The increase in mortgage lending volumes planned by the Government of the Russian Federation depends to a large extent on the quality of the infrastructure that enables the banking sector to attract financing, through which mortgage loans are provided. Lending in the securities market is one of the main sources of financing for banks and other participants in the mortgage market. Therefore, the quality, costs, and risks, including legal ones, of the Russian securities market are a significant factor for the development of mortgage lending. In this regard, it is important for investors in the securities market to have a system of depository accounting for mortgage deeds that ensures maximum protection and safety of their rights and investments.
INCREASING IMPORTANCE AND SCALE OF DEPOSITORY ACCOUNTING FOR MORTGAGE DEEDS
In the future, a significant share of mortgage loans is expected to be formalized as mortgage deeds, considering their advantages for investors, including investors in the issuance of mortgage-backed securities. The development of the mortgage deed market implies the emergence of services that allow for the operational management and disposal of mortgage deed portfolios, including in the case of issuing mortgage-backed securities, as well as in the case of attracting financing secured by pledges of mortgage deed portfolios.
In the future, large portfolios of mortgage deeds will be formed on the balance sheets of mortgage lenders, for which a system of accounting and transfer of rights based on the use of information technology (an efficient depository accounting system) must be guaranteed. Electronic storage and processing of information is a necessary condition for ensuring the required speed of obtaining information about the composition of a mortgage deed portfolio, forming portfolios of homogeneous mortgage deeds acquired from different owners (pooling of mortgage deeds), and the operational use of the entire or part of the portfolio to attract financing using various financial technologies for this purpose (including lending secured by mortgage deeds, security sales of mortgage deeds (sale for the purpose of providing collateral), issuance of securities backed by a fixed or changing portfolio of mortgage deeds).
Therefore, the transfer of a mortgage deed to a depository for its depository accounting will be a common risk management measure for most credit institutions. In this regard, in the coming years, the importance and scale of depository accounting for mortgage deeds will increase significantly compared to the current level.
EXPECTED QUALITIES OF THE SYSTEM OF DEPOSITORY ACCOUNTING AND CUSTODY OF MORTGAGE DEEDS
The expected qualities of the system of depository accounting and custody of mortgage deeds are: (1) resilience of the system of depository accounting and custody of mortgage deeds regardless of deteriorating market conditions; (2) unification of depository accounting and custody of mortgage deeds; and (3) transparency of real estate rights thanks to depository accounting of mortgage deeds.
(1) Resilience of the system of depository accounting and custody of mortgage deeds regardless of deteriorating market conditions
Currently, depository services regarding mortgage deeds are segmented.
When selling mortgage deeds transferred to depository accounting, conducted between persons using the services of different depositories, complexities arise that are either (1) related to the need to move mortgage deeds from one storage location to another, or (2) related to the absence of a single (unified) list of parameters on the basis of which depository accounting of the mortgage deed is carried out by various depositories. In addition to the above, the main encumbrance in such a transfer of rights to mortgage deeds is the necessity of making a new mark on the mortgage deed about the new depository carrying out the depository accounting of the mortgage deed.
From this point of view, for investors in mortgage-backed securities secured by mortgage deeds, a more stable option is one where the sale of mortgage deeds (or any other change of owner of mortgage deeds) is not accompanied by a simultaneous change of the depository performing the depository accounting of the mortgage deed.
(2) Unification of depository accounting and custody of mortgage deeds
The system of depository accounting and custody of mortgage deeds should ensure increased efficiency of operations for accumulating, selling, or pledging large portfolios of mortgage deeds through measures to create a unified depository space, including standardization of mortgage deed parameters accounted for in the depository system, standardization and formalization of document flow, development of uniform information exchange procedures, as well as measures for a maximum transition to a formalized electronic document flow based on the use of a single unique identification number for the mortgage deed, allowing for its unambiguous identification in various databases, and entering information about the mortgage deed into its own database electronically.
(3) Transparency of real estate rights thanks to depository accounting of mortgage deeds
Registration of the owner of a mortgage deed in the Unified State Register of Rights to Real Estate and Transactions Therewith (hereinafter – "USRR") is not mandatory. This decision is justified in the absence of operational and secure data exchange between the registration authority maintaining the USRR and the entity performing depository accounting of rights to mortgage deeds, as this prevents the transfer of rights on mortgage deeds from being complicated by additional requirements.
Meanwhile, for the development of the real estate market in the future, it is advisable to ensure the completeness of information in the USRR, including information about the owner of the mortgage deed. For cases where a mortgage deed has been transferred to a depository for its depository accounting, such completeness of information can be ensured through electronic interaction and information exchange between the registration authority maintaining the USRR and the depository performing the depository accounting of the mortgage deed. This will allow for operational updating of information on the rights, transactions, and encumbrances of the mortgage deed in the USRR.
QUALITY AND EFFICIENT ACCOUNTING OF RIGHTS TO MORTGAGE DEEDS AND THEIR SAFE CUSTODY
Overall, to ensure the further development of the Russian mortgage lending market, an efficient system of depository accounting for mortgage deeds is necessary, one that considers global experience, minimizes the negative consequences of the fragmentation of the current structure of depository accounting for mortgage deeds, and ensures the highest possible security and transparency of the process of transferring rights to mortgage deeds and tracking chains of such transactions.
The established system in Russia for accounting for rights to securities by depositories and the custody of mortgage deeds constituting mortgage cover by specialized depositories shows that, in general, depositories already exist that can account for and custody mortgage deeds transferred for depository accounting. Therefore, for the purposes of developing a unified depository system, it is necessary to use the existing and practice-tested infrastructure of depository accounting for securities by combining existing capabilities and providing new ones, which consist of expanding access to the depository system for participants of the mortgage market. Depository accounting of a mortgage deed should be carried out on the basis of the general principles of depository accounting for securities, taking into account the specifics of the mortgage deed as a security.
Conducting activities for the depository accounting and custody of mortgage deeds based on unified minimum necessary principles, the goal of which is to protect the rights of owners of mortgage deeds and investors, should ensure the transparency of the unified system of depository accounting and custody of mortgage deeds and a high level of guarantee for the rights of owners of mortgage deeds and investors.
INCREASING IMPORTANCE AND SCALE OF DEPOSITORY ACCOUNTING FOR MORTGAGE DEEDS
In the future, a significant share of mortgage loans is expected to be formalized as mortgage deeds, considering their advantages for investors, including investors in the issuance of mortgage-backed securities. The development of the mortgage deed market implies the emergence of services that allow for the operational management and disposal of mortgage deed portfolios, including in the case of issuing mortgage-backed securities, as well as in the case of attracting financing secured by pledges of mortgage deed portfolios.
In the future, large portfolios of mortgage deeds will be formed on the balance sheets of mortgage lenders, for which a system of accounting and transfer of rights based on the use of information technology (an efficient depository accounting system) must be guaranteed. Electronic storage and processing of information is a necessary condition for ensuring the required speed of obtaining information about the composition of a mortgage deed portfolio, forming portfolios of homogeneous mortgage deeds acquired from different owners (pooling of mortgage deeds), and the operational use of the entire or part of the portfolio to attract financing using various financial technologies for this purpose (including lending secured by mortgage deeds, security sales of mortgage deeds (sale for the purpose of providing collateral), issuance of securities backed by a fixed or changing portfolio of mortgage deeds).
Therefore, the transfer of a mortgage deed to a depository for its depository accounting will be a common risk management measure for most credit institutions. In this regard, in the coming years, the importance and scale of depository accounting for mortgage deeds will increase significantly compared to the current level.
EXPECTED QUALITIES OF THE SYSTEM OF DEPOSITORY ACCOUNTING AND CUSTODY OF MORTGAGE DEEDS
The expected qualities of the system of depository accounting and custody of mortgage deeds are: (1) resilience of the system of depository accounting and custody of mortgage deeds regardless of deteriorating market conditions; (2) unification of depository accounting and custody of mortgage deeds; and (3) transparency of real estate rights thanks to depository accounting of mortgage deeds.
(1) Resilience of the system of depository accounting and custody of mortgage deeds regardless of deteriorating market conditions
Currently, depository services regarding mortgage deeds are segmented.
When selling mortgage deeds transferred to depository accounting, conducted between persons using the services of different depositories, complexities arise that are either (1) related to the need to move mortgage deeds from one storage location to another, or (2) related to the absence of a single (unified) list of parameters on the basis of which depository accounting of the mortgage deed is carried out by various depositories. In addition to the above, the main encumbrance in such a transfer of rights to mortgage deeds is the necessity of making a new mark on the mortgage deed about the new depository carrying out the depository accounting of the mortgage deed.
From this point of view, for investors in mortgage-backed securities secured by mortgage deeds, a more stable option is one where the sale of mortgage deeds (or any other change of owner of mortgage deeds) is not accompanied by a simultaneous change of the depository performing the depository accounting of the mortgage deed.
(2) Unification of depository accounting and custody of mortgage deeds
The system of depository accounting and custody of mortgage deeds should ensure increased efficiency of operations for accumulating, selling, or pledging large portfolios of mortgage deeds through measures to create a unified depository space, including standardization of mortgage deed parameters accounted for in the depository system, standardization and formalization of document flow, development of uniform information exchange procedures, as well as measures for a maximum transition to a formalized electronic document flow based on the use of a single unique identification number for the mortgage deed, allowing for its unambiguous identification in various databases, and entering information about the mortgage deed into its own database electronically.
(3) Transparency of real estate rights thanks to depository accounting of mortgage deeds
Registration of the owner of a mortgage deed in the Unified State Register of Rights to Real Estate and Transactions Therewith (hereinafter – "USRR") is not mandatory. This decision is justified in the absence of operational and secure data exchange between the registration authority maintaining the USRR and the entity performing depository accounting of rights to mortgage deeds, as this prevents the transfer of rights on mortgage deeds from being complicated by additional requirements.
Meanwhile, for the development of the real estate market in the future, it is advisable to ensure the completeness of information in the USRR, including information about the owner of the mortgage deed. For cases where a mortgage deed has been transferred to a depository for its depository accounting, such completeness of information can be ensured through electronic interaction and information exchange between the registration authority maintaining the USRR and the depository performing the depository accounting of the mortgage deed. This will allow for operational updating of information on the rights, transactions, and encumbrances of the mortgage deed in the USRR.
QUALITY AND EFFICIENT ACCOUNTING OF RIGHTS TO MORTGAGE DEEDS AND THEIR SAFE CUSTODY
Overall, to ensure the further development of the Russian mortgage lending market, an efficient system of depository accounting for mortgage deeds is necessary, one that considers global experience, minimizes the negative consequences of the fragmentation of the current structure of depository accounting for mortgage deeds, and ensures the highest possible security and transparency of the process of transferring rights to mortgage deeds and tracking chains of such transactions.
The established system in Russia for accounting for rights to securities by depositories and the custody of mortgage deeds constituting mortgage cover by specialized depositories shows that, in general, depositories already exist that can account for and custody mortgage deeds transferred for depository accounting. Therefore, for the purposes of developing a unified depository system, it is necessary to use the existing and practice-tested infrastructure of depository accounting for securities by combining existing capabilities and providing new ones, which consist of expanding access to the depository system for participants of the mortgage market. Depository accounting of a mortgage deed should be carried out on the basis of the general principles of depository accounting for securities, taking into account the specifics of the mortgage deed as a security.
Conducting activities for the depository accounting and custody of mortgage deeds based on unified minimum necessary principles, the goal of which is to protect the rights of owners of mortgage deeds and investors, should ensure the transparency of the unified system of depository accounting and custody of mortgage deeds and a high level of guarantee for the rights of owners of mortgage deeds and investors.