Definition
A mortgage debenture is a debt instrument combining the characteristics of a bond (fixed return, defined maturity) and a mortgage (real estate collateral). The borrower issues the debenture, investors subscribe, and the mortgage is the collateral.
Typical uses: - Financing real estate commercial projects or developers - Refinancing income properties outside banking criteria - Structuring private mortgage syndications (multiple investors on the same loan)
Difference from standard mortgage: - A normal mortgage is two-party (lender + borrower) - A mortgage debenture can be multi-investor via a lender syndicate - The debenture can be transferable (sellable on a secondary market)
Risk for investors: in case of default, investors have mortgage recourse on the property, but realization can take 6-18 months. Private mortgage debentures carry significant liquidity risk.