Mortgage-Backed Securities Market In Spain and Turkey,

Structures and types:

In our discussion it will be defined that, both of the states, Spain and Turkey are having

Mortgage Backed securities.

The debt obligation securities known as Mortgage backed Securities MBS, have right on the

Cash Flows which are in the form of Pools of Mortgage Loans. The most commonly used is on

the Residual Properties. The struct of mortgage loan is like; Initially it is purchases from the

bank, originators or from any Mortgage companies. After that it is assembled in a pool, created

by Government or any private institute. Then institute issues those securities which include

claims on both the Principal and Payment of interest by the borrowers within the pool on loans.

This is called the securitization process.

Generally, there are two great Anglo Saxon models to suggest structure of the securitization of

mortgages:

 The Pass Through Securitisation model (in USA):

This model gives right to the MBS holder on pool of the mortgages. As the interests and capital

of MBS holders directly pass through mortgage debtor to holder of securities. The Special

Purpose Vehicle (SPV) of this model is simultaneously the Trustee of issue.

 The Pay Through Securitization Model (in both USA and UK as well) along UK

Mortgage backed securities.

 This model provides only credit right to MBS holder for the pool of Mortgages. Here the

security of this credit is either as per (USA) charged or (UK)s Sub Mortgage is taken in order to

provide them benefits by issues's trustee.

However, the Spanish model is combination (Hybridization) of the both above mentioned

models. This also adapts their structure for the commercial and civip legislation of the Spain.

Securities like mortgage backed are not directly securitized as mortgage because their issuance is

not direct their own basis. Before issuing the MBS participation in mortgage is necessarily

required. Which means, "Mortgage Participation, (Perticipacinoes hipotecarias)" another security

is issued this is another kind of Mortgage-Security. The process of mortgage securitization is just

started that would not end. Until the Pool of mortgage participation is formed.

Mortgage Backed Securities (MBS) in Spain:

The Residential Mortgage market of Spain is having low risk. It has constrained by the lesser

caoability of saving and also Limided affordability of housing. Despite that, the interest rates are

reached at the historical low rate. As per the Rating agency Fitch

The Structure and  regulation of Spanish Mortgage Backed Securities (SMBS):

The regulation of the Spanish Mortgage Backed Securities, (SMBS) were not being before the

"Act 19/1992". Therefore,  they are considered as relatively newer securities in the law of Spain.

Law of Spain gives same importance to SMBS as it is to Mortgage Bonds. The model of Anglo

Saxon is influencer in the Law of Spain to regulate the securities of these kind. Even this model

is appreciated amd used in US with success, since 60s it has been taken to many states in

different continents.
Securitization of Mortgage means, the transformation of Mortgages into the securities. It

suggests that investors get mortgages by having the MBS (Pass Through Model) by themselves.

MBS are even securities but easily tradable as compare to mortgages themselves.

First of all sale of Mortgages is taken by mortgagee (originator) to Special Purpose Vehicle,

(SPV) an Insolvency Remote. The institution of insolvency remote takes the charge here, for the

investors (buyers) to make more secure transaction. With the originator's winding up investors

would not be harmed now.

This structure is applicable and possible because of Private law system of Anglo Saxon. This law

is not taken from Roman law directly, as Spanish law is from there. That is one of the reasons

that securitization is not admitted completely or openly in these states.

See the structure below in Figure 2;

Mortgage Backed Securities (MBS) in Turkey:

Turkey sold Mortgage Backed Securities, of almost 3.15 Billion Liras. State owned bank of

Turkey has sold Mortgage backed securities to investors of the amount equal to USD 590

Million.

As per the facts it is obvious that, the housing sector provides significantly and directly

contribution to the aggregate production activity of the state.

The favorable developments in the financial markets and Turkish economy have allowed the

banking system to be able to offer Mortgage loans, securities with the longer-term. But, the

limitations of sources in accessing long-term funds has created and also (as expected) would

create mismatch in maturity and the funds deficit for the banks of Turkey. Therefore, banks need

a Secondary Capital market in order to create sources for long term fundings. Further, it can be

said that banks of Turkey fully depend on the European Banks in order to gain sources for long

term. That means, any kind of crisis in financial sector of world would make the situations even

worse for them.

The Corporations with Mortgage financed and also Banks in the Turkey are authorized by the

BRSA (banking regulatory and supervision agency), which are allowed to issue the MCB

(Mortgage Covered Bonds) on the condition of approval by CMB (Capital Markets Board).

The Capital market of Turkey foreigners and actors and also expecting that Secondary Mortgage

market would develop three beneficial conditions. Such as; for the banking system of Turkey a

portfolio of mortgage loan, a suitable legal structure, and a favorable and efficient sector of real
estate. Main objective of this anlysis is to visualize the development of the secondary mortgage

market of Turkey.

The structure of Turkish Mortagage backed securities is given as per the Emlak bank of Turkey.

The Emlak Bank provides the purchase of the three kinds of housing units offering mortgages.

a) Constructed by the Emlak bank.

b) Created by construction business joint ventures (JVs), in that participation of Emlak bank is

with developers and builders as well.

c) Those which builders constructed in the marekt.

There are two types of mortgage products originated by Emlak bank since the decade of 1990s:

IL-PMs and FRMs.

 IL-PMs (for Consumer price index and Wage-Index):

These are created as the new kind of mortgage security instruments. These are especially offered

for the banks' own residuals housing. With the limit of 10-15 years of maturity.

 FRMs:

which are as the short term loan offered for all the three above mentioned housing units

A contract originated by Emlak bank in 1998 as  WIPMs (Wage index payment mortgage).

Which are on the basis of one kind of unique index, named as CSW (Civil Servant's Wage)

index. With the 10 years of maturity term for mortgage, having initial maximum (loan to value)

ratio equal to 75 percent.

The repayments of mortgage are indexes to the income's measure, with the purpose to maintain

household's income as affordable. Due to the variations in repayments of loan. The term of loan

should be variable too, in order to accomodate the shortfalls in the payments. While the wages

get changed quickly.

Structure in Turkey as per Emlak bank is given below in the figure 1: