Financial Analytics: Science and Experience
 

Economic nature change of mortgaging collateral by bank

Vol. 10, Iss. 10, OCTOBER 2017

Received: 12 July 2017

Received in revised form: 14 August 2017

Accepted: 21 August 2017

Available online: 16 October 2017

Subject Heading: FINANCIAL INSTRUMENTS

JEL Classification: G02, G21, G32, K13

Pages: 1131–1140

https://doi.org/10.24891/fa.10.10.1131

Gorodilov M.A. Perm State National Research University, Perm, Russian Federation gorodilov59@yandex.ru

Nikitina E.B. Perm State National Research University, Perm, Russian Federation enika11@yandex.ru

Importance The subject of the article is the changes of collateral nature in certain situations. For instance, when banks take in pledge real estate with the probable inability of borrowers to repay the current loan payments.
Objectives The article aims to find out whether the change of the economic nature of the pledge increases risks to the borrower.
Methods In this study, we used economic and financial inspection of mortgage lending bank conditions.
Results The paper reveals that in terms of insufficient paying capacity of the borrower credit repayments are carried out irregularly. In this case, the payments towards a loan are made by getting non-interest income in the form of excess of the selling price of the pledge object. That is contrary to the economic nature of the credit.
Conclusions and Relevance The non-implementation of lending regulations with banks can lead to a change in the economic nature of collateral. Judicial organs usually take credit organizations' side. This problem may worsen amid economic crisis and take social form. Therefore, judicial and appropriate inspection bodies should examine the compliance with credit principles more closely.

Keywords: lending, mortgage, pledge, principle, repayment risk

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