Securitization - Discussion

[emandcole]

Following on from a thread about the Manchester fallout:

 

http://www.consumeractiongroup.co.uk/forum/debt-collection-industry/240186-dissecting-manchester-test-case.html

 

this topic has reared its ugly head. So, if you know how it works and if there are any implications of value please post to your hearts content.

 

Particularly interested in how this information could have potential in the new arguments about the rights of the consumer being abused/pushed aside in the interests of profit making and the whole corporate boys club.

 

Forgive my lack of understanding, hence the new thread

[spartathisis]

Dare I say I understand the basics, but have come across different views as to whether it is a goer in the Uk. Views on CAG seem to be that the law allows the Original issuer of the cc to somehow keep an interest in the ownership so enabling them to sell a delinquent account (ours!). The thing with this is that all I have read is that for it be legal it must be "Bankruptcy remote"(BR) ie cannot be touched by a creditor of the Original issuer who sold the cc to the investment vehicle. If an Original issuer keeps an interest how can they then be BR?

 

Is there anyone out there who has inside knowledge of securitization that can help?

[spartathisis]

Good site to get general info on securitization here: Securitization.Net

 

There are some on CAG who believe that securitization is just a side issue and only by dissecting an agreement will we find unenforcability to defend with, but I disagree. Who owns the debt is a fundamental issue. The debt is farmed out to specifically set up companys in Jersey, The Caymens and various other tax havens, none have Consumer Credit Licences from what I can find out. The OC becomes a servicer of the debt and receives a fee, much like Cabot Financial (Europe) Ltd do for the purchaser of their debt books, Cabot Financial (UK) Ltd. They cannot have employees, they can only trade in that specific tranche of debt (unless it is set up to receive further amounts of debt in the future) and they must be bankruptcy remote so the investors in the security do not lose their investment.

 

I am not sure on what is securitized, as everything talks about receivables being securitized, but I would have thought that is actually the debt outstanding coming in regular payments? Eg £1000 spent by debtor, OC issues bond of £1000, but asks for £700 up front and the balance to be repaid from debtors payments (which will be capital and interest charged) after investors dividends. The actual repaid may, with interest, be £1500 and from this the OC gets its £300 and a fee for servicing the account and the rest is profit for the investor.

 

There is no specific law in the UK relating to securitization and I believe The insolvency Act 1986 is the law that rules the procedures to protect investors. I intend making my way through that over the coming weeks

[Desperate Daniella]

Hi Spartathisis,

 

I am so confused about securitization, but I wrote to Amex about it (as did other caggers) and Amex are avoiding the question.

 

Have you seen the Amex securitisation thread?

 

I am very interested in what you are saying.

 

DD

[the_shadow]

Hi Spartathisis,

 

I am so confused about securitization, but I wrote to Amex about it (as did other caggers) and Amex are avoiding the question.

 

Have you seen the Amex securitisation thread?

 

I am very interested in what you are saying.

 

DD

 

Being an american firm with the actual debt residing in america I bet they are afraid to answer the question... american law requires debt to be sold outright, over here its not so clear cut.... in theory all american express debt is owned by the SPV's and you pay AESEL which is the servicing company your money and that gets paid into the SPV's as I understand it.

 

This was all discussed on the previous securitisation threads but it never got anywhere I'm afraid.

 

S.

[Desperate Daniella]

I'm wondering if they have actually chased any of us who raised the securitisation question with them?

[spartathisis]

DD; yes I have read the Amex thread and as Shadow states as a US based co US laws are slightly different, but we both have common law systems and from what I am reading the difference is not massive.

 

Shadow; correct about it getting nowhere, but is that because people do not understand it (understandably)? If anyone can point me in the direction of any legislation that may mention securitization (unlikely) I would appreciate it.

 

The Insolvency Act 1986, from what I have read, insists on the requirements needed to make sure a Special Purpose Vehicle (SPV), the investment, is "Bankruptcy remote". This term is very important as it ensures there is no link between the OC (seller) and the SPV ie they do not have any control or interest in it. HMRC, has rules regarding how the receivables are to b treated in a tax situation, but that just muddys the water even more.

 

I'm afraid I am like a dog with a bone, so even if this thread gets to go no where I intend to continue and will post up occasionally:) I may even become an expert and be able to go into the business!! From what I have read those involved are the gamblers in the banks that have lead us all into financial meltdown.

[the_shadow]

DD; yes I have read the Amex thread and as Shadow states as a US based co US laws are slightly different, but we both have common law systems and from what I am reading the difference is not massive.

 

Shadow; correct about it getting nowhere, but is that because people do not understand it (understandably)? If anyone can point me in the direction of any legislation that may mention securitization (unlikely) I would appreciate it.

 

The Insolvency Act 1986, from what I have read, insists on the requirements needed to make sure a Special Purpose Vehicle (SPV), the investment, is "Bankruptcy remote". This term is very important as it ensures there is no link between the OC (seller) and the SPV ie they do not have any control or interest in it. HMRC, has rules regarding how the receivables are to b treated in a tax situation, but that just muddys the water even more.

 

I'm afraid I am like a dog with a bone, so even if this thread gets to go no where I intend to continue and will post up occasionally:) I may even become an expert and be able to go into the business!! From what I have read those involved are the gamblers in the banks that have lead us all into financial meltdown.

 

Yep I think that post accurately describes the current position.

 

S.

[DonkeyB]

Subbing

[Stagparty]

Subbing

[spartathisis]

Well, a day on and the journey continues!

 

I am now a subscriber to a securitization site mainly free with premium content, but I now know when my MBNA CC was securitized, how much the fund was for, the underwriter, the financing bank and whether it was a private or public placement

 

Looks to be all the main CC providers on there plus all the mortgage companys etc, includes details of current and past deals, goldmine. at the moment I will not say what the site is for obvious reasons, but will see what else I can dig up. I have also found a couple of legal cases that may have set precedents on whether a "True sale" takes place, just got to wade through a lot of pages. Difficult at the moment as I have a lot on my plate, but will get there.

[DonkeyB]

I have also found a couple of legal cases that may have set precedents on whether a "True sale" takes place, just got to wade through a lot of pages.

 

I like the sound of this! So will humbleman...

[the_shadow]

Well, a day on and the journey continues!

 

I am now a subscriber to a securitization site mainly free with premium content, but I now know when my MBNA CC was securitized, how much the fund was for, the underwriter, the financing bank and whether it was a private or public placement

 

Looks to be all the main CC providers on there plus all the mortgage companys etc, includes details of current and past deals, goldmine. at the moment I will not say what the site is for obvious reasons, but will see what else I can dig up. I have also found a couple of legal cases that may have set precedents on whether a "True sale" takes place, just got to wade through a lot of pages. Difficult at the moment as I have a lot on my plate, but will get there.

 

If you need a hand looking through anything drop me a pm, I have some time in the evenings to waste ;-)

 

S.

[tranders]

Subbing

[humbleman]

I like the sound of this! So will humbleman...

 

following with interest

[spartathisis]

Just found 3 offer documents for RBS CC securitization and the base offer document, all over 250 pages long .

 

They point to the fact that as the offer is international it complies with US and UK law, so there may be something to be gleaned on the legalities of them. Does anyone know anything about International Law? Are there conventions that UK courts wont rule against as it is international practice, kind of like precedents? Law not my thing so not sure of correct terminology

[the main man]

Some good information regarding securitisation for you on the following thread/post, it mainly covers securitisation of mortgages but does touch on the equitable assignment of credit card receivables.

 

http://www.consumeractiongroup.co.uk/forum/mortgages-secured-loans/175426-mortgage-securitisation-preferred-39.html#post2113123

[spartathisis]

Cheers main man. Looks like it ended like so many long threads on CAG, disagreement with someone who appears to know their stuff!

 

Long thread and so far not found any ref to The Insolvency Act 1986, I had read that this had a bearing on how securitization deals were drawn up ie the passing of title and not just assignment. We shall see

[Suetonius]

Subbing

[Suetonius]

There is no specific law in the UK

 

 

Paragon Finance Plc v Pender [2005] EWCA Civ 760 Case No: B2/2003/2609

 

2005 judgements:

 

The Title to sue

 

1) In my judgment Mr and Mrs Pender's case on this issue is misconceived. It is common ground that Paragon, as registered proprietor of the Legal Charge, retains legal ownership of it. One incident of its legal ownership – and an essential one at that – is the right to possession of the mortgaged property. I can see no basis upon which it can be contended that an uncompleted agreement to transfer the Legal Charge to the SPV (that is to say an agreement under which, pending completion, the SPV has no more than an equitable interest in the mortgage) can operate in law to divest Paragon of an essential incident of its legal ownership. In my judgment as a matter of principle the right to possession conferred by the Legal Charge remains exercisable by Paragon as the legal owner of the Legal Charge (i.e. as the registered proprietor of it), notwithstanding that Paragon may have transferred the beneficial ownership of the Legal Charge to the SPV.

 

2) It follows, in my judgment, that Paragon, so long as it remains the registered proprietor of the Legal Charge, is a necessary party to any claim to possession of the Property in right of the Legal Charge.

 

3) The only question then is whether the SPV should have been joined in the proceedings as an additional claimant. In my judgment, the answer to that question is plainly: No. On the assumption that the consideration for the transfer of the Legal Charge has been paid in full, Paragon has since retained its legal ownership of the Legal Charge as trustee for the SPV (see Whiteley v. Delaney [1914] AC 132 at 141 per Viscount Haldane LC). But it does not follow that in that situation the SPV, as the owner of the Legal Charge in equity, is a necessary party to the claim; and on the facts of the instant case joinder of the SPV is wholly unnecessary. There is, after all, no issue between the SPV and Paragon as to the exercise of the mortgagee's rights under the Legal Charge: indeed the SPV has, by virtue of the administration agreements, expressly authorised Paragon to exercise such rights on its behalf.

 

4) In my judgment, therefore, there is no substance in the contention that the SPV should have been joined as an additional claimant in the proceedings. Nor, in my judgment, can the fact that Paragon has failed to describe itself as suing in its capacity as trustee affect the validity of the proceedings or of the orders made in the proceedings (in particular, the possession order). In any event, even if that failure could be said to amount to a formal defect in the proceedings (and I do not regard it as such) the court has ample powers under the CPR to correct such defects (e.g. under CPR Pt 17).

 

5) In my judgment Mr Page's reliance on section 114 of the Law of the Property Act 1925 is wholly misplaced, for the reason which the judge gave: viz. that section 114 is concerned with transfers of mortgages of unregistered land (transfers of mortgages of registered land being dealt with by section 33 of the Land Registration Act 1925). To interpret section 114 as applying also to transfers of mortgages of registered land would produce a fundamental and wholly illogical conflict between the two regimes in relation to transfers of mortgages. Bearing in mind what Lord Oliver of Aylmerton said in Flegg (quoted in paragraph 85 above), I can see no conceivable basis for interpreting section 114 in a way which produces that result and every reason for not doing so. Accordingly I respectfully agree with the observations of this court in Marks with reference to the instant case (see paragraph 95 above).

 

6) Nor, in my judgment, can Mr Page find any support for his submission in the Land Registration Act 2002, or in the Law Commission Report which preceded it. In my judgment it is verging on the absurd to seek to interpret a provision in a statute by reference to a provision in a different statute enacted some eighty years later.

 

In any event, I agree with the judge that the administration agreements demonstrate a clear contrary intention, sufficient to disapply section 114 if (contrary to the conclusion which I have just expressed) the section would otherwise apply.

 

Paragon Finance Plc v Pender [2003] EWHC 2834 (Ch) Case No: CC/2003/PTA/0099

 

I am only concerned of course with the taking of possession, because there was no monetary judgment. I do not see that either section 114 LPA 1925 nor the provisions of the LRA 1925 have impact on the enforcement of the mortgage debt. For there to be a legal assignment of that it seems to me self evident that it must be completed by notice under section 136 LPA 1925 and until so done, even by virtue of section 114, it will remain an equitable assignment only.

 

MBNA Case

 

"57. The recitals to the RSD refer to the Transferor and Receivables Trustee (MBNA and CCSE respectively) having agreed that for the purposes of facilitating a possible securitisation, the Transferor may from time to time offer to assign all Receivables (existing and future) arising on such accounts of its credit card customers as are nominated to become Designated Accounts. It is acknowledged that upon acceptance of such an offer to assign by the Receivables Trustee, the Receivables will be assigned by way of equitable assignment only unless notice of assignment should later be given. It is also expressly contemplated by the recitals that the Receivables Trustee will appoint the Operating Party for the purpose of giving instructions in relation to any available discretion capable of being exercised by the Receivables Trustee upon the terms of a separate agreement described as the "RT Operating Agreement"."

[Suetonius]

I am so confused about securitization,

 

This might help

 

 

 

 

 

The details of the book are:

 

Innovation in Securitisation: Yearbook 2006 (International Banking & Finance Law) (International Banking & Finance Law Series)

• Publisher: Kluwer Law International (1 Jun 2006)
  
• Language English
  
• ISBN-10: 9041125337
  
• ISBN-13: 978-9041125330
  

Page 126 - Section 3.2 The Role of the Trust in an English Securitisation Process.

[Suetonius]

Halsbury (as in Halsbury's Laws of England)

 

"586. Securitisation of mortgages.

Securitisation is the sale of a package of mortgage debts to a corporate vehicle (the 'issuer') established for the purpose of issuing securities usually in bearer form such as bonds. One or more mortgagees (the 'originator') may agree to sell debts and related security to the issuer.

 

This effects an equitable assignment of the mortgages which is not perfected by notice to the mortgagors or by registration. The issuer is entitled to call for a legal transfer of legal title to the mortgages in certain circumstances such as the persistent default or insolvency of the originator. The issuer is given an irrevocable power of attorney to effect the transfer and for certain other purposes. The originator retains the powers of the mortgagee, including the right to possession but agrees to act in accordance with the instructions of the issuer in relation to matters such as interest rates and enforcement. The undertaking and assets of the issuer, including the mortgages, are in turn charged in favour of a security trustee for the benefit of the holders of notes or bonds issued by the issuer.

 

The security trustee is given custody of the charge certificates or, in the case of unregistered land, mortgages and title deeds, and is given an irrevocable power of attorney to effect a legal transfer of the mortgages.

[Suetonius]

I will let everyone decide for themselves and only post the information I have discovered

[emandcole]

Good stuff Suetonius!

[tranders]

Now, if someone can translate all of that into English and express how it affects people whose CC debt has been sold to an SPV (like Varde Investments Lts (Ireland)), I, for one, would be a happy puppy