subject: A Securitization Audit Report Is A Most Have When Facing Forclosure. [print this page] WHAT IS A SECURITIZATION? WHAT IS A SECURITIZATION?
A securitization is the term used to describe the process of issuing securities backed by the cash flows from a pool of underlying assets.
Securitization has also been defined as "the sale of equity or debt instruments, representing ownership interests in or secured by, segregated, income-producing asset or pool of assets, in a transaction structured to reduce or reallocate certain risks inherent in owning or lending against the underlying assets and to ensure that such interests are more readily marketable and, thus, more liquid than ownership interests in and loans against the underlying assets."
A securitization transaction typically has the following characteristics. An originator of homogenous income producing assets sells the assets to a newly formed special purpose entity, also known as a securitization trust, which can be any legal entity that is designed to make the chances of it filing for bankruptcy remote.
The trust will then issue, directly or through a trustee, securities in the form of certificates to investors. The securities represent an undivided interest in the assets of the trust. An underwriter will typically find the investors to purchase the securities.
Such investors will pay cash for the securities and the proceeds are used by the trust to purchase the assets from the originator. The term of a securitization transaction can range between 5 years to 30 years, depending on the nature and term of the assets backing the securities. The cash flows generated by the assets are used to repay the amounts due under the securities issued by the trust.
SECURITIZING A LOAN
Following is brief explanation of the methodology that was generally used to securitize loans:
A Wall Street firm would approach other entities about issuing a Series of Bonds for sale to investors. This was known as pre-selling. Agreements would be made as to the types of loans and other factors such as risk level and insurance. In other words, the Wall Street firm pre-sold the bonds before they were in existence.
The Wall Street firm would then approach a lender, usually offering them a Warehouse Line of Credit, which the lender would use to fund the loans. The Mortgage Loan Purchase Agreement and Pooling and Servicing Agreement provided restrictions and guidelines that were to be followed, such as the procedures for the creation and administering of the loans prior to, and after, the sale of the loans to Wall Street.
With the guidelines, the Lender would then proceed to locate buyers (borrowers) for the loans. In essence, people who fit the general characteristics of the Mortgage Loan Purchase Agreement. In many cases, the guidelines were very general and most people could qualify. The Lender would originate the loan, fund it, and collect the payments until there were enough loans funded to sell to the Wall Street firm who could then issue the bonds. (The deed of trust and note are together and recorded with the county.)
Once the loans were funded, the lender would then sell the loans to the Sponsor. Normally, the sponsor was either a subsidiary of the Wall Street firm, or a specially created Corporation of the lender. (New assignment should have been recorded with the county.)
The loans were then separated into tranches where they would eventually be turned into bonds.
Next, the tranches of loans were sold to the Depositorthis entity was a Special Purpose Vehicle designed with one purpose in mind: to create a bankruptcy remote vehicle where the lender or other entities would be protected from what might happen to the loans, and/or the loans are protected from the lender. The Depositor was also an entity created by the Wall Street firm or the Lender. (New assignment should have been recorded with the county.)
Then, the Depositor places the loans into the Issuing Entity, which is another, created entity solely used for the purpose of selling the bonds.
Finally, the bonds would be sold, with a Trustee appointed to ensure that the bondholders received their monthly payments.
GOVERNING DOCUMENTS OF THE TRUST
The governing documents for the trust are The Prospectus Supplement and Prospectus.
(These documents are often referred to by their SEC Form filing names: 424B5, and/or the FWP.)
This Prospectus Supplement and Prospectus also includes the Pooling and Servicing Agreement. It has been provided in pdf format in its entirety as Exhibit A.
Following are excerpts from these documents that will help to show specifics areas where the trust regulations themselves have been violated or give specific information as to what the trust was intended for. It is recommended to review the pages contained within Pro Se Legal Representation for a better understanding and how to draft your legal documents and win your case.
