analysis of credit solvency of the borrower;
estimation of the collateral.
These two aspects are in conformity with two manner of return of granted means: from salary and other incomes of the borrower or in the result of sale, mortgage. In this case the first variant has dominated meaning.
2.2.1. The analysis of credit solvency of the client.
The main purpose of creditor is receipt from borrower of the most reliable guarantees of loan return in the time of fulfillment of debentures. It is naturally that the creditor must in the first place have the strict information of financial position of the borrower, check his paying capacity, the condition of his property, the availability of debts and so on.
Before conclusion of credit agreement with client, the bank shall examine thoroughly the person of the borrower, taking into consideration three main factors: stability, payment solvency and readiness to pay debts.
In the case of analysis of the first factor – the stability – the bank considers the duration of living of the client on the present location and the stable place of working, taking into consideration that the changes of work could influence on opportune payment of debts, and the change of living location will complicate the inquiry of the borrower.
In the process of determination of payment solvency the incomes of the borrower shall be estimated, including principal incomes, additional incomes and others, which shall be compared with the present and proposed expenses. The criterion for making positive decision is the condition, that the borrower has cash in the size not less than 20% from the amount of purchased house. For estimation of payment solvency the following coefficients are used : construction coefficient – the correlation of received salary and other monthly incomes to the debts on dwelling; opposite to the construction coefficient the debts coefficient, which characterizes the total amount of the borrower debts ; the coefficient of correlation of loan to the value of the house. /9/
In the case of analysis of the borrower readiness to pay debts it is necessary to take into consideration the fact if the borrower realized in time all payments in the past. The bank examines all information, connecting with the creditors of the borrower and using in this case the services of private agents, who collect information concerning borrowers and banks-creditors. The banks may use special questionnaires for receipt by the borrowers of housing credit in the necessary cases in the process of examination of credit solvency of the client.
In the case when the enterprise is a borrower or, for instance, farming keeping, the determination of credit solvency of the received result depends considerably on the quality of collected information. The credit solvency is determined by the indices, which permit to reveal exactness of the client in the calculations on previously issued credits, current financial position, perspectives of its change, possibility to attract different sources for mobilization of monetary means.
In this purpose “the financial face” of the enterprise shall be determined in the first place, its financial economic activity shall be examined in the purpose to provide promptness, payment and return of credit.
But helping the enterprise, the bank shall remember about its own interest. This process is realized especially sickly at the present time – in universal mass non-payments of the enterprises to each other and to banks. At the present time the information centers are absent , which develop information concerning financial position of enterprise and render such information in accordance with the requirements of interested individuals. There are many reasons of these facts – confidence of reported information of financial economic activity of the enterprise. That is why any creditor is obliged to estimate independently the financial stability of the future borrower. Simultaneously the reputation of the client is examined – his honesty and decency in the calculations, attitude to his obligations in the past. The source of information for analysis of credit solvency of the enterprise is balance sheet. In the case of consideration of the borrower reporting the creditor shall determine: has he good payment solvency, is his balance liquid, has he and in what size proper circulating capital, how manoeuvrable are his means, to what degree does he depend on the used sources of the means, is he stable in financial position, what is the perspective of improvement of his financial economic activity, is his sphere of activity profitable.
For replying to the established questions it is necessary to use many indices which method of calculation is presented in the table 4.
Table 4
Indices of financial position of the enterprise
| Indices and their content | Formula of calculation | |
| 1 | Payment solvency (Пл) – shows the difference between current assets (Ат) of the enterprise and its obligations (О) | Пл.=Ат-О |
| 2 | General liquidity (Ло)- reflects the degree of cover by current assets short-term obligations (Ок) | Ло= Ат-Ок |
| 3 | Intermediate index of liquidity(Лп)-permits to establish to what degree the obligations can be covered for account of monetary means and future expected earnings (Ад) | Лп=Ад-Ок |
| 4 | Net circulating capital (Кч)- shows the exceed of current assets over short-term debts | Кч=Ат – Ок |
| 5 | Coefficient of financial manoeuvrability (Км)- shows which size of own capital (Кс) is invested into current assets | Км=Кч/Кс |
| 6 | Coefficient of independence(Кн)- certifies specific gravity ofown capital in the currency of balance (В) | Кн=Кс/В |
| 7 | Coefficient of financial stability(Ку)-reflects specific gravity those sources of financing, which have long-term character of using (Од) | Ку=(Кс+Од)/В |
| 8 | Coefficient of financing (Кф)- shows which part of property is financed for account of own means | Кф=Кс/О |
| 9 | Profitability of enterprises(Рп)- shows the share of net profit (Пч), which falls on one rouble of active currency of balance (А) | Рп=Пч/А |
| 10 | Turnover of assets(Оа) or current assets (Оат)-characterizes the speed of turnover of all or current assets | Оат=Р/АтP-earnings without special tax |
| 11 | Profitability of realized production, works, services(Рпр)reflects net profit from each rouble of realized production, works, services | Рпр=Пч/Р |
| 12 | Profitability of own capital(Рк)- shows the result of financial economic activity, the profit received on invested capital | Рк=Пч/Кс |
| 13 | Investments profitability(Ри)- certifies effectiveness of means using, invested into enterprise. | Ри=Пб/(В-Ок) |
The presented range of indices is sufficient for estimation of financial economic activity of the enterprise. It is naturally, that for answering the question better or worse the enterprise works in the reported period the dynamics of the presented indices are necessary.
2.2.2. Value appraisement of real estate in pledge
The mortgage gives the creditor the right to collect and to sell the property of the borrower in the case of non-payment of indebtedness in the time of fulfillment of the obligation. That it is necessary to estimate the value of the property of the borrower more correctly, chousing more appropriate methods of a valuation.
Accordance with the legislation of the Russian Federation upon agreement of the mortgagor and the mortgagee (observing the provisions of Article 67 of Federal Law “ On Mortgage” in the event of mortgage of a land plot); the appraised value shall be stated in the mortgage agreement in monetary form.
The parties to the mortgage agreement may entrust appraisal of the subject of mortgage to an independent professional organisation.
Value appraisement of real estate in pledge depends on thee factors: real estate prime cost, profitability and location. Taking into consideration foreign experience in hypothecary crediting in value appraisement of real estate mainly three methods can be used: expendable method, comparative method and profitable method. Expendable method is based in studing investors’ possibilities in buying real estate in this case one must take into consideration that the prudent investor would not pay for the object a higher price than the price which he could pay if he taken the appropriate land for development and for constructing the analogical building in function and quality and without great delays in near future.
This method is useful for our country. It can be used if there is not enough information about comparative sales that is this method can be in passive markets. At the same time using of the expandable method as the main method in value appraisement of real estate stimulates a sharp rise in prices of real and it doesn’t give real market value of the object.
In value appraisement of real estate of the market value of the building the building is compared with analogical buildings soft before, which actual market value is well know. But in this case we must take into consideration a number of factors correcting the value appraisement. These factors are location of the building, ecological situation, remoteness of the industrial works, closeness of health and cultural centers, communication network. The value appraisement depends also on architectural peculiarity, the style of building, the type of construction, the disposition of the rooms, hidden defect in building. The problem of value appraisement is finally decided by modeling as market price is in the base of the value appraisement. /13/
After obtaining of the loan the borrower bears the responsibility for safety of the building in pledge and measures for maintaining of the building. These measures are repairs in time, fire insurance, insurance against natural calamities for bank interest, refusal against reconstruction or fortifying of the building without the permission of the bank and using of the properly for illegal activity.
2.2.3. The sole order of real estate registration.
The mortgage system cannot function without the sole for all the country order of registration of objects of real estate, including dwelling, land, pledge sheets.
At the present time the registration of real estate is based on the separation of the land from other property connected with it. The consequence of such situation is registration of different types of real estate in several state organizations. That is necessary to consider the experience of foreign country. The original mortgage begins then when the creditor independently on his location can receive reliable information of position of the real estate which he is interested in, including information of previously made mortgages or rent agreements independently on location of the client.
The agreement on mortgage should be attested by a Public Notary and is subject to State registration. It is put in force from the moment of such registration.
Table 5
Certification by a Notary and State Registration of Mortgage Agreement
| Elements forms of agreements | Requirements |
| Certification By a Notary | Mortgage Agreement shall require certification by a notary |
| If an agreement lacks any data mentioned in Article 9 of the present Federal Law or if the rules mentioned in Item 4 of Article 13 of the present Federal Law are violated, then such agreement shall not be subject to notarisation as a mortgage agreement. | |
| Non-observance of rules on notarisation of mortgage agreement shall lead to its nullity. Such agreement shall be considered null and void. | |
| . If a mortgage agreement states that the mortgagee's rights in conformity with Article 13 of the present Federal Law shall be certified by an encumbrance, then such an agreement shall be submitted to a notary along with the encumbrance. A notary shall state the time and place of notarisation of the mortgage agreement on the encumbrance as well as number and stamp the sheets of the encumbrance in keeping with second part of Item 3 of Article 14 of the present Federal Law. | |
| State Registration of Mortgage Agreement | Mortgage Agreement shall be subject to state registration. |
| If an agreement lacks any data mentioned in Article 9 of the present Federal Law or if the rules mentioned in Item 4 of Article 13 of the present Federal Law are violated, then such agreement shall not be subject to state registration as a mortgage agreement. | |
| Non-observance of rules on state registration of mortgage agreement shall lead to its nullity. Such agreement shall be considered null and void. | |
| Mortgage agreement shall be considered concluded and shall enter into force since the moment of its state registration. |
The mortgage system cannot function without the sole for all the country order of registration of objects of real estate, including dwelling, land, pledge sheets. The attempts of administrations of separate regions to establish in the purposes of acceleration of mortgage introduction the local rules of such accounting can lead to the variety incompatible with meaning of mortgage and cause negative consequences. At the present time the registration of real estate is based on the separation of the land from other property connected with it. The consequence of such situation is registration of different types of real estate in several state organizations: committees on land resources and land-tenure regulations, bureau of technical inventory , committees of direction of state property, housing committees. Each of these bodies realizes registration of rights for land, buildings, constructions, living houses and premises in accordance with its rules. Imperfect accounting of real estate raises doubts with respect to lawfulness of transaction of sale-purchase, mortgage, and leads to abuses. In such conditions it is impossible to provide protection of commercial interests of legal person and individual in the case of transaction with real estate.
The participants of Business Club of the journal “Law”, discussing the question of establishment of market economy in the part of regulation of real estate by the Russian legislation, decided, that the absence of mechanism of registration of mortgage agreement transferred all market of real estate in the hands of officials, who nobody knew, who could paralyze, distort every law, or put the fulfillment of the law in dependence on their decision, and this is the first condition of transformation of legal business into criminal business.
Besides, in the case of estimation of application concerning registration of mortgage of real estate, it is necessary to take into consideration that the law admits repeated mortgage of real estate to different persons and at the same time establishes the principle of seniority.* It consists of the fact that each person whose right appears earlier, will get the first the satisfaction of his requirements from the amount received from the sale of the mortgage object. Accordingly each later holder of mortgage will receive only the rest which is left after full satisfaction of requirements of previous holders.
It means that in the case of the decision of the question if it should grant credit under collateral or enter into other obligation covered by collateral, the future mortgage holder should take into consideration the fact if the property offered as collateral has already been mortgaged, and if yes so what will be the volume of the requirement assured by the mortgage.
On the strength of novelty of the questions, which concern registration and appearance in connection with this of the whole range of vagueness it is necessary to consider the experience of foreign countries, where the systems of real estate registration are rather strictly developed.
In the countries with developed market economy the registration of real estate has considerable meaning. It is considered as the base of market functioning. The real estate registration is effected in two systems: the system of transactions registration and the system of rights registration. In the first case the documents, which confirm fulfillment of transaction, shall be registered and
* Item 1 article 342 of Civil Code of Russian Federation
filed in special books in chronological order. This system is typical for majority of the states of the USA, England and the range of other countries. In this system the main factor is registration of rights of property, which shall be realized under the agreement between previous and new owners.