Special Assignment: Who owns your debt?

Not sure if I understand this correct. If your home loan has been securitized it means it's now owned by a SPV. And because there is no legal contract between you and the SPV there is no monetary obligation to neither the bank nor this SPV?
 
visrot said:
Not sure if I understand this correct. If your home loan has been securitized it means it's now owned by a SPV. And because there is no legal contract between you and the SPV there is no monetary obligation to neither the bank nor this SPV?
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Yes. You entered into a contract with the bank when you bought your house. You agreed to settle any outstanding amount due. When the bank sold your debt the outstanding amount was settled by the SPV and thus you had no outstanding amount to be paid with said bank.

The outstanding amount and or debt now belongs to the SPV as they bought it. Legally however you have no contract with the SPV so the SPV cannot force you to pay the debt.

The bank should inform you that they will be selling your debt to the SPV and part of that process should include a new contract to be signed between you and the SPV. If not then no agreement exist and thus no means to enforce you to settle the debt.

Above is in very simple terms but that is essentially what it boils down to.

EDIT: What is happening now is that the banks say give you a R500K loan. This is sold for say R550K to an SPV which go on to trade this on the markets. The banks thus already have their money back with profit. They however still milk you for the payments and if you do end up settling the debt they have made R500K + the profit on the sale + your payments + interest.

If you do not pay they take your house, to which they no longer have a legal right thus unlawfully, and sell it.

ALSO, another thing the banks are taken to task with is the way in which loans are made. Legally you can only give somebody something which you own. Thus a bank must have the R500K in actual money in their safe before they can give it to you.

Think of this, if they do not have that money available in actual money then the whole loan agreement is not legally enforceable as they cannot give you what they do not actually own. The way the banks are working now is to give you money which does not exist. The money only exist on paper in their books or on their systems and the loan is thus just a movement of figures.

You need to read up a bit more about this before you will get your head around this but essentially it means that almost every loan done by a bank is not legally enforceable.

PS: Below are links to websites where you can read more about this whole banking story. Note that I do not necessarily agree with any of its content, I just did a quick search for more information.

http://www.ubuntuparty.org.za/2013/06/uk-minister-exposes-banking-fraud.html
http://www.ubuntuparty.org.za/2013/04/how-to-respond-to-lawyers-letters.html
http://www.ubuntuparty.org.za/2013/04/how-to-deal-with-sheriff-of-court.html
http://www.newera.org.za/judgement-opens-a-world-of-trouble-for-sa-banks/
 
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Thx for the detailed explanation :)

Scary stuff this. Proving the bank didn't have the money to lend you will be an impossible task.
Back to the SPV, how do they make money if they don't have anything either? What is this thing that they invest in the markets if In your example they are now -R500k ?
 
visrot said:
Thx for the detailed explanation :)

Scary stuff this. Proving the bank didn't have the money to lend you will be an impossible task.
Back to the SPV, how do they make money if they don't have anything either? What is this thing that they invest in the markets if In your example they are now -R500k ?
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Banks dont need the full amount of capital to lend. THey need to adhere to BASEL 2 and 3 requirement s which requires a certain amount of capital availble for when lending takes place. its not 100% but it has increased
 
ghostbuster said:
Banks dont need the full amount of capital to lend. THey need to adhere to BASEL 2 and 3 requirement s which requires a certain amount of capital availble for when lending takes place. its not 100% but it has increased
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This is only applicable to the liquidity requirements. According to law they still have to have 100% available for a loan. If you come to me to borrow R100 and I agree, yet I only have R10 then it means that I have committed fraud in a technical way.

Before 2008 some banks went so far as to lend out up to R9 for every actual R1 on the books (not sure about this so stand corrected but I know that it was high before 2008), HOWEVER, the basic principles in law still applies that you can only sell/lend what you actually own. So if you do not have 100% of the money on the books in actual money at the time of the loan it boils down to fraud.
 
MKFrost said:
This is only applicable to the liquidity requirements. According to law they still have to have 100% available for a loan. If you come to me to borrow R100 and I agree, yet I only have R10 then it means that I have committed fraud in a technical way.

Before 2008 some banks went so far as to lend out up to R9 for every actual R1 on the books (not sure about this so stand corrected but I know that it was high before 2008), HOWEVER, the basic principles in law still applies that you can only sell/lend what you actually own. So if you do not have 100% of the money on the books in actual money at the time of the loan it boils down to fraud.
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PS: I do not think that the outcry is so much about the fact that a bank lends out money it does not have. Its more about the moral implications about collecting on debts that has already been settled (through the securitisation of the debt) by even going so far as to destroying the lives of people through 'unlawful' repossessions etc..
 
MKFrost said:
This is only applicable to the liquidity requirements. According to law they still have to have 100% available for a loan. If you come to me to borrow R100 and I agree, yet I only have R10 then it means that I have committed fraud in a technical way.

Before 2008 some banks went so far as to lend out up to R9 for every actual R1 on the books (not sure about this so stand corrected but I know that it was high before 2008), HOWEVER, the basic principles in law still applies that you can only sell/lend what you actually own. So if you do not have 100% of the money on the books in actual money at the time of the loan it boils down to fraud.
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Banks lending more than they possess in cash is one of the core principles of the monetary system. Having to own what you lend is most certainly not a basic principle in law.
 
A bank can issue notes to raise money to finance liquidity. While that might be ok in practice, quite a lot of creative accounting is often engineered to create this liquidity. Obviously their books must balance in order to satisfy auditors and issue a balance sheet to shareholders at the end of the year.

This liquidity issue was one of the reasons that Lehmann Bros failed, along with many other banks that we have never heard of.
 
Claymore said:
Banks lending more than they possess in cash is one of the core principles of the monetary system. Having to own what you lend is most certainly not a basic principle in law.
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I disagree. You can only give another person something which you actually have title to i.e. own.

In the same way I cannot sell you my brothers car as I do not own it. In law it is a clear principle that you cannot transfer more rights than that actually owned by you. You cannot sell something which you do not own, to do so will constitute fraud. A good example is a car on hire purchase, its not yours until paid so you may not sell it unless you first settle the full balance on it i.e. obtain ownership.

I understand that it takes some time to get one's head around this. Maybe this article can explain it better than I did... see link for full article...

In previous articles in REIM, we revealed that banks do not actually lend out money they already possess, but rather “create” the money loaned to borrowers, using the “promise to pay” signed by the borrower. In other words,“money” is created through debt.

This is called a ‘fractional reserve’ banking system, and it is used by governments, central banks and financial institutions across the globe. On a national scale, central banks print money that has no intrinsic value, based on a “promise to pay” issued by a government. Because this new “money” has no intrinsic value, it derives its value by literally taking value from the money already in circulation,and this is what is called “inflation”. The money already in circulation is worth ever less to give value to new money that is printed.

This practice was taken to extreme in Zimbabwe not so long ago, when the government’s practice of simply printing more money at a rate well in excess of economic growth, sent inflation to levels above 1 000%, rendering the money already in circulation worthless. Of course, today, they do not really actually “print” more money, but simply “create” the money through a “deposit entry”, even though no deposit was made by anyone!

The same happens when a borrower approaches a bank for a loan. The bank does not actually have the money it “loans” to the borrower. THey simply “create” money, through similar electronic “deposit entries” or “book entries”, simply based on a borrower’s “promise to pay”, with no actual deposit being made by anyone, anywhere.

This raises a number of issues, including the legal validity of a “loan” and the legality and the morality of charging interest on such a “loan”. It has been contested in a number of court cases that a “loan” agreement cannot exist legally under these circumstances, because the bank did not “lend” something they had prior title, ownership and rights to. The “money” lent to the borrower did not exist before the borrower signed the all-important “promise to pay”, but was “created” based on the borrower’s “promise to pay”. How can a loan agreement exist when nothing was loaned?.

This, furthermore, raises issues around the charging of interest. How can the bank charge interest on a “loan” that is not legally valid? If the “money” loaned is “created” out of nothing more than a “promise to pay” - which belongs to the borrower - and the bank does not loan its own money to the borrower, why is interest charged by the bank? “A management fee payable to the bank for managing the system seems more appropriate,” comments Robert Vivian, Professor of Finance and Insurance at the School of Economic and Business Sciences at the University of the Witwatersrand.



http://www.scribd.com/doc/139885730/Discovering-the-Money-Tree-South-African-Real-Estate-Investor
 
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For a good explanation on how this works in layman's terms, google and download:

"WHERE_DOES_THE_FRAUD_BEGIN.pdf"

Link

Although an American version, the logic is the same. The Bills of Exchange Act is the same in USA, UK, Canada, etc...

In my opinion a very important point to grasp is that when you sign the Security Instruments (Mortgage Note) the bank records it as a asset on their books. You actually created the "money", gave it it to bank for free, and they then lend it back to you, at interest. <--- THIS is where the fraud(non-disclosure) begins.

Extract:
Unknown to almost everyone, there is something VERY different that happens with your “Mortgage Note” immediately after closing.
Your “Mortgage Note” is endorsed and deposited in the bank as a check and becomes “MONEY”! See attached (Exhibit “B” para 13) The document that you just gave the bank with your signature on it, that you believe is a promise to pay them for money loaned to you, has just been converted to money in THEIR ACCOUNT. You just gave the “lender” the exact dollar value of what they said they just loaned you! Who is the REAL creditor in this “Closing Transaction”? Who really loaned who anything of value or any money? You actually just paid for your own home with your promissory “Mortgage Note” that you gave the bank and the bank gave you what in return? NOTHING!!! For any contract to be valid there must be consideration given by both parties. But don’t they tell you that you must now pay back the “Loan” that they have made to you?
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From the same article:

Securitisation

Another hot topic over the last few years is the practice of securitisation. Banks securitise loans by bundling them together, using a special purpose vehicle (SPV), and selling them to third party investors, who trade them on the capital markets. For example, in the home loan market, the borrowers’ promissory notes are backed by collateral through the mortgage contract on the property.

As such, these become“mortgage-backed securities”. The bank approaches another institution that buys and sells mortgage-backed securities. It “sells”the buyer’s mortgage-backed security to this institution for the full amount – the principal and interest - payable by the buyer over the period of the mortgage loan. This is up to three times the amount of the principal debt. Since the bank is paid in advance, it makes a tidy profit without using or risking its own money.

However, legally, once a bank securitises a loan, it loses all rights to it – ie the bank is no longer the owner of the debt. Should the borrowers default on their loans, the debt to the SPV and its investors are covered by insurance policies, called “credit default swaps” in the US and other countries. While the use of this insurance has not been confirmed in South Africa, it stands to reason, according to legal experts, that an SPV trading on a stock exchange would be required to have this insurance in place. The South African Securitisation Forum has confirmed that the implication of this is that the bank cannot, for example, repossess the property if the borrower defaults on repayments, because the bank no longer has any rights to the property that is the collateral for a “loan” which has been securitised and now belongs to another entity. Quite simply, there can be no legal case against the defaulting borrower, because all parties have been settled.

The bank was settled when the mortgage-backed security was sold, and the investors were settled through an insurance policy.
 
Claymore said:
Banks lending more than they possess in cash is one of the core principles of the monetary system. Having to own what you lend is most certainly not a basic principle in law.
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It is. It is called the Nemo dat rule.

"no one gives what he doesn't have" - Nemo dat quod non habet.
 
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The theory is interesting and all, but what does this mean to me, the average guy with a homeloan? Can I skimp on my next payment?
 
MKFrost said:
Before 2008 some banks went so far as to lend out up to R9 for every actual R1 on the books (not sure about this so stand corrected but I know that it was high before 2008)...
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"The fractional reserve system is used extensively in South Africa. According to Russell Lamberti, writing on Mises.co.za/blog, the blog of the Mises Institute South Africa (www.mises.co.za): “Since 2000the SARB [South African Reserve Bank] probably printed about R100 billion out of thin air.

This allowed the commercial banks to use about R40 billion to fractionally leverage at about 40:1 and create about R1.6 trillion in additional money out of thin air(that’s R1,600,000,000,000).” This means that South Africa has quadrupled its money supply in the last decade and, of course, the value of this new money must be derived from the money in circulation, creating inflation.

He adds that: “Since 2000, the US Fed balance sheet grew 370%. Over the same time the SARB balance sheet increased from R76bn to R440bn, about 480%. In other words, since 2000 the SARB balance sheet has grown 1.3 times more than the Fed balance sheet."

Source

And everybody think the US is in trouble.... should be looking a bit closer to home....
 
efitol said:
The theory is interesting and all, but what does this mean to me, the average guy with a homeloan? Can I skimp on my next payment?
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If your homeloan was securitised then legally yes as the loan has already been settled with the bank. You no longer have any legal obligation towards them, the debt has been settled in full.

PS: You do however have an obligation towards the SPV who bought the debt but legally you did not enter into any agreement with them so legally they cannot enforce any such agreement as it does not exist.
 
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