And the entity is called NEWFOUNDLAND CLO I LIMITED so common folks don't find that easily!
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doo_dilettante,
Thank you for bringing up this topic and digging up the valuable information.
Let me reintroduce the practice of Rehypothecation.
Per investopedia:
“BREAKING DOWN 'Rehypothecation' Rehypothecation was a common practice until 2007, but hedge funds became much more wary about it in the wake of the Lehman Brothers collapse and subsequent credit crunch in 2008-09.
In the United States, rehypothecation of collateral by broker-dealers is limited to 140% of the loan amount to a client, under Rule 15c3-3 of the SEC.
Rehypothecation occurs when a lender uses an asset, supplied as collateral on a debt by a borrower, and applies its value to cover its own obligations. In order to do so, the lender may have access to a variety of assets promised as collateral including tangible assets and various securities.
Hypothecation and Rehypothecation Hypothecation occurs when a borrower promises the right to an asset as a form of collateral in exchange for funds. One common example occurs in the primary housing market, where a borrower uses the home he is purchasing as collateral for a mortgage loan. Even though the borrower asserts a level of ownership over the property, the lender can seize the asset if payments are not made as required. Similar situations occur in other collateralized loans, such as a vehicle loan, as well as with the setup of margin accounts to support other trading actions.
Rehypothecation occurs when the lender uses its rights to the collateral to participate in its own transactions, often with the hopes of financial gain. For example, if a customer leaves a number of securities with a broker as a deposit, most often in a margin account, and the broker then uses the securities as a pledge for the margin on his own margin account or as backing for a loan, rehypothecation has occurred.
Risks of Rehypothecation With rehypothecation, the asset in question has been promised to an institution outside of the borrower’s original intent. For example, if a piece of real estate functions as collateral on a mortgage loan, and the lender pledges the asset to another financial institution in exchange for a loan, if the mortgage lender fails, the second financial institution may make a claim on the real estate.”
01:48–“Reg T” for Rehypothecation: US can only Rehypothecate up to 140% of loan amount.
02:12– rehypothecation in UK has no limit. In fact they can rehypothecate the full amount of value of the asset that is used as collateral no just the value of the loan.
02:42– UK example of unlimited rehypothecation of a home mortgage; no limits thus a viscious cycle or rehypothecation.
04:24– US bank clients’ assets are transferred to a UK subsidiary (offshore) to get around US regulations, thus collateral can be rehypothecated with no limits.
04:40– MF Global contracts stated: “7. Consent to loan or pledge. You hereby grant us the right, in accordance with applicable law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate, loan, or invest any of the collateral...”
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Offshore entities in the Cayman Islands are ruled under British laws:
“3. What other advantages should investors and managers be aware of when it comes to doing business in the Cayman Islands? In addition to the government’s adaptive regulatory structure, investors can take comfort in the fact that Cayman, as a British overseas territory, has high levels of political and economic stability. This is largely thanks to a well-developed legal and court system based on English common law, mirroring the legal structures in many developed nations.”
“CDOs issued by special purpose vehicles (SPVs) are most commonly formed offshore to assure pass-through treatment of proceeds from CDO collateral and to avoid subjecting foreign investors to U.S. taxation. ”
Thanks for the spreadsheet. The spreadsheet corresponds to the private MBS Trusts created from 2004 to 2007 only and it corresponds exactly to my ihub post #498578.
“Securitisation volumes plummeted in response, from a combined annual total for the United States and Europe of more than $3.5 trillion over the 2005-2007 period to just over $2 trillion in 2008.”
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IMO...conclusions as of November 24, 2018:
1) WMI subsidiaries created about 8.58% of all global (US and Europe) securitizations from 2005-2007
$300,146,382,944 / $3.5 trillion = 8.575% of all securitizations
2) WMI created offshore SPVs/SPEs for securitizations. IMO...these offshore entities were able to rehypothecate mortgage loans with no limits because the collateral was transferred to entities which were under British/UK laws which allowed unlimited rehypothecation of collateral.
3) If my memory serves me right, WMI created MBS Trusts under DB had a a default rate of 11%
4) By 2007: there was $4 trillion worth of funding by rehypothecation by using only $1 trillion in collateral.
Starting on 03:57
5) WMI subsidiaries were one of the biggest global securitization factories...and the US and specifically UK entities generated massive amounts of loans and ultimately profits from using a ratio of 4:1 rehypothecated loans to collateral.
6) IMO... regardless of what you may think, WMI was a vital part of the global economy. I believe that through the beneficial interests in certificate participation in MBS Trusts, WMI Escrow Marker Holders will be handsomely rewarded for WMI’s role in making a lot of people a lot of money throughout the world! And of course WMI’s eventual sacrifice to save the global economy.”
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IMO...my conclusions as of April 18, 2019:
1) I have calculated in past posts that WMI retained a total of $101.94 billion in retained interests in MBS Trusts created by WMI subsidiaries from 2000-2008.
2) If HFs (or any other financial entity with UK subsidiaries) used the ratio of newly generated loans : collateral (4:1)
Hypothetically they can generate in UK subsidiaries:
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