Assessment of Law Relating to the Transfer of Mortgagee's Rights to the Trustee Issuer in Mortgage Securitisation

Securitisation is the process by which a credit institution - either a bank or an independent mortgage provider (IMP) - sells assets on its loan book - specifically, accounts receivable on its loan book - to another jinancial intermediary established specially for securitisation transactions, known as a special purpose vehicle (SPV), which then funds its holdings by issuing asset-backed securities to investors. One of the key steps in a residential mortgage securitisation process is that the originator transfers its mortgagee rights in the loans to the SPV. The mortgagee rights form the backing for the residential mortgage backed securities (RMBSs) issued by the SPV. In practice, the transfer of mortgagee rights is effected by an equitable assignment. The mortgagor is not a party to the sale agreement and is not notified of its existence. The assignment or transfer is structured so as to be "bankruptcy-remote" to gain investor acceptance in the capital market securities. In general, this is achieved by ensuring that the assignment or transfer constitutes a "true sale" by the originator to the SPV. Firstly, the article examines the ways in which the originating mortgagee's rights and the underlying collateral can be transferred to the trustee-issuer (SPV) and considers the main legal issues that can arise in an RMBS program in Australia. Secondly, it focuses on a qualitative assessment of the extent to which the current legislative and regulatory provisions governing the transfer of mortgagee rights to the SPV either impede or facilitate the operation and growth of the RMBS market in Australia. The existing legislative and regulatory provisions governing the transfer of mortgages are assessed using a "public benefit test" framework. This framework is based on the Australian Commonwealth-State Competition Principles Agreement 1995 and the Statutory Instruments Act 1992 (Queensland). Finally, the article provides a summary of the legal and regulatory issues involved in the transfer of mortgagee rights and concludes the article with some suggestions for reform of the consumer credit legislation in Australia.