Mortgage-bond-issuing bank

In November 1997 the Grand Duchy passed a new law that authorised the creation of a brand new financial entity known as the Banque d Emission de Lettres de Gage, a mortgage-bond-issuing bank. 

The type of issuer is naturally a major influence and as an example of the impact this can have, covered bonds issued by the Landesbanken, which profit from state guarantees and from the fact that they are eligible assets for the covered bonds of the private mortgage banks, trade on average 6 to 8 basis points more expensive than the other issues. 

The flexibility of securitization is a key advantage for both issuers and investors. Financial-engineering techniques employed by investment banks today enable bonds to be created from any type of cash flow. The most typical such flows are those generated by high-volume loans such as residential mortgages and car and credit card loans, which are recorded as assets on bank or financial-house balance sheets. In a securitization, the loan assets are packaged together, and their interest payments are used to service the new bond issue. 

In addition to the more traditional cash flows from mortgages and loan assets, investment banks underwrite bonds secured with flows received by leisure and recreational facilities, such as health clubs, and other entities, such as nursing homes. Bonds securitizing mortgages are usually treated as a separate class, termed mortgage-backed securities, or MBSs. Those with other underlying assets are known as asset-backed securities, or ABSs. The type of asset class backing a securitized bond issue determines the method used to analyze and value it. 

Traditional Pfandbriefe may be issued in either bearer or registered form, whereas Jumbos are only issuable as bearer bonds. For several years now, there has been a considerable shift in favour of the bearer paper, an indication of the growing share of Jumbo issues brought by the mortgages banks and their willingness to provide fungible bonds to their investors. Today, approximately 75% of all Pfandbriefe are bearer instruments. 

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