Blockchain Based Fixed Income Instrument
Micromortgages introduces an NFT-token (‘MM-NFT’) that is asset backed by a first ranking specified mortgage in a residential property in the Danish Metropolitan market.
Platform Provider
Micromortgages is a platform provider and do not engage in any trading of loans, mortgages or debt-notes and do not undertake any loans.
Asset Backed
An identifiable and registered sole mortgage is supporting each NFT’s that is issued against the collateral.
Asset Validation
Micromortgages only allocate loans to first time purchasers of private, residential property. Borrowers will potentially be sourced by certain liquidity channel partner profiles (Pension funds/Banks).
Interest Payments
All ongoing interest payments and redemptions from the borrower, is settled by way of FIAT currency transfers to the fiduciary service provider that the platform is contracting on behalf of all NFT owners.
Loans Offerings
Loans are provided at CIBOR 12 month interbank rates (+ 100 bps spread) and the interest rate is fixed to maturity of the 10 year loan. The principal is not amortized prior to maturity.
Market Liquidity
An NFT can be redeemed by the borrower at the time of quarterly interest payments taking place, or at maturity.
Blockchain Based Fixed Income Instrument
Asset Backed Prime Mortgage Loans in Denmark
Danish Kroner (DKK)
Maturity: 10 Years
Micromortgages introduces an NFT-token (‘MM-NFT’) that is asset backed by a first ranking specified mortgage in a residential property in the Danish Metropolitan market.
Just to be acquired residential properties are accepted as collateral (market price validation), and no subprime mortgages are accepted in the property. Loans are offered up to a specified max. purchase price pr. m2 (p.t. DKK 50.000/USD 7.000) and with a max. loan amount pr. property (p.t. USD 750.000).
The issued NFT’s are issued with fixed interest for a 10 Years maturity loan.
The default interest (for 10 years – F10) is fixed at CIBOR 12 months + 100 bps (presently 4,85% Q3 2024), or whatever spread a liquidity channel applies in the allocated settings menu.
The issue price will always be 99,75
Transactions are offered by way of a private blockchain network but transactions are settled from crypto FIAT currency wallets subject to customary KYC procedures by Coinbase (or other similar gateway).
NFT’s can by the NFT owner always be ‘rolled back’ substituting the NFT with a direct ownership (and administration) of the underlaying collateralised mortgage and loan arrangement with the identifiable borrower.
Platform Provider
Private Blockchain
Micromortgages is a platform provider and do not engage in any trading of loans, mortgages or debt-notes and do not undertake any loans.
Micromortgages is connecting a demand side of the platform (borrowers) on the one side, with a money side of the platform (lenders) on the other side of the platform.
The Danish marked for – to be acquired – residential properties by first time home owners, is selected by the platform as the test marked to establish proof-of-concept.
NFT’s issued by Micromortgages are fully DKK-asset backed by a registered first mortgage corresponding to the full purchase price of residential property (less a 5% advance interest payment deposit) in just to be acquired, private, residential properties (houses and condominiums in Danish Metropolitan Markets). Subprime loans are not provided or permitted in the property. Loans are offered up to a specified max. purchase price pr. m2 (p.t. DKK 50.000/USD 7.000) and with a max. loan amount pr. property (p.t. USD 750.000), reducing the default risk to a re-letting commitment on defaulted loans. Micromortgages carry the default risk that is not transferred to the NFT owners.
The digital handling of collateral (the asset backing) and the exchange between the parties of collateral against cash, is performed by the use of blockchain technology and smart-contract driven NFT’s.
The transaction is between two digital identities that are anonymous to one another.
Micromortgages will be subject to regulation in Denmark but are not considered in need of a banking license, or being required to operate under the regulation related to registered Mortgage Institutions.
The use of digital ledger technology not only reduces transaction costs significantly, but also provides Micromortgages a competitive space (in regulatory terms) vis-a-vis the traditional providers of mortgage loans.
In Denmark 41.000 transactions pr. year is related to first time purchasers of residential property, with a loan volume of not less than USD 20 B.
The technology will subsequently be scaled into other markets (Germany, UK and US).
Asset Backed
Fixed 10 Year Interest
An identifiable and registered sole mortgage is supporting each NFT’s that is issued against the collateral.
By this security architecture Micromortgages ensures a uniform and identical collateral value associated with each of the issued NFT’s.
By the ‘tokenisation’, Micromortgages performs a digital division of the collateralised mortgages into a virtual number of micro-mortgages some with a face value of DKK 1.000.000 and some with a face value of DKK 100.000 pr. token/fractured mortgage. Loans are consequently provided in multiples of DKK 100.000 (minimum).
Collateralized assets, escrow accounts and interest payments are anchored in an independent, third party fiduciary service provider (UK) which is contracted by Micromortgages, but represents – and protects – the unilateral interest of each NFT holder.
NFT’s are issued in series that refers to the actual level of interest rate as measured by The Danish Central Bank 12 month interbank rates (the interest base driver).
New NFT series will be issued when maturity profiles or expiration data are changed on (new) NFT’s, or the Danish Central-bank Money market rates are adjusted. By this structure, larger series of NFT’s can be transacted on the Micromortgages secondary transaction platform on uniform conditions in terms of maturity and interest carry.
The default interest on new NFT’s are added a 100 bps spread to off-set the standard market spread differential between Central Bank 12 months interbank rates, and the comparable 10 Yr mortgage bonds as traded on NASDAQ (Copenhagen) market, and as a default risk premium from the loans offering a 100% financing of the purchase price, as opposed to the conventional mortgage bonds which – by regulation – only permits 80% of the purchase value to be securitised (total securitisation in residential properties in Denmark mortgage market is 1.786 billion DKK or 250 billion USD). Liquidity channels can adjust their spread demand for new NFT’s under issue in the NFT settings menu provided by Micromortgages.
As the default risk is absorbed by the platform, the default risk premium added in order to establish market conformity, becomes a ‘wind-fall’ interest gain for the loan providers.
Asset Validation
Default Risk
Micromortgages only allocate loans to first time purchasers of private, residential property. Borrowers will potentially be sourced by certain liquidity channel partner profiles (Pension funds/Banks).
First time purchasers frequently purchase as couples, and have – statistically – a lower default risk than what is associated with the mortgage market in general. Micromortgages loan conditions eliminates the risk of subprime financing taking place.
Each loan has a max. loan allocation pr. property of DKK 5M (Q3 2024). No other mortgages are accepted in senior or junior position to the loan allocated by the platform.
No purchase value in excess of the prevailing area m2-market price is accepted. A maximum loan value is enacted, and is DKK 50.000 m2 (Q3 2024).
Only transactions that is validated by way of an open market transaction between independent third parties, are eligible for a loan. A robust AI model is enacted to filter out transactions that may be fraudulent.
Each loan is supported by a 5% interest payment deposit by the borrower with the platforms assigned fiduciary service provider (one year of interest to be escrowed).
In case of default on a property, the issued NFT’s are unaffected as Micromortgages is undertaking all interest payments on the outstanding NFT’s to maturity.
This default risk undertaken by Micromortgages, is off-set by the rental value of the residential properties approved for the loan; the borrower interest escrow account, and a further annual collective contribution by the borrowers of 0,8% of the loan face values pr. year.
Interest Payments
Convertibility
All ongoing interest payments and redemptions from the borrower, is settled by way of FIAT currency transfers to the fiduciary service provider that the platform is contracting on behalf of all NFT owners.
Interest payments and redemptions are subsequently transferred to the NFT owners by way of a €-stable coin credit to an assigned – by the smart-contract operated – crypto wallet associated to each NFT with a subsequent and immediate further transfer to the – by the NFT owner – designated FIAT crypto wallet. All of these transactions are guided by the smart-contract.
An NFT owner that purchases all the NFT’s issued against one specific collateral, can always use the smart-contract redemption option to convert the NFT to ownership of the underlaying loan and the associated, registered mortgage- and loan documents, that consequently goes ‘off-the-blockchain’, and becomes a conventional loan arrangement between an identifiable lender and an identifiable borrower. The smart-contract allows for such a transaction by intervention of the fiduciary service provider.
Loans Offerings
Market Rates
Regulatory Competitive space
Loans are provided at CIBOR 12 month interbank rates (+ 100 bps spread) and the interest rate is fixed to maturity of the 10 year loan. The principal is not amortized prior to maturity.
As the loan is covering 100% of the purchase price of the residential property (max. USD 750.000 and subject to an independent 5% cash interest security deposit), a spread is added at 100 bps on the totality of the loan.
An establishment cost is charged at 1,7% that is aligned with the market.
A collective default covenant and administrative cost compensation, is paid to the platform totaling 0,8% pr. year and paid by the borrower.
The Micromortgages proof-of-concept test platform is designed to regulatory standards as set by the Danish Financial Supervisory Authority. Being based on digital ledger technology, the platform must comply with the European Community Crowd-Funding Directive, but is not required to apply for a banking license or become subject to regulation enacted on conventional mortgage markets loan providers.
By all transactions being peer-to-peer, the platform is not expected to be subjected to the customary capital market regulatory requirements vis-a-vis banks or mortgage institutions, as a result of which, the platform can provide loans of up to 100% of the purchase price (against 80% in the regulated mortgage market), and borrowers using the platform, will not be subject to same loan restrictions as otherwise applied to the banking sector.
Market Liquidity
NFT’s are redeemed at maturity.
An NFT can be redeemed by the borrower at the time of quarterly interest payments taking place, or at maturity.
NFT owners can convert to instead become owners of the underlaying loan and collateralized mortgage, by enacting the smart-contract loan redemption option.
The underlying collateral is formalized as a tradable and registered mortgage document, that can be traded as such, between private individuals, companies and financial institutions subject to fulfilling the necessary filing requirements with the Danish mortgage register (on-line).
NFT’s has no formal secondary marketplace, but Micromortgages provide a transaction platform where NFT’s can be exchanged at par value against settlement in all major crypto- or FIAT currencies, as applied in the setting menu of the transaction by the transacting parties.
Transactions outside the Micromortgages operated transaction platform can take place anytime by the NFT owner using the public blockchain transaction solutions offered in the crypto market. However this is not recommended, due to the full integration of Micromortgages blockchain transactions into the wider – and off the blockchain – processing framework with solicitors, banks and our fiduciary service and security structure.
However NFT’s can at issue be transferred off-the-blockchain by the NFT owner, and stored in the NFT owners, exclusive and secure cold wallet an action that is recommended and flashed on our dashboard with out liquidity channel partners. This is not possible to handle by way of the smart-contract due to the fact that the NFT asset is taken off-the-blockchain by the owner (for security reasons).