Mortgage Securities as Funding Source for Mortgage Loans in the European Union

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Saša Stefanović
Hasan Hanić
Dejan Erić


In this paper we analyzed mortgage securities as a source of financing credit activities in the mortgage market of the European Union. Although they basically provide the same products – mortgages, credit institutions differ in the way of financing their activities. While some institutions finance their activities by deposits, others issue mortgage securities (mortgage bonds and mortgage-backed securities) through the capital market. This analysis based on relevant literature and appropriate statistical data showed that the importance of mortgage securities vary from country to country. At the level of the European Union its overall importance is very high, since more than ¼ of all credit activities on the mortgage market are financed by these instruments. Moreover, it has been proved that mortgage bonds and mortgage backed securities in many ways satisfy various needs of creditors. The selection of the instrument depends on the creditor's and investor's requirements and it is determined by historical, legal and regulatory framework, as well as with the structure of the mortgage market in which the creditor operated. In many countries, mortgage bonds and mortgage backed securities are accepted as alternative and complementary source of finance, which results in the coexistence of these two types of mortgage securities. Historical data and recent trends suggest that, in the future, both of these instruments (especially mortgage bonds) will represent a significant source of financing credit activities in the mortgage market.

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