Having conducted a comprehensive study of the Russian mortgage-backed securities (MBS) market, the Analytical Credit Rating Agency (ACRA) now proposes a proprietary model for its future development. The implementation of this project will make it possible to solve key issues in providing the Russian population with affordable housing as articulated in the May Decrees of the President of the Russian Federation, which is the main goal of the national project «Housing and the Urban Environment».
The authors note that the main tool currently being used to solve the housing issue is the DOM.RF program «MBS Factory» which is based on issuing single-tranche agency MBS, similar to those issued by the American government-sponsored enterprises Fannie Mae and Freddie Mac. Experts point out that this model was one of the key reasons for the financial crisis origin in the US economy and its global spread in 2007-2009.
The ACRA analysts assert that in contrast to the classical model of multi-tranche securitization, agency MBS are not able to create optimal conditions for the development of the Russian mortgage market.
Issuing bonds under the agency model actually means a direct transfer of the related risks to the state. Under stress scenarios (i.e., a decrease in borrower solvency), budget expenditures to reimburse defaults on single-tranche MBS could range from RUB 900 bln to over RUB 1.5 trillion.
ACRA has developed a comprehensive solution that enables the issuance of transparent multi-tranche MBS in Russia whose credit quality will be comparable to the best equivalents available on the global market. According to the authors, multi-tranche securitization will help to achieve target credit quality indicators, finance the issue volumes stipulated by national projects, and ensure better control over the key tasks articulated in the May Decrees of the President. The expected result of developing the MBS market under the classical multi-tranche model will be increased affordability of mortgage loans for the population without additional financial burden on the state.
