INTRODUCTION
Over time, the economy and the economic system have developed and evolve into new types of businesses and transactions. This development is even more accentuated in the financial market, where new variants and innovations are continually emerging, both in the aspect of granting financing, and in that of new proposals for investors.
As a direct consequence of these changes, new types of contracts emerge, such as Leasing, Trust, Factoring and Asset Securitization.
The word securitization derives from security, whose meaning in English is title-value. The concept of securitization could be defined as a financial mechanism that allows the mobilization of relatively illiquid credit portfolios, through a legal vehicle, through the creation, issuance and placement in the Capital Market of securities, backed by the group itself. of assets that gave rise to it; basically it is the affectation of a credit to a title.
Different types of assets can be securitized, the most widespread and well-known example being the securitization of mortgages.
But in order to understand this particular contract, it is convenient to make a brief explanation of the concept of mortgage, since law 24,441 establishes in article 44 that: The real mortgage right incorporated into the title is governed by the provisions of the Civil Code in mortgage matter
A mortgage can be defined as a real right that is granted in security of a credit in money on a property, which will continue to be in the possession of the debtor. It is the guarantee that is given to the creditor of the loan that if the debtor does not comply, he can execute the property on which the mortgage was constituted; This does not mean that the creditor takes possession of the property but that it is auctioned and the credit is collected from the proceeds.
The mortgage is first of all a real right, that is, a legal power that a person has over a thing, (in this case the creditor over the mortgaged property) but with the characteristic that it is accessory to a personal right, which is credit. certain and determined in money. Therefore, when the principal (credit) is extinguished, the accessory (mortgage) is extinguished.
Other characteristics that the mortgage has, and that as a consequence, are transmitted to the securitization process are:
Conventionality: Since it can only be given by agreement of the parties.
Advertising: It is necessary to register in the National Registry of Real Property, in order to be enforceable against third parties.
Specialty: Regarding the mortgaged property, it must be individualized at the time of the constitution of the mortgage. As for the credit, it must be true and determined, and the amount must be stated in the constitutive act.
These characters are essential for the validity of the mortgage, since the lack of any of them makes the mortgage contract void.
Regarding the object of the mortgage, this must be a property (it must always be identified), as well as all accessory things, such as an improvement in some type of installation.
Having clear the definition and characteristics of the mortgage, we can define the securitization of mortgages: as the issuance of securities through a vehicle, which are placed in the Capital Market, whose support is made up of a portfolio of loans with mortgage guarantee of similar characteristics.
This new contract, with marked financial characteristics, has a wide range of advantages, such as:
Increase the liquidity of credit issuing entities, since they allow the transformation of less liquid assets, such as receivables, into availabilities.
As a consequence of the foregoing, the lending capacity of financial institutions is enhanced, that is, they have a greater amount of funds to apply to grant new loans.
Financial mismatches, produced by attracting short-term funds, such as fixed-term deposits (which generally have a term of less than one year), and the outflow of funds through credits (which are mostly for periods of more than one year, depending on the amount).
The greater liquidity allows the financing of large investment projects.
The equity structure of the entire financial system is improved, since equity is backed by more liquid assets.
Credit risk is reduced, since the security is generally guaranteed by a set of credits, so there is a diversification of risk for the investor.
On the other hand, as main disadvantages we can name:
The complexity of the transactions and organizational requirements, since the implementation of a securitization process requires the performance of an interdisciplinary team, which entails costs and expenses associated with the development of the structure.
The regulatory framework is uncertain or incomplete. Although this depends on the characteristics of each applicable positive law, even in countries that have a legal regulation of securitization or an important development of their capital market, it is not always complete, and does not cover all the important aspects of the structuring the process. This is accentuated in our country, since the law that gave rise to the securitization (Law 24,441) dates from 1995, because due to the complexity of this type of operations, the entire regulatory framework in force was the responsibility of the National Securities Commission, which is the body with a higher degree of specialty in the matter.
This introduction allows to establish a first overview of the subject of mortgage securitization. Now we are going to:
Make a brief summary of the historical evolution of this type of operation, given that its development is very recent.
Establish the essential characteristics of the assets to be securitized, and ways to carry out the securitization.
Know the parties involved in the securitization contract.
Analyze the different forms of extinction and some points of the current regulations that are not entirely clear.
HISTORICAL EVOLUTION
Securitization had its origins in the 1970s, as a consequence of high interest rates in granting loans and the need for financial institutions to reduce costs to obtain funds. For this reason, many loans were transformed into negotiable instruments, which were called Credit Securitization. This is how backed debt securities were born, that is, guaranteed by a real asset, such as automotive pledges, with guaranteed invoices, mortgages, etc.
The United States government created an agency that initiated the securitization market, developing a security secured by home mortgage loans; In this way, financial institutions were encouraged to grant certain types of mortgage loans that are financed with the issuance of securities backed by said mortgages and guaranteed by the government. Later, commercial banks and savings and loan companies for housing are incorporated into the operation; currently there are wholesale entities dedicated exclusively to securitization.
In Europe, the most developed market in terms of securitization is England, since in France the appropriate legal framework was established only in 1988, with the creation of the Fonds Commens de Créances.
In Latin America, the country with the most experience is Mexico, where this phenomenon is known as securitization or securitization.
The securitization instrument has not yet had a boom in our country, considering that Law 24441 (BO16-01-95) on financing of housing and construction has a recent validity, it is already planned that through this system the BHN will buy the mortgage loans of the private system and issue titles, to get money to reactivate the economy.
The regulation established by this law gave the necessary framework to capture greater savings from the private sector for the financing and construction of houses, it also established a special regime for the execution of mortgages transferred in trust, allowing a quick and inexpensive execution of the same. It also regulated the figure of the mortgage bill, framing it as a security with a mortgage guarantee, which will replace the old mortgage note.
SECURITIZATION PROCESS
USUAL STRUCTURES
While recognizing that other variants arise day after day, three types or basic structures of securities issued under a securitization process can be cited:
a) PASS-THROUGH: It consists of the sale, assignment, or endorsement of assets of the originator or original creditor to a legal entity called a vehicle (trustee, closed common investment fund or exclusive object company), who issues the securities to be placed among investors. In this category, the originator displaces assets from its balance sheets while the issuance of securities is not part of its liabilities.
b) ASSET-BACKED BONDS: In this case, there is no isolation of the assets to be securitized, but rather they remain in the originator's equity. The flow of funds that they generate will not be exclusively affected by the payment of capital or interest on the debt securities issued, so generally this category of securities is enhanced with additional assets.
c) PAY-THROUGH: It is a combination of elements of the two basic types described, since although the assets to be securitized are not separated from the originator's equity, their income exclusively guarantees the payment of the capital and interest of the securities issued, such as with the PASS-THROUGH.
REFLECTIONS IN NATIONAL REGULATIONS
Once the generic characteristics of the possible structures of a securitization process have been outlined, it is now time to deal with their reflection in national regulations.
The PASS-THROUGH type is the one designated by law 24441, article 21, when dealing with financial trust as "participation certificates"; while the PAY-THROUGH modality is identified with the «debt securities».
In the other securitization vehicle regulated by law 24441 "the closed mutual funds that integrate their patrimony with credit assets", the PASS-THROUGH category is reflected in the shares of co-ownership, while the variant PAY-THROUGH corresponds to the rent shares (article 78, inc. Law 24441).
The structure of ASSET-BACKET BONDS are similar to negotiable obligations, including in this category the negotiable obligations mentioned by article 20 bis of the CNV regulations (The issuers of negotiable obligations may guarantee the payment of the same through the pledge in favor of the holders of said securities of variable or fixed portfolios of credit rights, with or without collateral, or of other variable or fixed sets of similar or homogeneous assets).
CHARACTERISTICS OF THE ASSETS TO BE SECURITIZED
Not any asset can be securitized, according to Pavell (Christine, Securitization, Probus, Chicago 1989, page 19) the ideal characteristics of the loan to be securitized are:
-Clear credit settings
-Well defined payment patterns
-mathematically and statistically predictable cash flows
-Low levels or historical probabilities of default
-Total amortization of credits at maturity
-Diversity of debtors
-High liquidity, returns higher than securitized assets.
Otherwise, the need to improve it with complementary guarantees to reduce its risk, can make the process uneconomical. Likewise, preference should be given to asset portfolios with characteristics of homogeneity among themselves, because their absence makes it difficult to obtain statistics.
An asset that perfectly fits these characteristics is the mortgage, whose securitization is an appropriate tool for the development of ventures and investments in the construction sector.
MORTGAGE SECURITIZATION PROCESS
The mortgage securitization process, part of the instrumentation of mortgage deeds in which the issuance of mortgage bills is expressly consented, so they constitute the first tool of this system. They are guaranteed since their creation and as a condition of their existence, with first-degree privileged mortgages.
To start this process, and in light of what is prescribed by Law 24441, in the traditional mortgage loan market, the bank or financial institution (ORIGINANT) must operate on two levels simultaneously, with the borrower and with the wholesale bank.
With the borrower, you must agree on the terms of the basic mortgage-backed mutual contract, which already includes the terms of the financial tool (the mortgage bill), and the characteristics of the credit such as amount and frequency of payments, term and interest, all for their subsequent qualification, homogenization in the securitization of the loan portfolios thus formed. On the other hand, and in order to have money to continue granting loans, the bank transfers these loan portfolios to a wholesale bank or second-degree institution (VEHICULO), who orders and classifies the loans seeking their homogeneity, through a Risk Rating Company, to later issue securities that will be placed on both national and international Stock Exchanges,where they will be acquired by INVESTORS.
Within this framework, article 45 of Law 24441 establishes that the persons authorized to make a public offering as trustees or to administer common investment funds, may in turn issue PARTICIPATION SECURITIES that are guaranteed by MORTGAGE LETTERS.
Notably:
1) The mortgage bills for circulation must be registered in the Real Estate Registry corresponding to the encumbered property that guarantees their payment. The letter must contain the signatures of the debtor, the notary public and the authorized official of the Registry.
2) The issuance of the letter can be done after the granting and registration of the deed that implements the original business, as long as this first contract expressly authorizes the issuance of this type of letter. In this case, an IRREVOCABLE MANDATE could be granted in the same mortgage deed in favor of the same creditor or a third party so that it can grant the deed of creation and issuance or, if it is foreseen in the same creation, empower the agent to sign on behalf of the debtor the mortgage bills to be issued by virtue of said mortgage deed.
3) Mortgage bills are transferable to any title, always by nominative endorsements established in a chain in the same letter or in its extension. Each endorsement requires the signature of the endorser and the name of the endorsee and the date of endorsement; and they do not require for their perfection, neither the notification, nor the agreement of the assigned debtor. There is no guarantee of eviction, return action, or any type of liability arising from the endorsement between the endorsers.
4) The mortgage bills will have coupons to implement the capital installments or interest services. Whoever makes the payment will have the right to receive the corresponding coupon as the only valid supporting instrument. If the bill were subject to amortization in variable installments, the issuance of coupons may be omitted, and in that case, the debtor will have the right to have the partial payments noted in the body of the bill. Notwithstanding the foregoing, they will be opposable even to the holder of the good faith payments documented that have not been registered in this way.
5) The letters must contain the following information (article 39): Name of the debtor and the owner of the mortgaged property, name of the creditor, amount of the obligation incorporated into the letter, terms and other stipulations regarding payment, with the respective coupons, the place where the payment should be made, compensatory and punitive interest rate, location of the mortgaged property and its registration data, the rest that the regulations that are dictated for this purpose establish.
SUBJECTS
- ORIGINATOR: originating companies of the assets to be securitized, such as banks, finance companies, companies with a special purpose, generally maintain the administration of the portfolio (servicer). SERVICE: It can be the originator itself or an independent third party. It is dedicated to pursuing the collection of the flow of funds from the portfolio, and making its transfer to the vehicle for payment to investors. Provides periodic reports to the issuer and the beneficiaries VEHICLE: name given to the legal entity that acquires the assets to separate them from the originator's risk, and issues the certificates of participation in the income from the pool of assets, or debt securities guaranteed in them.TAKER - PLACER OF FUNDS: It can be an investment bank, a financial institution, or a stockbroker,who will be in charge of the placement of the securities among investors.INVESTORS: either individual or institutional, it is who acquires and eventually trades the securities in the capital market.RISK RATING: They are specialized institutions in the analysis of credit risk, on three perspectives:
a) Asset quality: evaluation of the selection criteria, credit origination methods, analysis of the administrator's characteristics and securitization vehicle.
b) Cash flow: risk of bad debts or arrears, prepayment risk, asynchronies in terms.
c) Legal security: structure of the vehicle, rights and obligations of the parties, legal and economic support of the credit risk coverage.
The risk rating is a very useful element for savers, because it provides a specialized and consistent study regarding the conditions of their investment.
PURPOSE OF SECURITIZATION
Securitization imports the modification of the traditional financing mechanism for a more complex one that leads to the disintermediation of the process and the mobilization of low-turnover assets. This makes it possible to inject new resources into the system and, consequently, to restart the procedure.
A securitized capital market provides benefits to originators, investors, and consequently to the economy in general:
a) For the originator:
-Reduces the financial cost: The isolation of certain assets from your equity or the granting of additional guarantees (collateralization) reduces credit risk, which allows obtaining resources at a better financing rate.
-Increase in lending capacity: By separating the securitized assets from their balance sheets, financial institutions reacquire their lending capacity.
-Avoid financial mismatch (liquidity risk), caused by the asynchrony between assets and liabilities. Securitization avoids this drawback due to the increase in portfolio loan rotation.
-Provides the development of the capital market by supplying new securities to the public offering. This new financing alternative, within a competitive framework, leads to an improvement in the quality of the securities, and consequently, to increasingly beneficial financing for the fund taker.
b) For the investor:
-Get a better return, in compensation for the credit risk assumed, being a stimulus factor for a greater saving effort to be made.
-It is a new investment alternative with limited risk: The increase and diversity of securities that may arise within an open and competitive economy, manages to improve their quality, with a consequent decrease in credit risk. Even isolating the asset from the originator attracts the foreign investor due to the reduction in country risk.
-Simplifies the risk assessment: through the qualification of the degree carried out by specialists on the basis of objective criteria of analysis.
-It allows direct participation in large investments that by other means could lead to the saver the disbursement of large sums of money or would be prohibited.
-Gives the possibility of making the title liquid in the secondary market, or transmit it in payment, or assign it as collateral.
EFFECTS OF MORTGAGE LETTERS
A similar conclusion regarding the subsistence of the Civil Code norms emerges from the analysis of article 38:
The issuance of mortgage bills does not prevent the debtor from transferring ownership of the property; the new owner will have the rights and obligations of the third owner of the mortgaged thing. The location agreed after the constitution of the mortgage will be unenforceable to those who acquire rights to the bills or their coupons
The property remains in the possession of the constituent who, as the owner, retains all the rights inherent to the property, with the limitation of not reducing the value of the guarantee. The art. 3157 of the Civil Code says: The debtor owner of the mortgaged property, retains the exercise of all the powers inherent to the property right; but it cannot, to the detriment of the mortgagee's rights, exercise any act of material or legal disposition, which directly has the consequence of reducing the value of the mortgaged property.
Taking into account the characteristics of this real right and its instrumentation in letters, the new owner is not a debtor, but is subject to the execution of the property, by virtue of the ius persequendi in accordance with article 3162 of the Civil Code that says: If the debtor alienates, whether for onerous or lucrative title, the whole or a part of the thing or a dismemberment of it, which in case it is susceptible to a mortgage, the creditor may pursue it in the power of the acquirer, and request its execution and sale, as he could do against the debtor. But if the alienated thing is movable, which was only immobilized and subject to the mortgage as an accessory to the property, the creditor may not pursue it in the hands of the third owner. The necessary requirements to pursue the thing in the hands of whoever is found are the following: that the mortgage has been registered,and that the credit is enforceable.
EXTINCTION
- PAYMENT: Payment will be made in the place indicated in the letter. The place of payment may be changed within the same city, and it will only take effect upon notification to the debtor (art. 42). In article 39 it says that the mortgage bills must contain the place where the payment must be made (inc. C). Article 43 adopts the automatic default system provided for in article 509 of the Civil Code by regulating that: Once the provisions set forth in the preceding article have been verified, the default will occur automatically upon expiration only, without the need for any interpellation. EXECUTION: Article 45: The bearer of the mortgage bill or of any of the coupons may execute the title through the special execution procedure provided for in title IV of this law when it has been agreed in the act of constitution of the mortgage.This must be recorded in the letter and on the coupons. In order to execute the bills or coupons, where appropriate, by the instrumented system of extrajudicial execution, it must be chosen expressly when the real right is constituted and it must be stated in the letters and coupons that are issued. a limitation period of three years from the expiration date of each installment of capital or interest for the shares emanating from the mortgage bill, which coincides with that established for the bill of exchange, in article 96 of decree law 5965 / 63: "any action arising from the bill of exchange against the acceptor is prescribed three years from the expiration date…." CANCELLATION: The cancellation of the registration of the issuance of the bills, and therefore the mortgage,It may be done at the request of the debtor by presenting the bills and coupons, if applicable, with proof that all principal and interest payments have been made. The certificate issued by the judge will have the same value as the letters and / or coupons for the purposes of its presentation for the cancellation of the mortgage. Article 3199 of the CC says: The mortgage and the taking of reason will be canceled by the consent of the parties who have the capacity to dispose of their assets, or by a judgment passed in res judicata. It can consequently be canceled by consent of the party.The certificate issued by the judge will have the same value as the letters and / or coupons for the purposes of its presentation for the cancellation of the mortgage. Article 3199 of the CC says: The mortgage and the taking of reason will be canceled by the consent of the parties who have the capacity to dispose of their property, or by a judgment passed in res judicata. It can consequently be canceled by consent of the party.The certificate issued by the judge will have the same value as the letters and / or coupons for the purposes of its presentation for the cancellation of the mortgage. Article 3199 of the CC says: The mortgage and the taking of reason will be canceled by the consent of the parties who have the capacity to dispose of their property, or by a judgment passed in res judicata. It can consequently be canceled by consent of the party.
To cancel the registration of the issuance of bills, in addition to the holding and presentation of the bill, proof of payment of capital and interest on the bills and coupons is necessary. It is natural that this is the case since they constitute the credit titles, to which a mortgage guarantees.
Cancellation can also be obtained by judicial means when the debtor cannot, for well-founded reasons, directly access the Registry by accompanying the letters with their respective proof of payment, and apply the assumption of the "certificate issued by the judge."
CHARACTERS
When securitizing the mortgage guarantee, it maintains the characteristics of conventionality, specialty, indivisibility, and publicity.
- CONVENTIONALITY: The constitution of the mortgage in a public deed implies the agreement of the creditor and the debtor, although when the letters are issued, they become independent from that original deed and the records that are consigned therein must be kept. But again it is required in article 36 that the issuance of bills must be expressly consented to in the act of constitution of the mortgage. SPECIALTY: The specialty is not affected in any of its two aspects: in relation to the object and the credit.
The specialty regarding the object is expressly contained in the enunciations of article 39, paragraph g): Location of the mortgaged property and its registry and cadastral data. It must be existing things (real estate by its nature and by its accession) that are in the trade, since the mortgage confers on the creditor the right to sell the mortgaged thing in case of default by the debtor.
The essential nature of specialty in terms of credit is protected since the degree of aggression suffered by the property must always be known exactly, for the security of the property owner and third parties, privileged creditors or not and this is expressed in the article 39, subsection c): amount of the obligation incorporated into the bill, expressed in a specified amount in national or foreign currency.
- INDIVISIBILITY: The circumstance that they are mortgage bills that will have coupons to implement the capital installments or interest services, does not alter the indivisible nature of the mortgage. The successive payments, whether or not with the issuance of coupons do not authorize that the lien can be partially canceled, but that each of the things mortgaged to a debt, and each part of them is obliged to pay all the debt and each part of it (art. 3112, Civil Code). ADVERTISING: Regarding the validity of advertising, there is no doubt that in addition to being provided in the letter of the law (art. 39), it is unavoidable for the purposes of its enforceability.
On the other hand, it reaffirms the maintenance of these principles, as well as of all the regulations that are not subject to express modification, article 44 of the law says: The real mortgage right incorporated into the title is governed by the provisions of the Civil Code in mortgage matter.
CONCLUSION
A country has two alternatives: o modernize, adopting new financial and legal instruments that broaden the investment horizon; or remain anchored to the old structures that prevent such development.
The securitization or securitization of assets, as mechanisms of financial disintermediation and mobilization of credit portfolios, used by responsible operators who know how to take care of the process, will lead us along the path that leads to an agile and efficient capital market, which provides society with responses concrete.
Download the original file
