The Future for the Global Securities Market: Legal and Regulatory Aspects

By Fidelis Oditah | Go to book overview

5
Selected Issues in Securitisation

FIDELIS ODITAH


INTRODUCTION

In the last decade, securitisation has been one of the most significant innovations made by the financial markets. In the United Kingdom, the development of securitisation, in the sense in which that expression is hereafter used, has occurred since the mid 1980s.1 As far as secondary securitisations in the modern form are concerned, the United States of America has led all the way; its market is the most matured. Although the United Kingdom has been the most developed of the European markets, secondary securitisation in Europe is still very much in its infancy. However, in the United Kingdom, the sale of receivables has existed in some form for a very long time indeed. What securitisation has done is to reinvent the wheel by 'wrapping' the sale of financial and trade receivables around marketable securities. Assignment, which provided the basic framework within which sale of receivables was consummated from the 17th century onward, still provides the basic structure for vesting the securitised assets in the special or multi purpose vehicle which modern secondary securitisations utilise.

The development of secondary securitisation in the United States is said to have its roots in the Depression of the 1930s. In order to help mortgage originators deal with the default risk of borrowers, the Federal Housing Administration ('FHA') was established in 1934 to provide government guaranteed mortgage insurance. In 1938, the Federal National Mortgage Association Fannie Mae') was created as the first government agency to provide a secondary market in government insured mortgages. In 1957, the Federal Home Loan Bank Board (' FHLBB') was established. Notwithstanding this early start, no active secondary market in the United States emerged until the 1970s, when the Federal Home Loan Mortgage Corporation (' Freddie Mac') was established in 1970, with power to

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1
It has been suggested that securitisation in the sense of asset-backed bonds have existed for over a century and that in the 1920s, private title and mortgage insurance companies in New York State sold 'guaranteed mortgage participation certificates' secured by single mortgage loans or pools of mortgages: see Shenker and Colletta, Asset Securitization: The Evolution, Current Issues and New Frontiers ( 1991) 69 Tex L R 1369 at 1380-2.

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