Securitisation Complaints against banks
In the recent past we have received a number of complaints against banks relating to the securitisation of mortgage bonds.
At its most basic, securitisation is the financial practice of converting various contractual debts, such as mortgage bonds into a marketable security and then selling it onto investors.
The allegation then being that the investor is the new legal owner of the mortgage bond.
When a borrower falls into arrears with payment of the mortgage bond instalments and the bank sues the borrower for payment, the borrower raises the defence of securitisation.
This defence challenges a bank’s standing (locus standi) or title to foreclose on the loan. The defence is based on the allegation that the debt was securitised by the bank meaning that the bank is not the legal owner of the mortgage bond and therefore no longer has standing to enforce the claim.
The defence of securitisation was considered in a number of court cases and in each case the defence was found to be without merit.
All the complaints against banks emanate from loans granted by the bank on the security of a mortgage bond over immovable property.
The borrower falls into arrears with payment of the mortgage bond instalments. The bank claims that the borrower is in breach of the home loan agreement and the mortgage bond which entitles the bank to repayment of the full amount loaned, since the bond contains an acceleration clause, and to an order declaring the property executable.
The borrower resists the bank’s claim and raises the defence of securitisation.
None of the allegations against the banks contain a denial that the bank had advanced the money to the borrower and that the borrower acquired the property on the strength of the mortgage loan.
The gist of the defence of securitisation
The borrower claims that:
• The bank participates in the practice of securitization whereby various types of contractual debts such as mortgage bonds, are sold as bond securities or mortgage obligations to investors.
• The bank has sold its rights in terms of the mortgage bond to a special purpose vehicle (SPV).
• The bank has ceded its rights in terms of the mortgage bond to a third party and accordingly lacks standing in the proceedings.
• It is the SPV that is the new legal owner of the asset, and the bank loses title to foreclose on the loan.
• The bank, upon selling the bond and/or the debt, loses the right to enforce the claim.
The defence of securitisation was considered in a number of decided cases and the courts collectively, inter alia, held that:
• It is unlikely that a transaction such as securitisation (assuming it has taken place) would be structured in such a manner that it permanently divests the mortgagee bank of its right to institute legal proceedings against the defaulting mortgagor.
• Even if the rights under the mortgage bonds had been ceded, should the borrowers pay the amount presently claimed by the bank and should the “true” holder of those rights at some stage in the future emerge and claim payment of the same debt from the borrowers, they would have a solid defence that the debt has already been extinguished.
• The defendants adduced no evidence to support a conclusion that the bank had transferred, sold or ceded its rights in terms of the relevant mortgage bonds to a third party.
• The defence of possible or actual securitisation, where there is no actual proof, only a suspicion that securitisation has taken place, has no prospects of success.
Term of Reference (ToR) of the Banking Ombudsman
In cases of securitisation there are considerable disputes of fact between the bank and the borrower. The appropriate forum to deal with disputes of this nature is a court of law.
The ToR limits the OBS’ jurisdiction. The OBS may not consider a complaint or dispute that, “would more appropriately be dealt with by a court of law or through any other dispute resolution process.”
The fact that a number of court challenges have already been brought (reinforcing the view that the appropriate forum for disputes of this nature is indeed a court of law) coupled with the limitation on jurisdiction imposed on the OBS by its ToR, led us to conclude that we should not entertain complaints of this nature.
Decision of the OBS
Disputes of this nature are more appropriately dealt with by a court of law. The OBS should not, and accordingly will not, entertain any complaints of securitisation against banks.