Securitisation of credit agreements

Stuart Hopkins made this Freedom of Information request to Bank of England

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Dear Bank of England,

I have several questions relating to banking I would like to find information on.

I am aware that when a customer signs a credit agreement, it is that customer that generates that money in doing so. I am aware that the credit agreements are then securitised and bundled up and then sold on. Since what is being generated here is a promissory note, that note has value.

my questions are as follows

Are banks selling on credit agreements and still taking payments and interest from customers even though the customer generated the value and the bank has already been paid for this once when it was sold.

What are the legal grounds for having a credit agreement returned to the customer once that debt is paid off.

Do credit agreements as part of a securitised bundle stay in circulation once the debt is paid, and maintain their value.

When banks are checking to see if customers are credit worthy and they can pay back their loans, are they doing this with a view that having credit agreements with a AAA rating have more value, and due to the regulations in banking it would be worthless to attempt to sell credit agreements with a less favorable rating.

If when these credit agreements are bundled up and securitised and a percentage of the customers default against these agreements are the companies involved in that securitisation insured against their losses.

What legal grounds do banks have in which they are entitled to not return credit agreements.

Do credit agreements have value which is face value.

Yours faithfully,

Stuart Hopkins

Enquiries, Bank of England

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Dear Mr Hopkins

 

We acknowledge receipt of your email dated 31 January (our ref V 47917). 
We will reply in due course.

 

If you have any queries please contact the Bank’s Public Information and
Enquiries Group on 020 7601 4878.

 

Yours sincerely

 

Public Information & Enquiries Group

Bank of England |Threadneedle Street|London|EC2R 8AH|+44 20 7601 4878

[1][Bank of England request email]

[2]http://www.prospects.ac.uk/profsearch/se...

 

 

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Becky Bbear left an annotation ()

Mr H - Credit Agreements as you describe them are loans made by one party to the other on terms set out in the Agreement.

As such, their intrinsic 'value' is limited to the sum borrowed plus the charge levied for the lender agreeing to lend to the borrower, plus whatever rate of interest had been agreed between the two at the time the Agreement was signed.

While it is possible to 'bundle' and 'sell on' debts commercially - and to insure against default on loans, this is not exactly the same process you describe. The 'sub-prime' market (for example) was specifically structured to enable trading in debts resulting from otherwise unsecured loans which were individually unlikely to otherwise have found interested buyers.

Everyone saw where that lead! The 'sell on' value ultimately depends on the assessment by a potential buyer of the likelyhood of collecting on the original debt - and somewhat cyinically on their assessment of any excess interest gain likely to result from late/defaulted payments.

Another interesting question though - can't wait to see the final response.

Becky

Stuart Hopkins left an annotation ()

@Becky
A credit agreement is not a loan. It's a promissory note, given value by the borrowers signature. May I politely suggest some further studying on your behalf.

In signing a credit agreement, you are creating the money, all money is created into existence from debt.

Loans, mortgages and credit card agreements are converted into SPV (Special purpose vehicles) put into a pool and sold on. So I think you are mistaken. If you have a loan or a mortgage, try to get the original Credit Agreement, you will never get it, it was sold. Or after paying off a debt ask for it then, since it is your property and has value.

Furthermore, promissory notes are as good as cash, check the Bills of Exchange act.

Not too sure who you are, but may I suggest searching "White Rabbit"

Becky Bbear left an annotation ()

Mr H - If you check with White Rabbit I'm pretty sure someone there will tell you they know me as a past contributer (Wayne and Jamie Dee certainly will).

Not sure I would agree with your point on obtaining a copy of an original Credit Agreement - anyone entering into such an Agreement would already have their own original copy (signed when they entered into it), both parties would retain their own copy as a matter of course.

If one party 'lost' theirs they could easily obtain a duplicate from the other.

Equally obviously, once an Agreement has ended (the loan and associated charges have been repaid) the Agreement no longer has any value because no debt then exists. It just become a historical record of the debt for each party's records.

I'm familair with the Bills of Exchange Act - having comment on some common misunderstanding about its provisions of White Rabbit. The the single biggest miusunderstanding being that Promisary Notes don't work quite the way you describe - they need the agreement of both parties to be valid, one party can't compel another to accept one if they choose not to.

I could signpost to the relevant section of the Act if your interested, or you could just check my postings on the subject in the White Rabbit archive.

Becky

Becky Bbear left an annotation ()

Footnote: Section 83 of Part IV of the Act defines Promisary Notes.

All they are is a written promise to pay an agreed sum to an agreed recipient on the terms/conditions set out in the Agreement. May as well call them IOU's, because effectively that's all they are.

Like any IOU, it needs both parties to agree the terms - without that agreement/acceptance it's just a worthless piece of paper.

Becky

Stuart Hopkins left an annotation ()

Your are incorrect. Look at a bank note, and read what it says on a bank note.

Becky Bbear left an annotation ()

[Sigh]

It 'says' - I'm a bank note, a piece of paper given value by the mutual agreement of those who choose to accept it as a medium of exchange.

Historically, it 'says' I used to be exchangable for a fixed weight in gold - before it became impractical to do this due to the laws of supply/demand and the economy shifted from that 'standard'.

I say - I've had this conversation before, both on the White Rabbit forum and on WDTK. No point going over old ground here - email me direct if you really want to debate the subject.

Becky

Enquiries, Bank of England

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Dear Mr Hopkins

 

Please find attached a response to your email dated 31 January.

 

Yours sincerely

 

Public Information & Enquiries Group

Bank of England |Threadneedle Street|London|EC2R 8AH|+44 20 7601 4878

[1][Bank of England request email]

[2]http://www.prospects.ac.uk/profsearch/se...

 

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