Friday, 10 de July de 2020

What is an MBS?

Mortgage Backed Securities - MBS

A Mortgage Backed Security is a nominal credit note with collateral in the form of real estate credits, and it constitutes a promise of payment in cash. The MBS is created by an instrument for Securitization of Credits. In operations described by the Securitization Company as “pulverized” the credits arise from real estate loans to individuals or companies that relate to property that has already been built and delivered.



Minimum Investment
This depends on the format of the issue and the conditions under which it was structured. The most common are MBS destined to Qualified Investors (minimum of R$300,000).
Composed of an adjustment index (IGPM, TR, or another as detailed in the securitization instrument), plus a return.
With a view to providing investors with greater security, all series are rated by a Ratings Agency. This attributes a rating to the series, and provides periodically updated reports throughout the life of the asset.
Life of an MBS
More important than looking at the longest maturity within the portfolio that provides collateral for the MBS is to understand that the most relevant item is the Duration of the asset. This is because the calculation of Duration is defined as the average length of the operations, weighted according to their cash flows.
Income Tax
Exemption for individual (personal) investors.
Following their complete distribution on the primary market, an MBS can be freely traded by market players. In other words, it is the market that will determine the proper value of the asset.



Secured Transactions
All the real estate credits that comprise the collateral for the emission enjoy the safety of relating to their respective properties by means of Secured Transactions. This eliminates the risk of the originator.
The subordination structure means that losses in the collateral assets portfolio are initially absorbed by subordinate bonds. Only following the liquidation of these can additional losses then be allocated to senior bonds. The subordinated MBS are seen as reinforcing the structural credit, because their payment is honored only after the payment of the senior bond.
Form of Payment
The structure provides for two forms of payment: (i) Pro-rata, where the Senior MBS are given payment preference over the Subordinate MBS; and (ii) Sequential, where – should default reach parameters specified in the Terms of Securitization – all revenues received from the portfolio that exceed its administrative costs, together with interest on Senior paper, will be used to amortize the Senior paper.
Reserve Fund
This will be formed from the cash flow for payment of principal and interest of Subordinate MBS during the 06 (six) months grace period of this certificate.
Fiduciary System
A Fiduciary System is established for the real estate credits attributed to the MBS, with appointment of a Fiduciary Agent, thus eliminating the risk of the issuer.


Characteristics of the Credit Portfolio

Originators (Developers)
Average appraisal value (properties)
Number of Contracts (Number of Credits) LTV (Loan to Value) Weighting: Value of debt / Appraisal value of the property
Average balance owed Duration of Portfolio
Design Kwarup | Development 18digital