AK&M Rating Agency experts take part in 12th All-Russia conference “Mortgage Lending in Russia”

Financing of mortgage deals with mortgage-backed securities (MBS) is a fast-developing market segment in Russia. In 2013, the total amount of securitized loans exceeded RUB 140 billion.

While today’s market opportunities mostly come from deals involving minor issues of securities (starting from RUB 3 billion), it is critically important that the securities issued reach the lombard list of the Central Bank of Russia, experts say. To qualify for the lombard list, the whole issue or at least its senior tranche has to be rated. Serving as additional security for the issue, the rating makes it possible to reduce the amount of credit enhancement in the form of provisions for the junior tranche held by the originating bank.

Although international rating agencies are dominating today’s MBS rating process, the involvement of domestic rating experts is indispensable for a higher reliability of mortgage-backed instruments and a wider range of investment options, says Yaroslava Zabello, Head of the Analytical Center, AK&M Information Agency, who contributed to the conference presenting a rating methodology for mortgage-backed securities currently developed by AK&M Rating Agency.

The agency’s main objectives in the rating process are to protect the interests of mortgage-backed security holders and to ensure the maximum transparency in the performance of the issuer’s obligations. When assigning a rating to a mortgage-backed security, the rating agency analyzes several groups of parameters such as the quality of the pool of loans, the size of the junior tranche and reserve fund, the availability of insurance coverage etc., the quality of borrowers, the issue infrastructure (the assessment of reliability and financial viability of the originating bank, the mortgage agent, the reserve servicer and other parties to the transaction), and macroeconomic parameters. AK&M Rating Agency intends to closely cooperate with market players in developing and verifying its methodology.