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ИД «Финансы и кредит»






Finance and Credit

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The role of monitoring the value of pledged property in the process of mortgage assets securitization

Vol. 26, Iss. 1, JANUARY 2020

Received: 29 November 2019

Received in revised form: 13 December 2019

Accepted: 27 December 2019

Available online: 30 January 2020

Subject Heading: Banking

JEL Classification: G21, R32

Pages: 155–167


Potomova S.A. Volgograd Institute of Management – Branch of Russian Presidential Academy of National Economy and Public Administration, Volgograd, Russian Federation


Subject The existing methods for assessing the credit risk of mortgage-backed securities consider the original cost of pledged property calculated at the time of loan formalization as a constant value. This results in the inability to respond quickly to changes in the real estate market. Therefore, the pledged item cannot be used as an effective way to secure mortgage-backed securities.
Objectives The aim is to develop methods to assess credit risk of mortgage-backed securities through introducing a regular monitoring of the value of pledged real estate and its adjustment.
Methods The study rests on the systems approach and employs general scientific methods of analysis and synthesis, and analysis of economic and statistical information.
Results The paper shows the role of regular value adjustments of pledged real estate when maintaining high reliability of mortgage-backed securities, which are secured by mortgage loans issued for purchase of this real estate. I present an algorithm to monitor fluctuations in the value of the pledge based on the introduced adjustment factor applied to the original cost of real estate to determine its current price. I also offer a system of warning indicators to determine the moment of initiation of the periodic monitoring.
Conclusions Ignoring real estate market trends may erode confidence in the capital market and lead to other crisis phenomena. When the sources of financing by commercial banks are limited, securitization becomes increasingly important for development of mortgage lending and other related areas of the economy.

Keywords: securitization, mortgage lending, pledge, real estate, value


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