Mortgage bonds are debt securities used for the long-term financing of senior mortgage loans granted by banks.
Unique chain of safety
Unlike conventional bonds, Swiss mortgage bonds offer extensive protection by law. The issuer and the lending banks are liable with their own assets, while the borrowers are also liable towards the banks with their mortgaged properties. This chain of security is unique worldwide. Only two institutions are allowed to issue mortgage bonds in Switzerland: Pfandbriefbank schweizerischer Hypothekarinstitute AG (Mortgage Bond Bank of Swiss Mortgage Lenders), founded in 1930, and Pfandbriefzentrale der schweizerischen Kantonalbanken AG (Central Mortgage Bond Institution of Swiss Cantonal Banks), founded in 1931.
FINMA is responsible for supervising both of these institutions on an ongoing basis for which it relies largely on the auditing and reporting conducted by external audit firms.
Audit firms are commissioned by the institutions themselves and audit their compliance in particular with:
- financial reporting rules
- articles of association and regulatory requirements
legal requirements for issuing mortgage bonds and granting loans
- legal requirements for covering mortgage bonds and loans
- legal requirements for estimating property values and calculating loan-to-value ratios.