Mortgage loan

A mortgage bond , also known as a real estate bond , is a bond that is secured by mortgages . A distinction is made as to whether the registered mortgage liens secure the creditor's claim from the security as a senior or subordinate security.

Differentiation from mortgage Pfandbrief, history

There are clear differences between a mortgage bond and a mortgage Pfandbrief . Pfandbriefe protect the investor in the first place. The property may not be lent more than 60 percent of the carefully calculated mortgage lending value , which is usually well below the market value. The strict legal provisions of the Pfandbrief Act (PfandBG) apply . Pfandbriefe may only be issued by Pfandbrief banks that are subject to the strict statutory supervision of the Federal Financial Supervisory Authority . The special security structure and the particularly strict monitoring of compliance with the legal provisions to protect creditors led to the fact that the legislature declared Pfandbriefe to be completely safe with the entry into force of the German Civil Code in 1900 .

After the market demand for security-oriented investments skyrocketed from the beginning of the 90s, a further development of the traditional securities business in the bond sector was undertaken in order to promote secured bonds. The current form of the mortgage bond contains mortgage protection, but does not achieve the security level of a mortgage Pfandbrief for the creditor.

to form

In principle, any type of bond can be expanded into a mortgage bond. These include the standard bond , the zero coupon bond and the perpetual bond . The annuity bond , the redemption bond (in the narrower sense also called the draw bond), floater and stepped interest bond are found less frequently . All of these forms can be designed flexibly in terms of content, so that additional relevant quality features and security mechanisms (see related points) can in some cases have a considerable effect on the bond structure and the security.

Senior and subordinated collateral

Mortgage bonds can be divided into two groups according to their security: bonds with first-class security for the benefit of the bondholders and bonds with subordinate security.

A senior bond is a fixed-income security that protects the investor with senior real estate liens (mortgages) or in the form of an owner's mortgage. The investor is granted a preferred lien on the property. If the debtor (issuer) cannot meet his obligations towards the investor, i.e. if he cannot pay the interest or make the repayment, the investor has the right to obtain harm from the sale of the property. Compared to subordinated mortgage bonds, the investor is legally better off when it comes to realizing the lien - for example the sale of the property - taking into account the pure security aspect. In the case of subordinated mortgages, the investor can only count on liquidation proceeds as security if the first-rate creditors have been completely satisfied and there is still sufficient assets available to offset their claims. The quality of the protection results from the quality of the property and the amount of the mortgage on the property.

In the case of subordinated bonds , it is important to take a closer look at the security aspect. Such offers are mortgage bonds to companies, the use of which is in the interests of the investors, but which also finance the acquired property to a certain extent externally. This may lead to the fact that these mortgages securing the claims of the bondholders are not or only subordinate to the mortgage securing the bank loans. In this respect, such real estate bonds could suggest a security simply by their name that does not actually exist or does not exist in the desired form. In the market, bonds are sometimes referred to as real estate bonds that do not meet the criteria, especially first-rate hedging. What all bonds have in common is that their philosophy does not differ from conventional corporate bonds. Bonds serve to ensure that the issuer receives capital to realize his own purposes, which are often already predetermined by his corporate goals. The issuer therefore does not act on an investor basis, but on a company-own basis. The bonds are liabilities on the part of the company to the bondholders, who generally receive a fixed interest rate for their investment. This is in contrast to fund investors or shareholders. Mixed forms are of course conceivable. In the case of security through mortgages, security is theoretically possible for the investor with both types of bonds, but in practice the lending banks will not accept that the company's real estate is primarily used to secure the claims of the bondholders. A security assessment of real estate bonds, the real estate of which has also been financed with debt, depends on the amount of debt financing and the intrinsic value of the properties on which the loan is held. The investor (here bond creditors) is in the same situation as other lenders, comparable to a credit institution that has given the entrepreneur a fixed-rate loan or a current account loan. Here, too, the loan helps implement the business idea; the bank's money is not invested specifically in the bank's interest. From the investor's point of view, it does not matter which business the issuer conducts with regard to the need for security.

Security mechanisms / quality features

Mortgage bonds can be designed for the benefit of the bondholders with one or more security mechanisms, which are briefly discussed below. The more of these mechanisms and features, which in turn can be implemented with different weighting and quality, are used in the bond structure, the better the security quality.

In the form of a first-rate entry in the land register, for example letter land charge, the bondholders of mortgage bonds are provided with real collateral. The amount of this security in rem may vary. Securing in the land register can take place in whole or in part and does not necessarily have to correspond to the market value of the property.

The involvement of a trustee , usually a lawyer, can serve to keep the collateral in rem. In addition to the safekeeping of the collateral, the latter can also be obliged to enforce the realization of the collateral if the issuer is in difficulties. In the context of B. insolvency proceedings, he then meets the complicated legal requirements. Current rental income from the property (s) backed as security can be equipped with a (rental) assignment in favor of the bondholders, which is often also done via the trustee. If the issuer does not meet its current payment obligations (interest payment, repayment), the current income will be used in the form of the (rental) assignment in favor of the bondholders. In practice, this can be done more quickly than realizing the land register securities, as the latter requires a complicated procedure.

Investment criteria are often defined when the mortgage bond does not relate to a known and specific investment object, ie is designed as a “ blind pool ”. The more specific the criteria are, the greater the transparency. The investment criteria determine, for example, what type of property can be acquired at what price and in what economic framework property can be acquired. This can e.g. B. based on a percentage quotation, based on the market value of the property or based on the factor of the annual net rent achieved. The percentage difference between the purchase price and the collateral value in favor of the bondholders gives the collateral ratio.

Another quality feature is the inclusion of a so-called control of the use of funds . It serves to ensure the appropriate use of the deposits made by the investor in an escrow account by an auditor or another independent third party to check whether the investor funds are used within the scope of the corporate purpose formulated under the statutes and B. binding investment criteria have been met.

Expert opinions

Specialist media such as Financial Times Deutschland criticize the fact that numerous mortgage bonds only suggest a “sham security”, since only a handful of products offer first-rate basic security or have the necessary security mechanisms and quality features. Just two providers on the German market offer this. The Frankfurter Allgemeine Zeitung describes sensible and well-constructed mortgage bonds as a useful addition. However, careful attention should be paid to the design of the products. The specialist magazine “Der Immobilienbrief” also deals with the topic of security in real estate bonds and examines the issue of ratings for real estate bonds and security mechanisms in a study.

The legal scholar Karl-Georg Loritz , who is regarded as a leading scientific expert for the conception and valuation of real estate investments, carried out a well-founded comparison to other forms of real estate investment and analyzed all real estate bonds on the market. In the majority of the systems offered, he discovers serious conceptual deficiencies and also comes to the conclusion that only two systems meet the required security mechanisms and quality features.

Individual evidence

1. ↑ On this in detail Karl-Georg Loritz , in Schmider / Wagner / Karl-Georg Loritz, HdB, 2nd edition, June 2010, subject 0308, Rn 3 ff.
2. ↑ On this in detail Karl-Georg Loritz, footnote 1, Rn. 6; Details can be found in Wagner / Karl-Georg Loritz, Conceptual Handbook of Tax-Oriented Capital Investment, Vol. 1, 2nd Edition 1997, Rn 1434 ff .; Karl-Georg Loritz, WM 1998, 685 ff.
3. ↑ For the legal structure, see Sections 66 ff. Investment Act
4. ^ Stephan Eilers, Adalbert Rödding, Dirk Schmalenbach: Corporate Financing . Munich 2008, p. C 175 ff .
5. ↑ Definition in Runge: in: Hockmann / Theißen, Investment Banking, 2002, 25.1.2; see also Habersack, in: Munich Commentary on the BGB, § 793 Rn. 12.
6. ↑ Huttei, in: Habersack / Mülbert / Schlitt, Unternehmensfinanzierung am Kapitalmarkt, 2nd edition 2008, § 15.
7. ^ Karl-Georg Loritz, Journal for Real Estate Research and Practice 2010, Issue 14, pp. 2ff.
8. ↑ http://www.ftd.de/finanzen/immobilien/:hypothekenanhaben-undurchsichtige- construction / 489628.html ( Memento from September 18, 2010 in the Internet Archive )
9. ↑ [1]
10. ↑ Corporate bonds: Mortgage bonds from WGF are an interesting addition
11. ↑ Archived copy ( Memento of the original dated November 4, 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. 
12. ↑ [2]
13. ^ Karl-Georg Loritz: Real estate bonds as a contemporary alternative to closed funds - functionality, legal, economic and security-related aspects -; University of Bayreuth; Investment Design Handbook, February 2011