SPML/LMC anyone claimed for mis selling and unfair charges?

[mhbw3043]

Three guests on here at 8.10, thread must be getting popular again.

[eagleforms]

I have had a letter about statements.

Also had a threatening letter from Capstone about arrears and the charges they can make. They prattle on about making acceptable proposals to pay off arrears. I have had an arrangement in place for 2 years now and it is up to date and on time. The final paragraph is the most concerning, it says " Additionally, you should think carefully about where you should live should Eurosail commence legal proceedings to reposses your property.

I have written to Ms Attica to complain about the tone of the letter and to ask for her personal assurance that Eurosail will not be seeking to repossess my property.

I am also writing to the OFT and the FOS with complaints about their business methods and their exorbitant charges.

Is Attica's address at HIgh Wycombe?

Edited November 13, 2010 by eagleforms
typos

[peterjm]

Eagleforms see page 343 .its a treat if you haven't already seen it,if you could leave a comment on the blog a link to which zither kindly posted on page 344 it would be of great help,the author Richard Dyson may also be very interested in your personal story which is I believe your loan falling into the black hole of non regulation and the resultant capstone dismissive and derisive attitude because this is so.

 

DON'T PHONE CAPSTONE'S CALL CENTRE - WRITE DIRECT TO ITS CHIEF EXECUTIVE

As Capstone's customers' consistently attest, this company doesn't listen to people who phone in. Its staff repeatedly fail to follow instructions, give contradictory information, and seem unable to do anything other than pursue arrears. Always write, keeping copies and logs of correspondence and using a signed-for mail service if necessary. Write direct to: Amany Attia, chief executive, Capstone Mortgage Services, Fourth Floor, Royal London House, 22-25 Finsbury Square, London, EC2A 1DX. As an executive director of a regulated company, Attia could be fined or censured personally by the Financial Services Authority for any regulatory breaches, or even banned from ever again working in UK securities industries. So it is only fair to make any serious complaints direct to her.

Edited November 13, 2010 by peterjm

[eagleforms]

I am about t send the following letter to Attia.

Any comments, anything to add please?

 

 

 

 

 

Ms A. Attia

Capstone Mortgage Service

4th Floor

Royal London House

22-25 Finsbury Square

London

EC2A 1 BX

 

 

 

 

Dear Ms Attica

I am in receipt of a most concerning letter from your Collections Department dated 9th November, although what prompted them to send it is not clear as we have an agreement for the repayment of the arrears for some years now and if was not for your exorbitant charges that seem to be set against the arrears, the arrears would have been paid off by now and this is up-to-date and paid on time, although I realise that this is part of your business model that enables you to achieve 10% of all repossessions in this country and I am sure that you are justifiably proud of the fact that no company has made more people homeless each week since the blitz.

 

 

However, can you please explain to me how the arrears were £1,074.57 on the statement for 17/9/10 to 5/11/10 and on your letter of 9th November the arrears are shown as £1,392.53. Please let me know by return why the arrears have increased by £317.96.

 

 

Most concerning is the thinly veiled threat contained in the last paragraph of the letter, that asks us to think very carefully about where we should live should Eurosail -UK 2007-4BL PLC commence legal proceedings to repossess our property. This is unjustified as we are completely up to date with the agreed arrears repayments and with the monthly mortgage payments. At the moment, I would like to know what is was that prompted such a letter to be sent and for your reassurance that Eurosail are not about to try to repossess our house. Threats such as this are completely in contravention of the lending code and I will be complaining in the strongest terms to the FOS about this. I will also be contacting the OFT to make them aware of this most unprofessional way of doing business.

 

 

I will also be contacting the Richard Dyson of the Mail on Sunday who, as you undoubtedly know, has written a most unflattering article about your company and is looking for follow-up material.

 

 

With regard to the various charges your people are at great pains to detail once more,

 

 

I would like to bring your attention to the following statement by The Office of Fair Trading:

 

"A term in a mortgage agreement which requires the borrower to pay more for breaching the contract terms than actual costs and losses caused to the lender by the breach (or a genuine pre-estimate of that) is likely to be regarded as an unfair penalty and to be unenforceable both at common law and (in a consumer mortgage) under the Unfair Terms in Consumer Contracts Regulations“.

 

 

We believe that the charges you have levied of £2,430.00 since March 2003, far exceed any true cost to yourself as a result of our breaches and any genuine pre-estimate you could conceivably reach. If you disagree, then will you please demonstrate this by letting me have a full breakdown of the costs to which you have been put to as a result of our breaches, in order to reassure us that your charges really do reflect your costs.

 

 

I have complained to you previously about your charges and the letter you sent in response was most unsatisfactory and no attempt was made to justify your charges.

 

 

I will, therefore, be contacting the OFT about your charges and filing a complaint with the FOS about the way in which you do business and about your charges after giving you another opportunity to answer my legitimate question as to how my money is being spent on your charges.

 

 

I will be taking this further action if I do not have a satisfactory reply from you by 1st December.

 

 

 

Yours faithfully

 

 

 

　

Edited November 13, 2010 by eagleforms
strange spacing but cannot change it

[brassed-off-2]

looks ok to me zither, may i borrow certain parts of that to include in my letter to the boss lady ??

[zither]

Of course sir no need to ask were all in this together!

[Crapstone]

Looks Ok to me Brassed. I've already been in contact with Richard and just got to find time to call him now. It's good that he's outing Capstone for the **** they are.

[jasperpad]

Hi All

 

This is a copy of what happened on Wednesday at my hearing! If anyone is feeling like I was take all the advice you can from CAG. They help all of the time and from now on i will be seeing if I can do anything to help, with the experience I have had.

 

Everything you suggested worked! Their solicitor spoke with us prior

to the actual hearing and tried to bully me into more or less lying

down and giving in and letting the house go!

 

I explained that I am now working as is Linda and he then said that

Linda could easily just leave! to which I replied that he could go

out and die tomorrow so "don't go down that road"

 

I explained that I have a new budget sheet and that I also have my

defence ready, and did he want to see it before we went into the

hearing, his reply was to dismiss my offer.

 

we went in and the judge was very attentive and listened to what the

solictor had to say, then listened to me and asked to read my defence.

Prior to giving the judge the defence I stated that Capstone had not

carried out ANY of the pre protocols as set out and that if they had

we would not be in the court that morning, he looked very bemused!

 

He read my submission and asked if the solicitor had seen it, to which

I said that he didn't want to see it. he got it and his expression

changed very much and it was obvious that he was going to lose. (The

solicitor did take further instruction from Capstones lawyers prior to

the hearing and told me that I was going to lose before we went in,

and that If I wanted to repay the arrears they would "allow" me to

repay over three years, my immediate reply with no thought was "no six

years" to which he said again I was going to lose.

 

I now have until the end of the mortgage period to repay the arrears

as well as the mortgage.

 

They have until the 8th December to reply to my defence and I have

until the 31st Jan to reply to their response.

 

I will send a copy of the judgement when I get it.

 

I will also be monitoring the CAG site and help where I am able to.

 

Can you briefly explain how I go about claiming the charges etc.

through the FOS back

 

A very relived

 

George and Linda

 

I will write a more complete version about it all very soon, so anyone who is worried or scared can read my posts and hopefully they will help to allay your feelings.

[Gallahad]

A fantastic effort you guys well done

G

[Crapstone]

Well done! Brilliant to see another 'win' and another household being able to sleep soundly

 

You have to make a complaint to Capstone first about the charges and see what they come back with. Send them an SAR for both parties and ask for a breakdown of charges too, with receipts if they are legal ones. Next comes the hard work with a calculator and checking everything they provide. Don't take it for granted that they can add up or a computer sorts it all out for them. They'll add in anything they think they can get away with including wrong interest rates and their interest on arrears has been corrected several times.

 

Add the charges up and then fill in the FOS form either online or print it off. They just ask for a basic overview of your complaint and don't be worried about about the 'subject to court action' question. You don't have to be specific on anything or give figures but you do have to say what you want as an outcome. Fairness. a properly conducted account, a refund plus compensation? Then sit back and wait for them to get back in touch with you. Then you have to provide your side of the story.

 

When I did it Capstone wouldn't provide a table of their charges to the FOS, let alone explain them. They just said they thought it was fair and went on to slate the FOS for always finding them to be at fault and threw a tantrum that you wouldn't expect from a 'professional' company. You get to see the letters between them and the FOS regarding your complaint! Got the charges back but they hit back with higher charges under different names. Went back to the FOS and they reminded them that any further charges would be looked at in a 'dim view' so they swiftly removed them. I've told this loads of times before but it's worth repeating if it helps someone. It's not difficult to do and I did it before my CAG days without any help, so you'll be fine.

 

Hope this helps x

Edited November 14, 2010 by Crapstone

[andrew1]

I am about t send the following letter to Attia.

Any comments, anything to add please?

 

　

 

 

hasn't Attia left the company?

[eagleforms]

Hi Andrew 1, not according to peterjm, see post 6881 above. But if you have news please let me knw.

[eagleforms]

Hi Andrew 1, not according to peterjm, see post 6881 above. But if you have news please let me know.

[peterjm]

I am about t send the following letter to Attia.

Any comments, anything to add please?

 

 

 

 

 

Ms A. Attia

Capstone Mortgage Service

4th Floor

Royal London House

22-25 Finsbury Square

London

EC2A 1 BX

 

 

 

 

Dear Ms Attilla,(couldn't resist that one,sorry)

I am writing to you directly as head of this company by way of a complaint which your staff appear to be incapable of dealing with.

I am in receipt of a most disturbing letter from your Collections Department dated 9th November, although what prompted them to send it is mystifying as we have had an agreement for the repayment of the arrears for some years now and if it was not for your excessive charges which the FSA have directed should be only the real cost of administration of an account in arrears and not a profit stream or penalty charge, the arrears would have been paid off by now .This account is currently up-to-date and paid on time ans as such charges should not be applied to an account where an agreement is in place, again another FSA directive.

 

 

Would you please explain to me how the arrears were £1,074.57 on the statement for 17/9/10 to 5/11/10 and on your letter of 9th November the arrears are shown as £1,392.53. Please let me know by return why the arrears have increased by £317.96.

 

 

Most concerning is the thinly veiled threat contained in the last paragraph of the letter, that asks us to think very carefully about where we should live should Eurosail -UK 2007-4BL PLC commence legal proceedings to repossess our property. This is unjustified as we are completely up to date with the agreed arrears repayments and with the monthly mortgage payments. I would like to know what is was that prompted such a letter to be sent which amounts to unjustifiable intimidation, again forbidden by FSA directives.I would also ask for your personal reassurance that Eurosail are not about to try to repossess our house. Threats such as this are completely in contravention of the lending code and I will be complaining in the strongest terms to the FSA/ FOS and my MP about this. I will also be contacting the OFT to make them aware of this most unprofessional way of doing business.

 

 

I will also be contacting the Richard Dyson of the Mail on Sunday who, as you undoubtedly know, has written a most revealing article about your company and is looking for follow-up material.

 

 

With regard to the various charges your people are at great pains to detail once more,

 

 

I would like to bring your attention to the following statement by The Office of Fair Trading:

 

"A term in a mortgage agreement which requires the borrower to pay more for breaching the contract terms than actual costs and losses caused to the lender by the breach (or a genuine pre-estimate of that) is likely to be regarded as an unfair penalty and to be unenforceable both at common law and (in a consumer mortgage) under the Unfair Terms in Consumer Contracts Regulations“.

 

 

We believe that the charges you have levied of £2,430.00 since March 2003, far exceeds any true cost to yourself as a result of our unfortunate breaches of our agreement due to ill health? and any genuine pre-estimate you could conceivably reach. If you disagree, then will you please demonstrate this by letting me have a full breakdown and quantification of the costs to which you have been put to as a result of our breaches, in order to reassure us that your charges really do reflect your real costs.

 

 

I have complained to you previously about your charges and the letter you sent in response was most unsatisfactory and no attempt was made to justify your charges.

 

 

I will, therefore, be contacting the OFT about your charges and filing a complaint with the FSA/FOS about the way in which you do business and about your charges after giving you yet another opportunity to answer my legitimate question as to how my money is being spent on your charges.

 

 

I will be taking this further action if I do not have a satisfactory reply from you by 1st December 2010.

 

 

 

Yours faithfully

 

 

 

　

 

have made a few mods for your consideration,try and keep personal stuff out and throw the rulebook at them.

Edited November 15, 2010 by peterjm
typo etc

[jasperpad]

Hi All

 

This is a separate post to say a very huge thank you to two people on here; Ell-enn and Peterjm if it wasn't for their help and support I believe I would have lost my home.

 

As I said earlier in my last post, I will be both monitoring CAG and also where I can help, you can be sure I will be there even if it's to give just moral support!

 

george

[peterjm]

George I am sure I speak for all when I say your success in standing up to them alone in a hostile atmosphere in court is reward and thanks enough.

A small word of caution which I am sure crapstone will fully endorse having apparently gone 10 times around the block with this lot,make sure you don't miss any payments even by a day,don't know whether youre on direct debit or standing order but I think it was said the latter is far safer.

THEY ARE DEVIOUS OR INEFFICIENT OR BOTH BEYOND BELIEF ESPECIALLY AT LOSING PAYMENTS AND THEN CRYING YOU HAVE BREACHED THE COURT ORDER.

Keep on monitoring the site and we will sort out the FOS complaint for you sometime this week and how to send a subject access request which should tell you all the charges they've put onto your account which is usually the preliminay to a complaint unless you are able to itemise them yourself which will save an awful lot of time waiting for them to reply,weeks at best.

[Crapstone]

I'd just add that whatever method of payment you choose, keep hold of all the evidence. They always want DD but if you have cancelled it previously you may get problems. As long as you can prove you have met the payments, by any method (allowing clearance times), that's fine. Try not to make a late payment but if you know in advance then tell them, get it faxed or emailed that you have been in contact with them. Just make sure you have everything in writing as they are not to be trusted. Well you obviously all know that by now.

[Crapstone]

have made a few mods for your consideration,try and keep personal stuff out and throw the rulebook at them.

 

'Dear Ms Attilla,(couldn't resist that one,sorry)'

 

And you said keeping the personal stuff out!

[eagleforms]

Many thanks Peterjm, brilliant. Attilla Freudian slip I think! I will let you know what happens.

[Dangermouse]

Sorry folks it has been a long time since I have logged in to the site. Can anybody quickly let me know why Capstones are now talking about Eurosail applying for repossession?? I seem to recall there was some discussion a year or so ago about possible fraud when mortgages were originally taken out, due to SPML not disclosing that Eurosail were party to the original agreement?

 

Maybe I got confused or maybe something significant has happened that I have missed. Anyone save me from reading through a years worth of thread!

 

Regards to all

[peterjm]

Dangermouse

Sorry folks it has been a long time since I have logged in to the site. Can anybody quickly let me know why Capstones are now talking about Eurosail applying for repossession?? I seem to recall there was some discussion a year or so ago about possible fraud when mortgages were originally taken out, due to SPML not disclosing that Eurosail were party to the original agreement?

 

Maybe I got confused or maybe something significant has happened that I have missed. Anyone save me from reading through a years worth of thread!

 

 

Regards to all

Dangermouse,

 

,many of the sppl loans have now been transferred to the spvs,see sppl to transfer loans on google also capstones tarrif of charges for a full list of spvs,this was evidently caused by barclays insisting legal ownership was transferred as capstone were paying borrowers repayments directly into the spv accounts.

[Crapstone]

Is there a way of tracing the money that funded the mortgages case by case?

Would Barclays have a case to answer as they knew what was going on and they stood to lose nothing and could predict a recession? A bit of the insider..

Edited November 16, 2010 by Crapstone

[cher69cher69]

I havent been on this site much recently as I have had a lot of personal issues including my mother having a heart attack who lives with us, and still trying to fight these barstewards.But i saw your post and i just want to say that my heart goes out to you, i know what it is like trying to fight these vultures I have been at it for over 4 years now, and probably it is only luck that has kept us from eviction. They have a suspended repo on us and I worry every day that they will repossess. Especially now we have missed last months payment, even though I wrote to the m to say we would catch up this month. they were on the ball with a letter to say they would repossess if i dont catch up this month.But no response to my letter letting them know why we had missed a payment.

 

They make me laugh I have reported them to the fso and they know that because the adjudicator is investigating but still they have the cheek to carry on charging the £115 litigation fee and sending threatening letters, they must truly believe they are beyond all regulation and totally above the law.

 

It sickens me reading posts like yours, it makes me so angry that the courts are so blind to these people and that repossessions are still continuing.

 

I dont know the law to be able to advise you but you are in the right place for help on this issue and I am sure that some of the members who are much more knowledgeable than I am on here will know what advice to give you. The people on here are great and will support you ,and help you. So dont be down hearted because peeps on here are good people and will help all they can. If i was you I wouldnt let this drop, keep fighting. You should be compensated for your loss and the anxiety they have caused you, they are criminals and should be locked up.

 

I have started my own little pledge that I will not stop writing letters and petitioning and lobbying parliament until people like yourself and thousands of others get some compensation for the way you have been treated. You can be assured that there are many others like me on this forum and other forums that are working just as hard as I am, if not harder in trying to bring justice for those who have been victims of Capstone/SPPL. The people who have been repossessed have not been forgotten and i for one will make sure that the government, the regulators and the media don't forget either.

Take care and good luck!

Kind Regards Cher69.

[patrickq1]

This Update considers the impact on securitisation transactions of significant regulatory changes that will take effect from 1 January, 2011. The changes include new requirements in respect of originator risk retention, additional disclosure, investor due diligence requirements and resecuritisation.

The changes are being introduced through amendments to the Basel II framework (Basel II)1 and the EU Capital Requirements Directive (CRD).2 As Basel II and the CRD have no direct effect in and of themselves, the changes will need to be implemented into the national law of each country applying Basel II or the CRD. In the case of the United Kingdom (UK), changes will be made to the prudential rules of the Financial Services Authority (FSA).

As a preliminary matter, it should be noted that not all of the changes to the CRD and Basel II mirror each other; for example, the Basel II changes do not include a 5% originator risk retention requirement.

In addition, although the Basel II changes have been finalised, that is not the case with the amendments to the CRD, so there may be further changes in the detail before they are formally adopted by national regulators.

In this Update,“bank” and “credit institution” are used interchangeably for ease of reference.

Where the changes are set out

The changes to the securitisation framework that are discussed in this Update are found principally in the following documents.

International – Basel II:3

 

• “Enhancements to the Basel II framework”, July 2009 (the Basel Enhancements Paper)4 – this contains the new guidelines for resecuritisation, liquidity facilities and Pillar 3 disclosures; and
  
• “Revisions to the Basel II market risk framework”, July 2009 (the Basel Market Risk Paper)5 – this deals, amongst other things, with trading book capital charges for securitisation positions.
  

EU – CRD:6

 

• an amending Directive referred to as “CRD II”7 – this contains the 5% retention requirement, additional disclosure and investor due diligence requirements and changes to the large exposure rules;8
  
• an amending Directive referred to as “CRD III” – this contains new rules on resecuritisations, Pillar 3 disclosure and capital requirements for trading book exposures.9 CRD III is not yet finalised, although a “Presidency Text” dated 28 October, 2009 is available and forms the basis for the discussion below;10 and
  
• an amending Directive which contains a definition of “significant risk transfer” and new credit conversion factors for liquidity facilities (the Technical Changes Directive).11
  

UK:

In the UK, the FSA published its consultation paper CP 09/29 Strengthening Capital Standards (the “FSA Consultation Paper”) on 10 December, 2009 on the changes brought about by CRD II and CRD III (although it acknowledges that the CRD III text is not yet final).12 We make reference to the FSA Consultation Paper where it would be helpful to illustrate how one of the EU’s major financial ser vices regulators is approaching the relevant issues. As currently drafted, the FSA has applied its usual “intelligent copy-out” approach to implementing EU legislation. That is, the FSA has tried as far as possible to copy the exact words from CRD II and CRD III into the FSA rules, principally Chapter 9 (Securitisation) of the Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU).

5% Originator Risk Retention

This risk retention requirement will apply to new securitisations issued on or from 1 January, 2011 and, in relation to existing securitisations, from 31 December, 2014 if there is a substitution or addition of assets. This risk retention requirement affects the CRD only, it is notably absent from the Basel II changes (although as noted below, the United States is proposing its own originator retention rules).

One objective of the CRD II amendments is to address a “misalignment” perceived to have arisen in certain securitisation transactions as between the interests of originators and the interests of investors. Such a misalignment of interests is considered to have been one of the issues underlying the financial crisis. It has been perceived by regulators that an originator which proposes to transfer all of its risk through a securitisation (i.e. “originate to distribute”) might apply lower standards in its origination and monitoring of the relevant assets than it otherwise would – to the detriment of investors in the securitised assets.

The CRD II amendments, which are reflected in a new Article 122a in the CRD, introduce a new requirement intended to ensure that the originator, the original lender or the sponsor13 will retain a 5% economic interest in respect of the assets being securitised (or in related assets). This is the “skin-in-the-game” rule that sparked considerable controversy when first mooted in early 2008 (at which time the proposed level of retention was 15%).

Article 122a provides for such retention to be effected by only one of the relevant parties and not by all of them. For ease of reference, we use “originator” in this Update to refer to the originator, the original lender or the sponsor, as applicable.

Article 122a(1) provides that no bank is allowed to be “exposed” to a securitisation position unless the originator retains, on an ongoing basis, a “material net economic interest” of at least 5%. It is important to note that, because the rule refers to a bank being “exposed” to a securitisation, the rule appears to apply not only to banks which are direct investors (noteholders) in a securitisation, but also other banks who have exposures to the securitisation by way of being liquidity providers or swap counterparties. This may have to be clarified further because the corresponding requirement in Article 122a(7) for the or ig inator to disclose the level of its commitment/retention under Article 122a(1) refers to the originator making the disclosure to “investors”.

Article 122a(1) prescribes four alternative methods by which an originator might retain the requisite interest:

 

• vertical slice – retain at least 5% of the nominal value of each of the tranches acquired by investors;
  
• originator’s share – in a securitisation of revolving exposures (e.g. credit card receivables), retain at least 5% of the nominal value of the securitised exposures;
  
• random selection – in a transaction in which a pool of at least 100 exposures is potentially to be securitised, retain from that pool exposures that have been randomly selected and which have a nominal value equivalent to at least 5% of the nominal value of the securitised exposures; or
  
• first loss piece – retain such amount of the first loss tranche as equates to at least 5% of the nominal value of the securitised exposures.14
  

Whichever method is used, the prescribed net economic interest must be maintained on an ongoing basis. In addition, the retained interest must not be sold or hedged and must not be subject to any credit risk mitigation – but it is not clear to what extent this would preclude indirect hedging (or other protection) arrangements (e.g. a derivative on a relevant index), as opposed to a direct hedge (e.g. a credit default swap) on the 5% exposure itself.

There are certain exceptions to the retention requirement; for example, there is an exemption for certain index-based transactions; and for syndicated loans, purchased receivables and credit default swaps which (in each case) are not used to package and/or hedge a relevant securitisation.

Article 122a(1) establishes certain anti-avoidance measures: the retention rule applies to any arrangement having the economic substance of a “securitisation” (as defined in the CRD15), regardless of the structure and documentation involved; and parties must not try to negate the economic impact of the requirement by, for example, introducing a fee arrangement for that purpose. As a result, it will be important for originators as well as investors and other counterparties (e.g. swap and liquidity providers) carefully to analyse any particular financing transaction to consider whether it is a “securitisation” as to which the 5% retention requirement will apply.

Article 122a does not provide for any specific sanction where a bank fails to comply with Article 122a; that is, where a bank invests in a securitisation in circumstances where the originatorfails to retain 5% of the material net economic interest in the transaction. Article 122a(9) merely provides that regulators will monitor compliance and will “impose measures for noncompliance”, thus leaving the individual EU regulator to impose the appropriate sanction at its discretion (although the wording suggests some sanction must be imposed).

Commentary on 5% Originator Risk Retention

The 5% retention requirement is not a requirement on the originator as such, but rather on the investing bank or other bank with an exposure to the securitisation (e.g. swap or liquidity provider). It provides that such bank must not have an exposure to the credit risk of a securitisation position unless the originator has explicitly disclosed to the bank that it will retain the requisite interest. There is no express requirement upon the originator actually to comply with its undertaking and there is no direct monitoring by the regulator of compliance by the originator (as opposed to by the investor bank). By prohibiting banks investing in securitisations where there is no such undertaking as to retention, the objective is to ensure that the retention will be made even in securitisations of assets of non-EU originators.

The approach taken is therefore different to that being proposed in the United States. On 11 December, 2009 the United States House of Representatives passed the proposed “Wall Street Reform and Consumer Protection Act of 2009”; like CRD II, this proposed legislation includes a 5% risk retention requirement and enhanced disclosure requirements; however, the requirement there is for the originator to retain the risk, rather than for the investor not to invest unless the originator retains the risk.16

Because the 5% risk retention requirement is drafted as a requirement on the investing bank rather than on the originator per se, securitisations of assets of non-EU originators which hope to attract EU bank investors will have to comply with the requirement so that EU banks can invest.

Again, because the obligation is on the bank with the exposure (i.e. investor, swap or liquidity provider, etc.), rather than the originator itself, to comply with Article 122a(1), it is not clear what happens if the retained interest falls below 5%, for example where the originator retains 5% of the risk exposure on the closing date of the transaction but then sells the 5% exposure shortly thereafter. In this regard, the FSA Consultation Paper notes:

“[W]e would expect investors to consider the strength of an originator’s disclosure before investing and if based on experience an investor had doubts about whether the originator would retain the interest they should take this into consideration when determining whether or not to invest.”17

This places the onus on the investor to have a clear internal audit trail which demonstrates how the investor has got comfortable with any particular originator’s disclosure.

It should be noted that, because of changes being made to other EU Directives, it is not only bank investors who may be required to insist that originators retain 5% of the exposure. In the proposed EU Directive on Alternative Investment Fund Managers, there is a requirement that alternative investment funds (which includes all manner of investment funds, not only hedge funds) may not invest in securitisations unless the originator complies with the 5% retention requirement set out in CRD II.18

In addition, it seems likely that Solvency II (which will govern regulatory requirements for EU insurance companies from October 2012 and which is sometimes called “Basel II for insurers”) will also contain a similar requirement so that EU insurance companies will likewise be restricted from investing in securitisations unless the originator complies with the 5% retention requirement set out in CRD II.

The risk retention requirement is also likely to have less of an impact on certain asset classes than others. For example, it has historically been fairly common for originators in residential mortgage backed securitisation (RMBS) transactions to retain the first loss tranche, although it is also the case that in some cases, such first loss tranche was then sold (either on a cash or synthetic basis).

In addition, it is as yet unclear what asset backed commercial paper (ABCP) programme sponsors will be doing to comply with the retention requirement; since ABCP programmes are treated as securitisation transactions, investing banks will need to comply with Article 122a(1). In this regard, the drafting of the exemptions (for syndicated loans and receivables) is unclear; for example, does it exempt from the retention requirement securitisations of lease receivables, or whole business securitisations?

Finally, it remains to be seen how the risk retention requirement will be applied in practice and what its impact will be on the securitisation market. For example, the economic effect of choosing a vertical slice of the securitisation notes being issued may be very different from choosing the first loss tranche.

The European Commission was supposed to report at the end of 2009 as to whether to leave the retention requirement at 5% or potentially to increase it; a report has yet to be published at the time of writing. The Commission is supposed to consider the advice of the Committee of European Banking Supervisors (CEBS) on the retention issue; CEBS published its advice on 30 October, 2009 and recommended no change from the 5% level.19 CEBS also suggested that an exemption from the originator retention requirement be made available where the underlying exposures of the securitisation are liabilities (including covered bonds) issued by the originator.

New Disclosure Requirements

Transaction level disclosure

The new disclosure requirements will apply to new securitisations issued on or from 1 January, 2011 and, in relation to existing securitisations, from 31 December, 2014 if there is a substitution or addition of assets.

CRD II (Article 122a(7)) imposes two separate disclosure requirements on sponsors and originators which are banks.

First, sponsor and originator banks must disclose to investors the level of their retention of exposures under Article 122a(1) (discussed above).

Secondly, sponsor and originator banks must ensure that “investors and prospective investors” have “readily available access” to:

 

• “all materially relevant data” on:
  
  • credit quality and performance of the individual underlying exposures; and
    
  • cashflows and collateral supporting the underlying exposures, and
    

   

  [*]such information as is necessary to conduct comprehensive and well-informed stress tests on the cashflows and collateral values supporting the underlying exposures.

There is an ongoing obligation to deliver all such information “as appropriate due to the nature of the securitisation”. It should be noted that no express provision has been included in the Basel II changes to impose a disclosure obligation of this type (although the Basel II changes do include Pillar 3 disclosure requirements as discussed below).

The penalty for any material breach of the CRD II disclosure obligation is that the regulator will apply to the relevant securitisation exposure an additional risk weight of no less than 250% of the risk weight that would otherwise have applied to the securitisation position; with the penalty risk weight increasing for each subsequent breach. This is subject to a maximum risk weight of 1,250% (i.e. a deduction from capital).

As a general comment, there is no detail at all in Article 122a as to the obligation to disclose “all materially relevant data”. The requirement contains subjective concepts (e.g. “readily available access”,“material” and “as appropriate”). In particular, the wording of this disclosure obligation (what an originator must disclose) does not tie in with the wording of the due diligence obligation (what a bank as investor must look at). One assumes that there must be an implied obligation on originators to disclose whatever is required to be reviewed by investors under the due diligence obligation. In certain cases – particularly in relation to RMBS or consumer loan securitisations – a question is raised as to whether the originator may be able to comply with the disclosure requirement as to “individual underlying exposures” given its obligation to comply with data protection/privacy or bank secrecy laws. However, given that Article 122(7) refers to the provision of information that would allow the investors to conduct stress tests, and stress tests for very granular transactions (like RMBS) are unlikely to be carried out an individual loan basis, it would appear that an originator ought not to have to provide personal data about individual borrowers.

Separately, however, the obligation to provide information on an ongoing basis raises an interesting question as to how the obligation will be met in a situation where the originator has sold to a secur itisation issuer all of the assets. In such a situation, the originating bank may no longer have any right to receive ongoing information about the performance of those assets. This is particularly the case where the originating bank is not also the servicer of the assets in the securitisation transaction.

It should be noted that, in relation to RMBS transactions, the European Securitisation Forum (ESF) (which from 1 November, 2009 became part of the Association for Financial Markets in Europe (AFME)) published in 2008 a set of voluntary guidelines for issuers of European RMBS, as to disclosure of information to investors both pre-issuance and on an ongoing basis – the RMBS Issuer Principles for Transparency and Disclosure (the “Principles”).20 Issuers which have agreed to abide by the Principles will apply them to all RMBS issued from 1 January, 2010. The Principles make provision both as to the nature of the information to be disclosed, and as to the standardisation of the format of disclosures. The ESF/AFME is currently working on Version 2 of the Principles, which will include changes necessary to deal with the new disclosure requirements introduced by CRD II.

Finally, on 23 December, 2009, the European Central Bank (ECB) published its consultation paper Public consultation on the provision of ABS loan-level information in the Eurosystem collateral framework.21 The ECB intends to take into account loan level data in its eligibility criteria used to determine whether to accept ABS as collateral in its credit operations. The submission of such data would be done using standardised templates, which will differ depending on the types of underlying assets.

Pillar 3 disclosures

Article 122(7) as discussed above relates to disclosure by the originator for individual securitisation transactions. However, the Basel Enhancements Paper and CRD III significantly increase the disclosure requirements at a general level in relation to a particular bank’s activities in relation to securitisation; this general disclosure requirement falls under Pillar 3 (which relates to market discipline and disclosure) of the Basel II framework. Some of the new information that must be disclosed by originators under Pillar 3 includes:

 

• a description of the types of assets securitised;
  
• a description of the processes in place to monitor changes in the credit and market risk of securitisation exposures, including how the behaviour of the underlying assets impacts securitisation exposures and a description of how those processes differ for resecuritisation exposures;
  
• a description of the bank’s hedging policy in respect of retained securitisation and resecuritisation exposures,
  
• including identification of material hedge counterparties;
  
• the aggregate amount of assets awaiting securitisation;
  
• a detailed description of how the bank applies the internal assessment approach (IAA) (if any);
  
• the aggregate amount of securitisation exposures retained or purchased and the associated capital requirements, broken down between securitisation and resecuritisation exposures and further broken down into a meaningful number of risk-weight or capital requirement bands; and
  
• specific information as to securitisation exposures held by the bank.
  

Because of the increased focus on the trading books of banks, the above infor mation will be required to be disclosed separately for a bank’s non-trading (i.e. banking) book as well as for its trading book.

One question raised by the requirement to disclose the aggregate amount of assets awaiting securitisation is to how practicable it might be to have to make such a disclosure where assets are being warehoused only for a short time by a bank.

Investor Due Diligence Requirements

The new investor due diligence requirements will apply to new securitisations issued on or from 1 January, 2011 and, in relation to existing securitisations, from 31 December, 2014 if there is a substitution or addition of assets.

General requirement

CRD II imposes new and extensive due diligence obligations on banks investing in securitisations. The obligations apply both before making an investment and during the life of that investment. Such due diligence obligations are also set out in the Basel Enhancements Paper.

Article 122a(4) provides that an investing bank must be able to demonstrate to its regulator, in respect of each securitisation position it holds, that it has “a comprehensive and thorough understanding” of each of a range of specified matters (see below); and that it has implemented formal policies and procedures “commensurate with the risk profile of its securitisation investments” for analysing and recording such matters. The following are specified for this purpose:

 

• information disclosed to it as regards the originator’s retained interest in the securitisation (see above as to the
  
• 5% risk retention requirement);
  
• the risk characteristics of the securitisation position;
  
• the risk characteristics of the underlying exposures;
  
• if the originator or sponsor has been involved in any other securitisation of assets of the same class as those underlying the relevant exposures, their reputation and loss experience in that other securitisation;
  
• the statements and disclosures made by the originator or sponsor (or by their agents or advisers) as to their due diligence on the securitised exposures and any supporting collateral;
  
• the methodologies and concepts on which the valuation of supporting collateral is based, and the policies adopted by the originator or sponsor to ensure the independence of the valuer; and
  
• all the structural features of the securitisation that can materially impact the perfor mance of the bank’s securitisation position – these are stated to include the contractual waterfall and waterfall-related triggers, credit enhancements, liquidity enhancements, market-value triggers and any deal-specific definitions of default.
  

This general due diligence requirement is expressed to be an ongoing obligation, although aspects of it are likely to be of greater relevance at the outset, rather than once the investment has been made.There are other specific requirements which are continuing obligations, as discussed below.

Stress tests

Investing banks must regularly perform stress tests appropriate to their securitisation positions. For this purpose, they can rely on a credit rating agency’s financial model, but only if the bank can demonstrate that it has conducted appropriate due diligence on the rating agency’s own methodology and assumptions.

Monitoring

Banks must have formal procedures commensurate with the risk profile of their investments in securitised positions to monitor on an ongoing basis, and in a timely manner, performance information on the underlying exposures. Article 122a(5) prescribes the following as a non-exhaustive list of factors to be monitored:

 

• exposure type;
  
• percentage of loans more than 30/60/90 days past due;
  
• default rates;
  
• prepayment rates;
  
• loans in foreclosure;
  
• collateral type and occupancy;
  
• frequency distribution of credit scores;
  
• industry and geographical diversification; and
  
• frequency distribution of LTV ratios.
  

Where the underlying asset of the securitisation is itself a securitisation position (i.e. it is a resecuritisation), the investing bank must obtain all relevant information in respect of both the original secur itisation and the assets underlying that securitisation.

Penalty

The penalty for non-compliance with any of the above due diligence provisions is the same as that which applies in the case of the new disclosure obligation (see above). That is, in the event of any material breach of these requirements that arises from the bank’s negligence or omission, the regulator will apply to the relevant securitisation position an additional risk weight of no less than 250% of the risk weight that would otherwise have applied; with the penalty risk weight increasing for each subsequent breach. This is subject to a maximum risk weight of 1,250% (i.e. a deduction from capital).

Commentary on investor due diligence requirements

One clear effect of the heightened due diligence requirements introduced by Articles 122(4) and (5) is that investing banks will need to have properly established systems and controls in order to demonstrate that the proper amount and type of due diligence has been carried out in relation to any particular transaction. It is quite clear from the tenor of the rules that a “box-ticking” exercise will not be sufficient. All this will in turn have time and cost implications which may result in higher funding costs all round. Resecuritisations which are CDOs of ABS may in particular be prohibitively expensive or simply impractical to put together given that underlying loan level data of the original ABS will need to be provided to the CDO investors.

As an ancillary matter, the proposed Directive on Alternative Investment Fund Managers (in relation to investment funds) and Solvency II (in relation to insurers) may apply similar due diligence requirements on funds and insurers, respectively. If so, then the majority of investors in securitisations will be affected by this new requirement in the same manner as the 5% retention requirement.

Requirement to Apply a Common Approach to Origination and Monitoring

There is one further new measure under CRD II which – like the obligations on disclosure, due diligence and risk-retention – aims to align the interests of originators/sponsors and investors. Article 122(6) provides that an originator “shall apply the same sound and well-defined criteria for credit-granting” to assets, regardless of whether the assets are to be securitised or are to be held on its own book. This is to prevent originators from applying more lax credit underwriting standards to assets which they are originating primarily to securitise (although the 5% risk retention requirement should also encourage more consistent standards). If the originator fails to comply with this requirement, it will not be able to treat the securitised exposures as removed from its regulatory balance sheet.

This additional requirement does not feature in the Basel II changes.

“Resecuritisation”: New Risk-weighting Requirement

The new requirement relating to resecuritisation is expected to apply from 1 January, 2011.

Both CRD III and the Basel Enhancements Paper set out a new risk-weighting framework for “resecuritisations”. A position in a resecuritisation would previously have been treated in the same way as a securitisation, but there are now two separate regimes.

CRD III defines resecuritisation to mean “a securitisation [as defined in the CRD22] where the risk associated with an underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation position”. It would also be a resecuritisation where the underlying exposure was itself a resecuritisation (i.e. a re-resecuritisation). So, for example, both a CDO of ABS and a CDO of a CDO of ABS would be within the definition of resecuritisation. It is important to note that a single securitisation (or resecuritisation) exposure in a pool of many exposures will suffice for the arrangement to constitute a resecuritisation.

As in the case of a securitisation, the risk weighting of a resecuritisation exposure under the standardised approach, or when using the internal ratings based (IRB) method, is determined by reference to the applicable credit rating (if any – an unrated exposure being deducted from capital).

In each case under the standardised approach, the risk weight associated with each level of rating is significantly higher for a resecuritisation than for a securitisation. Subject to a ceiling of a 1,250% risk weight, which is applicable both to securitisations and resecuritisations, the risk weights for resecuritisations range from 40% (for “AAA” to “AA-” exposures) to 650% (for “BB+” to “BB-” exposures) as opposed to the equivalent 20% to 350% range for securitisations.23

Similarly, under the IRB method, the risk weighting in respect of any particular level of rating is generally substantially higher for a resecuritisation exposure than for a securitisation exposure.

For banks applying the supervisory formula method, there is a minimum risk weighting for resecuritisations of 20%, as opposed to a 7% minimum for securitisations.

Commentary on resecuritisation

Because the resecuritisation rules will apply whenever there is an underlying securitisation exposure, it is extremely important for banks to have clear internal policies and procedures to identify when particular balance sheet positions may be “securitisation positions”, and thus potentially “resecuritisation positions” for the purposes of Basel II and the CRD.

The CRD has been in force in the EU since 1 January 2007 and EU member state regulators have recently begun to focus on how banks have been treating exposures on their balance sheets. It would not be sufficient for a bank simply to analyse a position from the pure credit risk perspective; it must be clear that the legal definitions and requirements set out in the applicable legislation have been analysed and satisfied. For example, because the definition of “securitisation” is very widely drafted in the CRD, and would capture many situations where there is simple tranching, a bank might not realise that a particular position is in fact a “securitisation position” within the meaning of the CRD.

Banks will thus have to assess carefully whether any current transaction structures which might be commonly used might be characterised as resecuritisations from 1 January, 2011 onwards. For example, might the practice in CMBS transactions of splitting a particular loan into two tranches, and securitising one of the tranches, result in the issuer SPV’s (tranched) notes being considered to be resecuritisation positions?

The analysis may also be complicated in relation to ABCP programmes, which are assumed under Basel II and the CRD to be securitisation transactions.24 An ABCP programme sponsor bank will need to consider whether liquidity facilities and programme-wide credit enhancement facilities provided by it would be considered to be resecuritisation exposures. The Basel Enhancements Paper and CRD III each provides some guidance on this matter as follows:

 

• a liquidity facility should generally not be considered to be a resecuritisation position where it covers 100% of the assets (such that the liquidity facility is a single tranche) and none of the assets within the ABCP conduit is a resecuritisation position; and
  
• a programme-wide credit enhancement facility which covers only some of the losses above the seller-provided protection across the various pools of assets in the programme would constitute a tranching of risk and so would be a resecuritisation position.
  

Further, ABCP programme sponsor banks will need to consider whether the commercial paper (CP) issued by the ABCP conduit is itself a resecuritisation position. The Basel Enhancements Paper and CRD III generally provide that such CP would not be a resecuritisation position provided that there is only one class of CP and either:

 

• the programme-wide credit enhancement is not a resecuritisation; or
  
• the CP is fully supported by the sponsor bank, such that the CP investors are effectively exposed to the default risk of the sponsor bank instead of the assets within the ABCP programme and so that the external rating of the CP is based primarily on the credit quality of the bank sponsor.
  

Ancillary Matters

Aside from the measures described above, it is worth setting out some other matters covered by CRD II and CRD III and the Basel II changes.

The following changes all take effect from 1 January, 2011.

Large exposures

The large exposures regime aims to limit the extent to which a bank’s credit risk can become concentrated. Under the EU large exposure rules, a bank’s aggregate exposure to any one client, or to any “group of connected clients”,must not exceed 25% of its own funds; and the aggregate of all its individual large exposures is limited to 800% of its own funds.

CRD II amends the definition of “group of connected clients” in Article 4(45)(b) of the CRD. This amendment could have an impact on bank sponsors' exposures to their ABCP conduits. The Basel II changes do not introduce a similar amendment.

Under the revised CRD definition, a group of connected clients exists where, amongst other things, two or more clients “are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, in particular funding or repayment difficulties, the other(s) would be likely to encounter funding or repayment difficulties.” The words in bold italics highlight the language that has been added by CRD II.

The amendment has been introduced because of the view of the EU that, under the old definition, the focus on the likelihood of repayment difficulties, without considering also funding difficulties,was unduly narrow.

On 11 December, 2009, CEBS published its guidelines on the amendments to the large exposures rules, including the amended definition of “group of connected clients”.25 The guidelines provide that the relevant degree of interconnectedness is likely to be present where the clients to which the bank is exposed share a common dependence on a single source of funding that is not easily replaceable. The guidelines provide an illustration of such a scenario: a bank which provides liquidity facilities to more than one asset purchasing vehicle, each of which is funded by an ABCP issuer under an ABCP programme, might find that all such liquidity facilities are drawn at the same time in a situation where funding by the ABCP issuer is not forthcoming. That is, all of the asset purchasing vehicles depend for their primary source of funding on the proceeds of CP issued by a single vehicle. In that circumstance, the liquidity bank should consider treating all of the asset purchasing vehicles as a group of connected clients for purposes of the large exposures analysis (i.e. aggregating all of the liquidity facilities and treating them as a single facility to a single client).

The effect of this amendment to the definition of “group of connected clients” is that bank sponsors of multi-seller ABCP programmes, who typically provide liquidity facilities to the relevant asset purchasing vehicles, will need to consider whether all those liquidity facilities should be aggregated so as to form a single exposure, and whether such aggregation might cause the bank to breach its large exposure limits. If so, such banks will need to explore ways of managing such large exposures.

Significant credit risk transfer

The CRD (as well as Basel II) requires that, in order for an originator to treat securitised assets as having been moved off its regulatory balance sheet,“significant credit risk” in those assets must have been transferred under the securitisation transaction. However, the CRD has not previously provided any guidance as to what amounts to a significant transfer of credit risk. The result is that the expression of the requirement is inconsistent across the EU since individual member state regulators apply their own tests of when “significant” risk transfer has been achieved.

For example, in the UK the current requirement under the FSA rules is that credit risk transfer is only considered to be “significant” where the proportion transferred is commensurate with, or exceeds, the proportion by which risk weighted exposure amounts are reduced. On the other hand, in Germany the BaFin requires that a bank must show that it has transferred 50% or more of the mezzanine risk (which is in fact one of the options now set out under the new definition discussed below).

The CRD is now being amended under the Technical Changes Directive so as to provide a much more detailed provision. In essence, significant credit risk will be deemed to have transferred in any given transaction where any of the following is present:

 

• the originator applies a 1,250% risk weight to all securitisation positions it holds in the relevant securitisation (or deducts such retained positions from its capital); or
  
• the originator does not retain more than 50% of all mezzanine positions; or
  
• where there is no mezzanine position, the originator does not hold more than 20% of the first loss piece (which is risk weighted at 1, 250%); or
  
• the originator makes its own assessment where the regulator has permitted it to do so (such permission being granted only if the regulator is satisfied that the originator can meet certain requirements).
  

In relation to the second and third options above, the FSA has said in the FSA Consultation Paper that it will override those options where it decides that the reduction in risk weighted exposure amounts is not justified by a commensurate transfer of credit risk to third parties.26 The Directive text allows for a regulator to take such an approach.

This new definition of significant risk transfer will take effect from 31 December, 2010.

No amendment is made to Basel II with regard to the elements of an effective risk transfer; Basel II has never clearly set out what is meant by “significant risk transfer”, instead leaving that to implementing regulators.

Risk weighting: liquidity facilities

For banks applying the standardised approach, the CRD currently provides for a range of three credit conversion factors (CCFs) to be applied to securitisation liquidity facilities which are unrated and which satisfy certain prescribed conditions as to their purpose, availability, repayment terms and documentation:

 

• 0% for a facility that can be drawn only in the event of general market disruption;
  
• 20% for a facility of one year or less; and
  
• 50% in other cases.
  

Pursuant to the Technical Changes Directive, as well as the Basel Enhancements Paper, the 0% and 20% CCFs will no longer be available from 1 January, 2011. The CCF for an unrated liquidity facility satisfying the prescribed conditions (which are unchanged) is now 50%, even if it is available only for general market disruption or has a maturity of 364 days or less.

The 20% CCF previously applicable under the IRB method to market disruption facilities has also now been deleted.

Risk weighting: self-guaranteed exposures

CRD III and the Basel Enhancements Paper each provides that a bank's regulatory capital requirements in respect of any particular exposure cannot be determined by reference to a rating agency's credit rating if that rating is based, or partly based, on a guarantee (or other support) provided by the bank itself. For example, if a bank holds ABCP issued by a conduit to which the bank provides a liquidity facility, and the rating of the ABCP is influenced by its provision of that facility, the ABCP position must be treated for regulatory capital purposes as if it were unrated.

Trading book treatment

CRD III and the Basel Market Risk Paper provide that the capital requirement in respect of a securitisation position held in the trading book will be calculated by reference to the risk weighted exposure amount that would have been relevant if the position had been held in the banking book. The objective is to eliminate opportunities for arbitrage between trading and banking books.

Conclusion

There has been much focus at an international level as to how to deal with the perceived systemic risks that can be caused by securitisation. Apart from the issues discussed in this Update, IOSCO published a significant report in September 200927 which discussed how the perceived failings of securitisation might be addressed. At the same time, the Basel Committee is undertaking a more fundamental review of the securitisation framework, which may lead to a recalibration of the capital charges under the Supervisory Formula Approach and the Ratings Based Approach (RBA), as well as the necessity of the hierarchy rule which requires the use of the RBA if an external rating exists.28 As part of the same consultation, the Basel Committee is also considering applying large haircuts to securitisations exposures used as collateral to hedge counterparty risk (as compared, say, with government bonds). It is clear that, while the changes discussed in this Update will shape the way securitisation is carried out in countries which implement Basel II or the CRD, the story is not quite over.

[jasperpad]

George I am sure I speak for all when I say your success in standing up to them alone in a hostile atmosphere in court is reward and thanks enough.

A small word of caution which I am sure crapstone will fully endorse having apparently gone 10 times around the block with this lot,make sure you don't miss any payments even by a day,don't know whether youre on direct debit or standing order but I think it was said the latter is far safer.

THEY ARE DEVIOUS OR INEFFICIENT OR BOTH BEYOND BELIEF ESPECIALLY AT LOSING PAYMENTS AND THEN CRYING YOU HAVE BREACHED THE COURT ORDER.

Keep on monitoring the site and we will sort out the FOS complaint for you sometime this week and how to send a subject access request which should tell you all the charges they've put onto your account which is usually the preliminay to a complaint unless you are able to itemise them yourself which will save an awful lot of time waiting for them to reply,weeks at best.

 

I spoke with capstone (note the lower case) and they told me that it would take about 40 days to supply the sar!

 

yeah right!

 

george