part of the mortgage coverage for which they certify a share in the common ownership right.

The issuance of mortgage participation certificates can only be carried out by commercial organizations that have licenses to carry out activities related to the management of investment funds, mutual funds and non-state pension funds, as well as credit organizations.

The issuance of mortgage participation certificates is the basis for the emergence of common shared ownership of the owners of mortgage participation certificates for the mortgage coverage under which they are issued, and the establishment of trust management of such mortgage coverage. Common shared ownership of the mortgage coverage arises simultaneously with the establishment of trust management of this mortgage coverage.

Trust management of mortgage coverage established by concluding a trust management agreement for mortgage coverage. Terms of the mortgage trust management agreement ( rules of trust management of mortgage coverage ) are determined by the person issuing mortgage participation certificates, – mortgage coverage manager, in standard forms and can be accepted by the purchaser of mortgage participation certificates - the founder of the trust management of the mortgage coverage under which mortgage participation certificates are issued, only by acceding to the specified agreement as a whole.

The rules for trust management of mortgage coverage must contain the following information:

• 1) an individual designation identifying mortgage participation certificates with this mortgage coverage;
• 2) the full business name of the mortgage coverage manager;
• 3) full corporate name of the specialized depository;
• 4) the full corporate name of the registrar maintaining the register of owners of mortgage participation certificates;
• 5) rights and obligations of the mortgage coverage manager;
• 6) validity period of the trust management agreement;
• 7) the number of mortgage participation certificates and the procedure for their issuance;
• 8) the procedure and timing of payment of funds in connection with the redemption of mortgage participation certificates;
• 9) the procedure for payment of funds under each mortgage participation certificate from payments received under obligations, the claims for which constitute mortgage coverage, as well as the period for such payment, which should not exceed three months from the date of receipt of the relevant payments;
• 10) the procedure for determining the amount of money to be paid in connection with the repayment of the mortgage participation certificate;
• 11) the procedure and terms for making entries in the register of owners of mortgage participation certificates about the acquisition, transfer and redemption of mortgage participation certificates;
• 12) rights of owners of mortgage participation certificates;
• 13) the procedure for convening and holding a general meeting of owners of mortgage participation certificates;
• 14) the amount of remuneration of the mortgage coverage manager, specialized depository, registrar maintaining the register of owners of mortgage participation certificates;
• 15) types and maximum amount of expenses associated with the trust management of the mortgage coverage and payable from the property constituting the mortgage coverage;
• 16) the procedure for disclosing information related to the trust management of mortgage coverage, including the name of the periodical publication in which the relevant information is published;
• 17) other information in accordance with the requirements established by this federal law.

The mortgage coverage manager has the right to make changes and additions to the rules for trust management of mortgage coverage, which come into force only after their approval by the general meeting of owners of mortgage participation certificates. The rules for trust management of mortgage coverage must comply with the standard rules for trust management of mortgage coverage approved by the Government of the Russian Federation.

In the event of cancellation of the license of a specialized depository maintaining a register of mortgage coverage, the mortgage coverage manager has the right to make changes to the rules of trust management of mortgage coverage related to the replacement of the specialized depository. At the same time, the mortgage coverage manager is obliged to decide to convene a general meeting of owners of mortgage participation certificates to resolve the issue of approving a new specialized depository.

Those interested can join the mortgage cover trust management agreement by purchasing mortgage participation certificates issued by the mortgage cover manager.

The division of the property constituting the mortgage coverage and the allocation of a share in kind from it are not allowed. The claims and other property constituting the mortgage coverage are the common property of the owners of the mortgage participation certificates and belong to them by the right of common shared ownership.

A condition of the trust management agreement for mortgage coverage is the refusal of an individual or legal entity to exercise the preemptive right to acquire a share in the right of common shared ownership of the property constituting the mortgage coverage. Owners of mortgage participation certificates bear the risk of non-fulfillment or improper fulfillment of obligations, the requirements for which constitute mortgage coverage.

The mortgage coverage manager carries out trust management of the mortgage coverage by receiving and accepting payments for obligations, the requirements for which constitute the mortgage coverage, transferring and paying the owners of mortgage participation certificates of funds at the expense of the specified payments, ensuring the proper fulfillment of the obligations, the requirements for which constitute the mortgage coverage, including foreclosure of the debtor's property, including those pledged to secure the specified obligations, in the event of non-fulfillment or improper fulfillment of such obligations, as well as by performing other related actions that do not contradict the law and the rules of trust management of mortgage coverage.

The validity period of the agreement for trust management of mortgage coverage, established by the rules for trust management of mortgage coverage, should not be less than a year and more than 40 years.

Mortgage participation certificates can be freely circulated, including through the organizers of trading on the securities market. Each mortgage participation certificate certifies the same amount of rights, including an equal share of the common ownership of the mortgage. A mortgage participation certificate is not an issue-grade security. Rights certified by a mortgage participation certificate are recorded in non-documentary form. The number of mortgage participation certificates certifying the share in the right of common ownership of the mortgage coverage is indicated in the rules of trust management of this mortgage coverage.

A mortgage participation certificate has no face value. The issuance of securities derived from mortgage participation certificates is not permitted.

Accounting of rights to mortgage participation certificates is carried out on personal accounts in register of owners of mortgage participation certificates and, if provided for by the rules of trust management of mortgage coverage, on custody accounts depositories, for which, for these purposes, personal accounts of nominal holders are opened in the register of owners of mortgage participation certificates.

Registrar, who maintains the register of owners of mortgage participation certificates, at the request of the owner of mortgage participation certificates, his authorized person or nominee holder, is obliged to confirm the rights of these persons to mortgage participation certificates by issuing an extract from the register of owners of mortgage participation certificates within five days.

The mortgage coverage of mortgage participation certificates may only include claims on obligations secured by a mortgage, mortgage participation certificates certifying a share in the right of common ownership of another mortgage coverage, and funds received in connection with the fulfillment of obligations, the claims for which constitute mortgage coverage, circulation collection of such claims and fulfillment of obligations under mortgage participation certificates constituting the mortgage coverage.

Claims and other property constituting the mortgage coverage must be separated from the property of the mortgage coverage manager, the property of owners of mortgage participation certificates, property constituting other mortgage coverage that is in the trust management of the specified manager, as well as from other property that is in trust management or under on other grounds from the specified manager.

For settlements on transactions related to the trust management of mortgage coverage, a separate bank account (separate bank accounts) is opened in the name of the mortgage coverage manager, and to record rights to securities constituting the mortgage coverage, separate “depo” accounts are opened indicating that The mortgage trustee acts as the trustee and individual designator for the mortgage participation certificates. The names of the owners of mortgage participation certificates are not indicated.

For the debts of owners of mortgage participation certificates, including in the event of their insolvency (bankruptcy), foreclosure on the property constituting the mortgage coverage is not permitted. For the debts of owners of mortgage participation certificates, foreclosure is applied to their mortgage participation certificates. In the event of bankruptcy of the owners of mortgage participation certificates, the mortgage participation certificates belonging to them are included in the bankruptcy estate.

If the manager of the mortgage coverage is declared insolvent, the property constituting the mortgage coverage is not included in the bankruptcy estate. If the mortgage coverage manager is declared insolvent or the mortgage coverage manager's license is revoked, the property constituting the mortgage coverage is subject to transfer into trust management of a state management company determined in accordance with the legislation of the Russian Federation on investing pension savings. The specified trust management is established due to the need for ongoing management of mortgage coverage in the interests of ensuring the rights of owners of mortgage participation certificates. The conclusion of a new trust management agreement for mortgage coverage is not required.

Mortgage Coverage Manager has no right:

■ dispose of the property constituting the mortgage collateral without the consent of the specialized depository;

■ acquire any other property at the expense of the property constituting the mortgage coverage;

■ alienate the property constituting the mortgage coverage free of charge;

■ receive, under the terms of loan agreements and credit agreements, funds to be repaid at the expense of the property constituting the mortgage coverage;

■ provide loans at the expense of the property constituting the mortgage collateral;

■ use the property constituting the mortgage collateral to ensure the fulfillment of one’s own obligations or the obligations of third parties;

■ acquire property constituting the mortgage coverage, except for cases of receiving remuneration in accordance with the rules of trust management of the mortgage coverage;

■ alienate his own property as part of the property constituting the mortgage coverage, which is in his trust management.

Owners of mortgage participation certificates can actively protect their interests, primarily by convening a general meeting. A general meeting of owners of mortgage participation certificates is convened by the mortgage coverage manager on his own initiative or at the request in writing of the owners of at least 10% of mortgage participation certificates on the date of submission of the request to convene a general meeting.

A written request from the owners of mortgage participation certificates to convene a general meeting must contain the reasons for convening it, as well as the agenda of the general meeting. The notice of convening the general meeting must be published in the periodical publication specified in the rules of trust management of mortgage coverage.

The general meeting of owners of mortgage participation certificates makes decisions by a majority vote of the owners of mortgage participation certificates, unless otherwise provided by the said Law. When voting, each mortgage participation certificate provides its owner with one vote.

By a decision of 3/4 votes of all present owners of mortgage participation certificates, the rights and obligations of the mortgage coverage manager may be transferred to another person who, in accordance with this Law, has the right to issue mortgage participation certificates, and changes may be made to the rules of trust management of mortgage coverage regarding supplementing the composition of the mortgage coverage with new requirements and (or) mortgages and commensurate issuance of additional mortgage participation certificates.

Decisions of the general meeting of owners of mortgage participation certificates are documented in minutes, a copy of which must be sent to the federal executive body for the securities market no later than three days from the date of the general meeting.

Register of owners of mortgage participation certificates – this is a system of records about mortgage participation certificates issued in accordance with the relevant rules of trust management of mortgage coverage, about the total number of issued and redeemed mortgage participation certificates, about the owners of mortgage participation certificates and about the number of mortgage participation certificates they own, about nominal holders, about other registered persons and the number of mortgage participation certificates registered on them, as well as records of the acquisition, transfer, encumbrance or redemption of mortgage participation certificates.

The law determines that only a registrar - a legal entity licensed to carry out professional activities in the securities market to maintain a register of owners of registered securities - has the right to maintain the register of owners of mortgage participation certificates.

An agreement on maintaining a register of owners of mortgage participation certificates can be concluded with only one registrar. The procedure for maintaining the register of owners of mortgage participation certificates is determined by regulatory legal acts of the federal executive body for the securities market. The registrar maintaining the register of owners of mortgage participation certificates and the mortgage coverage manager bear subsidiary liability to the owners of mortgage participation certificates for failure to fulfill or improper performance of the duties for maintaining the said register provided for by the said Law, the rules of trust management of mortgage coverage and the agreement with the mortgage coverage manager.

Accounting and storage of the property constituting the mortgage coverage, as well as control of the disposal of this property, is carried out by a specialized depository.

Specialized depository there can only be a commercial organization that has a license to carry out the activities of specialized depositories of investment funds, mutual funds and non-state pension funds and a license to carry out depository activities in the securities market.

The property constituting the mortgage coverage is accounted for by a specialized depository by maintaining a register of mortgage coverage. A specialized depository is obliged to store documents that confirm claims secured by a mortgage and rights to other property included in the register of mortgage coverage.

Securities in documentary form that constitute mortgage coverage must be stored in a specialized depository, with the exception of government securities, if the regulatory acts of the Russian Federation provide for a different storage procedure for them. Accounting and storage of property constituting one mortgage cover can be carried out by only one specialized depository.

A specialized depository cannot be an affiliate of a mortgage coverage manager. A specialized depository does not have the right to use and dispose of the property constituting the mortgage collateral, as well as to carry out transactions with mortgage-backed securities for which it maintains a register of mortgage collateral.

Mortgage cover managers are required to disclose and provide the following information about mortgage participation certificates:

• 1) the full or abbreviated corporate name of the mortgage coverage manager, an individual designation identifying mortgage participation certificates certifying the share of their owners in the right of common ownership of the mortgage coverage, the number and date of registration of the rules for trust management of the mortgage coverage, as well as the number and date of issue of the corresponding license to the manager mortgage coverage;
• 2) information about places indicating the address and (or) telephone number where, before purchasing mortgage participation certificates, you can familiarize yourself with the rules of trust management of mortgage coverage, the register of mortgage coverage, as well as other documents provided for by this Law and regulatory legal acts of the federal executive body on the securities market;
• 3) information on the assessment of mortgage participation certificates by a rating agency recognized in the manner established by the legislation of the Russian Federation, in the event of such an assessment;
• 4) the provision that the cost of mortgage participation certificates may increase and decrease, the state does not guarantee the profitability of investments in mortgage participation certificates, as well as information that before purchasing a mortgage participation certificate, you should carefully read the rules of trust management of mortgage coverage .

The mortgage coverage manager at the places where applications for the acquisition and repayment of mortgage participation certificates are accepted is obliged to present to all interested parties, upon their request, the following original documents or their notarized copies:

• 1) the charter of the mortgage coverage manager, the rules for trust management of mortgage coverage, as well as the full text of registered changes and additions made to them;
• 2) rules for maintaining the register of owners of mortgage participation certificates;
• 3) a certificate of the amount of mortgage coverage, calculated in the manner established by the federal executive body for the securities market;
• 4) the balance sheet of the property constituting the mortgage coverage, the balance sheet and profit and loss statement of the mortgage coverage manager, the balance sheet and profit and loss statement of the specialized depository, the auditor’s report, drawn up as of the last reporting date;
• 5) a report on the fulfillment of obligations, the requirements for which constitute the mortgage coverage, documents containing information on the remuneration of the mortgage coverage manager and expenses to be reimbursed from the property constituting the mortgage coverage as of the last reporting date;
• 6) documents containing other information distributed or published by the mortgage coverage manager in accordance with the requirements of the law, regulations of the federal executive body for the securities market, the charter of the mortgage coverage manager or the rules for trust management of mortgage coverage.

The mortgage coverage manager is obliged to publish the rules for trust management of mortgage coverage before the start of the period for issuing mortgage participation certificates, as well as messages about the registration of changes and additions made to the rules for trust management of mortgage coverage.

• 1) the balance sheet of the property constituting the mortgage coverage, the balance sheet and the profit and loss statement of the mortgage coverage manager;
• 2) a report on the fulfillment of obligations, the claims for which constitute the mortgage coverage, information on the remuneration of the mortgage coverage manager and expenses to be reimbursed from the property constituting the mortgage coverage;
• 3) other documents in accordance with this Law;
• 4) information on the decision to transfer rights and obligations under the mortgage trust management agreement to another person who, in accordance with this Law, has the right to issue mortgage participation certificates.

Information related to the activities of the mortgage coverage manager must be disclosed in the manner determined by the law and regulations of the federal executive body for the securities market.

A mortgage participation certificate is a registered non-equity security that does not have a face value. The main purpose of the MIS is to certify its owner’s share in the right of common ownership of the mortgage coverage; in addition, the certificate of participation confirms the right to receive funds for fulfilled obligations, the claims for which constitute the mortgage coverage.

These and other rights are defined Federal Law No. 152 “On Mortgage Securities”. Despite the fact that in 2019, mortgage participation certificates still have gaps in the law, they also have certain advantages.

Mortgage coverage

Mortgage coverage is the totality of claims for repayment of principal and interest that the mortgage provides. Claims may be evidenced by mortgages or mortgage participation certificates.

Mortgage-backed participation certificates are valid only if certain conditions are met, namely:

• The principal amount of the debt under the obligation under each agreement or mortgage does not exceed 70% of the market value of the real estate (subject of the mortgage), which was established by an independent appraiser.
• The mortgage agreement does not provide for the possibility of replacing or alienating real estate that is pledged and is the subject of the mortgage without the consent of the holder of the pledge right.
• The mortgaged real estate is insured against the risk of damage or loss in favor of the creditor, and the amount of insurance cannot be less than the amount of the mortgage claim for the return of the principal amount.
• The subject of the loan agreement is only cash.

Mortgage participation certificates cannot be part of the mortgage coverage that certifies a share in the right of common ownership.

Who issues MIS

The issuance of mortgage participation certificates is the prerogative of only commercial organizations that have licenses to manage investment funds, mutual funds, pension funds on a non-state basis, as well as credit organizations.

The issuance of MIS becomes the basis for the formation of common shared ownership between the owners of such certificates for mortgage coverage and the institution that regulates the trust management of mortgage coverage.

Terms of trust management

The establishment of trust management occurs through the conclusion of an agreement. The terms of the official paper that governs the trust management of the mortgage cover are determined by the mortgage cover manager. The manager is the person who issues mortgage participation certificates.

The terms and conditions of trust management include the following information:

1. Individual identification of mortgage certificates with a given mortgage coverage.
2. The full name of the mortgage coverage manager, as well as the names of the specialized depository and registrar that maintains the register of MIS owners.
3. Rights and obligations of the manager.
4. Validity period of the trust management agreement.
5. The number of certificates and the procedure for their issuance.
6. The procedure and timing of financial payments upon completion of the MIS repayment.
7. The procedure for disbursing money on each mortgage certificate from payments that have been received on obligations, if their claims constitute the mortgage coverage. The period for such payment should not exceed three months from the date of receipt of payments.
8. The procedure for determining the amount of money to be paid upon completion of the repayment of the ISU.
9. The procedure and timing of registration of entries in the register on the acquisition, transfer and redemption of mortgage certificates by owners.
10. Rights of ISU owners.
11. The procedure for convening and holding a general meeting of certificate holders.

The document also regulates the amount of remuneration for the manager, depository and registrar; maximum expenses for trust management of mortgage coverage; the procedure for disclosing information about trust management, as well as other information established by law.

Other features of trust management

The mortgage coverage manager has the right to make changes and additions to the terms of trust management if they come into force only after they are approved by the general meeting of holders of participation certificates. In this case, the conditions must necessarily comply with the standard rules of trust management, which were approved by the laws of the Russian Federation.

If a situation arises when the license of a specialized depository that maintains a register of mortgage coverage is revoked, then the manager of this coverage can make changes to the rules. These changes will be associated with the replacement of the depository. At the same time, the manager is responsible for making a decision on convening a general meeting. The main issue at the meeting is the approval of a new specialized depository.

Anyone can join the mortgage trust management agreement by purchasing mortgage participation certificates, which are issued by the manager.

Other responsibilities of the manager:

• Receiving and accepting payments for obligations whose claims constitute mortgage coverage.
• Transfer and payments to the owners of the ISU at the expense of the specified payments.
• Ensuring proper fulfillment of obligations.

The mortgage cover trust management agreement is drawn up for a period of 1 to 40 years.

Features of mortgage participation certificates

Mortgage participation certificates are subject to free circulation, including the participation of organizers of trade in the securities market. Each MIS certifies an equal amount of rights, as well as an equal share of the right to the total value of the mortgage coverage.

MIS are not included in the category of issue-grade securities, and the rights that they certify are recorded in non-documentary form. The number of issued certificates certifying a share in the right to the total value is indicated in the rules of trust management of mortgage coverage.

An important feature of mortgage participation certificates is the lack of face value. The issuance of derivative securities from mortgage participation certificates is not permitted.

Accounting for rights to MIS is carried out on personal accounts in the register of certificate holders, or on securities accounts, provided that the rules for trust management of mortgage coverage provide for such a possibility.

Rights of the holder and benefits of a mortgage certificate

A mortgage participation certificate entitles its owner certain rights, namely:

• The holder can receive money received as a result of the actual fulfillment of obligations.
• May expect the organization issuing mortgage certificates to participate in appropriate control over this mortgage coverage.

Mortgage participation certificates are also beneficial benefits for its holders:

• Eliminates the need to create numerous additional agreements.
• They are highly likely to be added to mortgage coverage and bond issues.
• They do not require additional preparation and registration of the issue prospectus, which ultimately saves the cost of creating the mortgage participation certificate itself.
• It is assumed that only one agreement based on trust management will be completed.

There is also a negative point that reduces the reliability of the MIS; this is a fairly common practice of pooling collateral not only from mortgages, but also from some assets that are not directly related to the mortgage. The development of this factor is facilitated by shortcomings in legislation on this issue.

Video: New tool - mortgage participation certificates

Mortgage Participation Certificate (MCC)- a registered security certifying its owner’s share in the right of common ownership of the mortgage coverage, the right to demand from the person who issued it proper trust management of the mortgage coverage, the right to receive funds received in fulfillment of obligations, the claims for which constitute the mortgage coverage, as well as others rights provided for by Federal Law of November 11, 2003 N 152-FZ “On Mortgage Securities”.

ISU release scheme

The issuance of MIS can only be carried out by commercial organizations that have licenses to carry out activities related to the management of investment funds, mutual funds and non-state pension funds, as well as credit organizations.

The issuance of MIS is the basis for the emergence of common shared ownership of the owners of mortgage participation certificates for the mortgage coverage under which they are issued, and the establishment of trust management of such mortgage coverage. Common shared ownership of the mortgage coverage arises simultaneously with the establishment of trust management of this mortgage coverage.

Trust management of mortgage coverage is established by concluding a trust management agreement for mortgage coverage.

ISU release scheme:

• the bank transfers its formed mortgage portfolio to the mortgage coverage manager for trust management;
• the mortgage coverage manager, in cooperation with the special depository and the registrar, issues the MIS;
• MIS issued by the mortgage coverage manager are transferred to the originator bank for further sale to investors;
• support of the mortgage portfolio included in the mortgage coverage for issued MIS is carried out by the service company/originating bank.

Benefits for investors

• Obtaining the opportunity to diversify the investment portfolio (targeted returns are higher than mortgage-backed bonds, but liquidity and cash flow guarantee are lower);
• Purchasing an income-generating instrument for medium-term investment;
• Investment in an instrument with high-quality and reliable mortgage coverage; independent service agent;
• The possibility of completely eliminating the interruption of the flow of payments due to its shift in time by including the investor’s financial risks in the insurance structure.

Main differences between MIS and Mortgage-Backed Bonds

Mortgage participation certificates (MPCs)	Mortgage-backed bonds
All mortgage proceeds are distributed to investors, minus infrastructure costs. (no tranching)	Fixed coupon income on the senior tranche (tranching a bond issue)
Low cost of issuing and maintaining securities	High cost of issuing and maintaining securities
Short terms of release organization (on average - 3-5 months)	Long period of production organization (on average - 9-12 months)
Risks in the pool of mortgages are distributed evenly among the owners of the MIS	Excess mortgage risks are most concentrated on the owner of the junior tranche ( originator)
Low liquidity, cannot be included in the pawnshop list (currently); inclusion in quotation lists, incl. highest quotation list	High liquidity, can be included in the pawnshop list and quotation lists, incl. highest quotation list
Amortization of MIS in accordance with early repayment of mortgage	High rate of bond amortization due to subordination of issues

Unlike mortgage-backed bonds, which have been actively used in the mortgage market for a long time, participation certificates gained recognition a little later. Now its promotion is gaining momentum, and this is due to many advantages, in particular, the highest level of profitability. The certificate has its own characteristics that allow us to look with optimism at new stages of development in the mortgage industry. What is a mortgage participation certificate (MPC) you will learn today.

Based on the legislation regulating the mortgage-backed securities market, we can characterize the mortgage participation certificate (MPC) as a new type, the purpose of which is to confirm its owner’s share in the collective ownership of the mortgage coverage. It fully certifies the legality of funds received in fulfillment of obligations, the requirements for which, in fact, form the coverage base.

Speaking about such new investment instruments as mortgage certificates, their clear prerogative, indicated by the presence of a real property, which acts as a guarantor of the possibility of actually receiving the expected profit, stands out clearly. The IMS allows for more widespread use of the right to demand payment of accrued interest on credit agreements, as well as the return of money invested in securities.

The so-called trust management agreement can have a limited period of up to forty years, while the minimum period is one year. This indicates that MIS is not only a reliable tool for medium-term investments, but also investments for a longer period.

Who issues MIS

The right to organize an issue is strictly regulated by current legislation, according to which such powers are vested exclusively in commercial organizations. They must have the necessary licenses giving the right to manage private investment funds, which also include mutual funds, non-state pension funds, and credit organizations.

The issuance of an MIS is a kind of foundation on which collective shared ownership of mortgage coverage is formed. All owners and the trust management regulator become participants in the process.

Conditions of trust management (TD)

The fundamental document for opening a procedure for organizing a management company is a document of title - a special agreement. The points specified in its content are determined by the person who is responsible for issuing the MIS, i.e. manager The law provides for norms of responsibility of a managerial person to the owners of participation certificates, specifically, compensation for actual damage caused by violation of the rules. This also includes the illiterate distribution of amounts of financial resources accrued for disbursement. Among the working points specified in the management agreement, there are a number of mandatory points, the need for which is determined by law, namely:

• identification with specific mortgage coverage;
• official data of the manager, as well as, fully documented, the names of the registrar and depository - persons bearing full responsibility for the accurate maintenance of the register, including the amount of their remuneration;
• the main powers of the manager, his range of job responsibilities, the unconditional rights of the owners;
• the exact number of valuable certification securities, regulations for their issue and issuance;
• the deadline for the validity of this remote control agreement;
• the procedure for issuing funds accrued for each individual certificate;
• procedure for organizing meetings of owners, regulations for their conduct.

The document also contains provisions stipulating the timing, sequence, and amounts of financial payments upon completion of repayment. Certain clauses of the conditions provide for maximum amounts of expenses arising from management activities.

The necessary clauses of the contract are formed in accordance with the law. The document is approved at a meeting of the owners of the ISU. Before the terms are officially approved, signed, and gain legal force, the manager has every right to make the necessary amendments at his discretion.

The types of joint liability of the management body with the depositary are stipulated by law. Such situations may occur if it is obvious that the latter failed to fulfill the functions assigned to him, and he was appointed according to the written endorsed instructions of the manager. In parallel, there is a joint liability of the manager and the unscrupulous registrar who maintained the register improperly.

There are emergency situations when the manager organizes collections of owners ahead of schedule. One of the reasons is the cancellation of a special license issued to the existing depository. Since he is deprived of the opportunity to further perform the functional duties assigned to him, the manager submits another candidate for consideration. To make a joint decision on the appointment of a new candidate, information about the extraordinary meeting is announced. The owners of the IMS carefully consider the candidacy of the newly proposed depository and render a verdict on its approval or rejection.

Features of mortgage participation certificates

Considering the properties of participation certificates in general, it is necessary to focus on some features that determine their obvious differences in the mortgage product market from other securities. The main features include the following provisions:

• MIS does not belong to the category of issue-grade securities, therefore the procedure for issuing it is quite simple and includes minimal transaction costs;
• the legal aspects specified by it do not have a documentary form;
• the number of issued and issued MIS, which confirm an equal share in the cost of coverage, is fixed by the provisions of the DM;
• free circulation of the certificate is guaranteed, since it has no designated intrinsic value;
• there is an opportunity to purchase the desired IMS by individuals, and not just institutional ones, and the volume of investments is not subject to any restrictions.

The issuance of any derivative securities is prohibited. MIS cannot be called debt documents, since they only assume the income of investors from mortgage assets.

What rights and benefits does the owner have?

By purchasing an IMS, its owner is endowed with a number of designated rights and receives a significant share of the benefits. Each issued copy of this security establishes an equal range of rights for the participants, as well as, in fact, an equal share among the collective property.

Each individual owner has the right to fully participate in the meetings that are held among the holders of such certificates in order to discuss pressing issues and make the necessary decisions. It may be entirely legitimate for the owner to demand that the manager properly perform his functions. The right to demand established payments on certificates, the requirements for which constitute mortgage coverage, remains undeniable.

As for the advantages, they are quite preferable for ISU holders, mainly because they eliminate the need to conclude accompanying additional legal agreements. They can be quite numerous, which will entail certain material and temporary losses. In this case, there is no need to develop an issue prospectus or further promote it, which contributes to significant cost savings. An advantage is the execution of only one complex agreement based on a trusting relationship. Other investors can join him.

Although the legislative framework regulating such concepts as mortgage coverage and participation certificate was adopted back in 2003, it was supplemented and improved for a long time. The regulatory framework has expanded over the years, finding new opportunities for implementation. The first mortgage certificate was issued only nine years later, but now it has already established itself as a profitable investment option, becoming a highly liquid financial instrument.

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