OCC Defined Securitization in 1997: This doesn’t look like what is going on now

Just to make sure readers understand that my writing on securitization is based on the actual definition of securitization and not some theory, it would behoove cynical readers to read the original source material for securitization of loans.

This is not academic. Securitization exists only becasue Federal lagencies allow it to exist. And so Federal  agencies determine the elemetns of securitization and how they apply to transctiosn with homeowners. The OCC is the Office of the Comptoller of the Currency which can be found at https://www.occ.treas.gov/

occ-asset-securitization-handbook1

Definition: Asset securitization is the structured process whereby interests in loans and other receivables are packaged, underwritten, and sold in the form of “asset-backed” securities. From the perspective of credit originators, this market enables them to transfer some of the risks of ownership to parties more willing or able to manage them. By doing so, originators can access the funding markets at debt ratings higher than their overall corporate ratings, which generally gives them access to broader funding sources at more favorable rates. By removing the assets and supporting debt from their balance sheets, they are able to save some of the costs of on-balance-sheet financing and manage potential asset-liability mismatches and credit concentrations.

Here is how practice conflicts with definitions, theory, policy, law and common sense:

  1. “interests in loans” do not exist
  2. “loans” are not receivables and therefore cannot be loans.
  3. no interest in any loan is packaged
  4. no interest in any loan is underwritten
  5. no interest in any loan is sold
  6. there is no transfer of risk because there is no assumption of risk
  7. originators are no longer lenders with access to capital markets. They’re placeholder names for a fee, whose job it is to sell the consumer on signing the papers.
  8. The loans are not removed from the balance sheet of the originator because there were no loans on the balance sheet but it is true that no receivable appears on the books of the originator nor anyone whose business plan is to sell Securities that are referenced on data reports that purport to be loan portfolios.

Think I am wrong? Allege affirmative defenses that assume the above is correct and then demand discovery on each point. You will never receive an answer. And that fact alone will enable you to win if, and only if, you aggressively pursue sanctions after the court orders compliance.

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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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2 Responses

  1. When you define interest, is it interest in the bogus loan along with non-collectable principal, or as a curiosity of toward a process ?

  2. Pre- “Pilot program” under Regulation AB, securitization was largely guaranteed by the GSEs as primary investor in Private Label claimed securitization (PLS). That changed circa early 2000’s when Regulation AB was set up under a “pilot program.” Under the pilot program, securitization was allowed under PLS but under the program – No GSE guarantee necessary. Instead, it was set up with bottom tranches to bottom feeders sold first, and then top tranches sold to GSEs. Thank the grandfather of this created scheme.
    First, securitization is simply the removal of “on-balance sheet” assets to an off-balance sheet conduit. When a loan defaults – it is brought back onto “on balance sheet” for charge-off. This did not happen with PLS — there was never “on balance” at all so nothing could ever be brought back onto balance sheet. I have emphasized this over and over again as to why. Not enough to say not “on balance” sheet – the question is WHY NOT?
    By late 2005, PLS started going wild with “warehouse lenders,” and “refinance” solicitation, and entities that had no authority to securitize anything. All would soon culminate in big trouble. One by one the “warehouse lenders” — who warehoused nothing but cash-out – stopped any warehousing. The SEC addressed the pilot program in late 2005 – and determined Rules and Regulations. One of the major rules was that sponsors must be identified in registrations, and that the “entity” must qualify for securitization. They did not. But, another big issue was that “Title Series” names were simply that — and not actual REMICs. SEC precluded, by Rules and Regulations, that an “ultimate pool” could be segregated into multiples pools and REMICs by Regulation AB. A “Pool” cannot be segregated. Thus, when pressed, the “entities” that had no ability to remove “loans” for securitization, as no loans were ever “on balance” sheet, ceased further registration for PLS (pilot program) – and, the collapse came quickly thereafter. I simply find this is too complex for most people and courts. As I was told by one attorney – “You went to the wrong people.” Maybe – but the truth is still not told, and I don’t find anyone comprehending.

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