DOCSLIB.ORG

Secondary Mortgage Market

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Secondary Mortgage Market 8-6 Legal Considerations - Real Estate Contracts - Financing Basic Appraisal Principles Other Sources of Funds Pension Funds and Insurance Companies Pension funds and insurance companies have recently had such growth that they have been looking for new outlets for their investments. They manage huge sums of money, and traditionally have invested in ultra-conservative instruments, such as government bonds. However, the booming economy of the 1990s, and corresponding budget surpluses for the federal government, left a shortage of treasury securities for these companies to buy. They had to find other secure investments, such as mortgages, to invest their assets. The higher yields available with Mortgage Backed Securities were also a plus. The typical mortgage- backed security will carry an interest rate of 1.00% or more above a government security. Pension funds and insurance companies will also provide direct funding for larger commercial and development loans, but will rarely loan for individual home mortgages. Pension funds are regulated by the Employee Retirement Income Security Act (1974). Secondary Mortgage Market The secondary mortgage market buys and sells mortgages created in the primary mortgage market (the link to Wall Street). A valid mortgage is always assignable by the mortgagee, allowing assignment or sale of the rights in the mortgage to another. The mortgage company can sell the loan, the servicing, or both. If just the loan is sold without the servicing, the original lender will continue to collect payments, and the borrower will never know the loan was sold. If the lender sells the servicing, the company collecting the payments will change, but the terms of the loan will stay the same. Such sale does not in any way affect the borrower’s rights or obligations. Loans and/or servicing are usually sold in large pools. The secondary market insures there are funds available in markets that have low savings rates and high demand for housing. If a local primary lender lacks funds to satisfy local demand, the lender sells notes on the secondary market to raise funds available for local lending. Conversely, if a local lender has funds that are not in demand locally, the lender could buy promissory notes or securities offered in the secondary market from capital-poor areas. Government Sponsored Entities (GSE’s) The total dollar value of the secondary mortgage market now exceeds the total dollar value of the government- issued Treasury Bills, Notes, and Bonds. Mortgages and Mortgage Backed Securities (MBS’s) may be purchased and sold by and between lending institutions, or may be sold by the lending institutions to three Government Sponsored Entities (GSE’s) that provide a market for this purpose. The GSE’s are 1. Fannie Mae (formerly Federal National Mortgage Association (FNMA)) 2. Freddie Mac (formerly Federal Home Loan Mortgage Corporation (FHLMC)) 3. Ginnie Mae (aka Government National Mortgage Association (GNMA)) Basic Appraisal Principles Legal Considerations - Real Estate Contracts - Financing 8-7 Fannie Mae Fannie Mae was created in 1938 as a corporation completely owned by the federal government to provide a secondary market for residential mortgages and to stabilize mortgage markets. They bought “packages” of loans (originally FHA, later VA, and now any kind) from local lenders who needed funds and sold the mortgages to investors with plentiful funds. An Act of Congress in 1968 transformed Fannie Mae into a “private corporation with a public purpose,” a profit-making organization that is listed on the New York Stock Exchange. As a private corporation it may also purchase conventional mortgages, currently a major portion of its business. Fannie Mae buys mortgages regularly from all primary lending institutions. They sell interest-bearing securities (backed by specific pools of mortgages it holds) to investors. 8.6 Fannie Mae is the single largest holder of home mortgages. Fannie Mae does not make loans directly to borrowers. They purchase loans from mortgage companies or mortgage bankers. Because of their size, the underwriting guidelines established by Fannie Mae are generally adopted as the industry standard. These guidelines are constantly changing, so make sure to check with efanniemae.com for the current requirements. Some of the more common standards are as follows: Loan Size: Fannie Mae sets the maximum loan size they will purchase. The current loan limit is $417,000 for single- family homes. Loans larger than this limit are referred to as ‘Jumbo Loans”. The limits are increased in high -cost areas, such as California and Hawaii, and for multi-unit properties. Fannie Mae Loan Limits (2006): Number of Units Standard Areas High Cost Areas 1 $417,000 $625,500 2 $553,850 $800,775 3 $645,300 $967,950 4 $801,950 $1,202,925 Loan to Value (LTV) and Combined Loan to Value (CLTV) limits: Minimum down payment and loan to value limits are also set by Fannie Mae. LTV and CLTV are based on either the sales price or appraised value, whichever is lower. Loans for more than 80% of the purchase price require mortgage insurance. Additional costs for investment properties: Rates and/or fees for investment or non- owner occupied homes are higher. Mortgage loans are underwritten based on a number of considerations include: 1. Minimum income requirements: The borrower’s income must be sufficient to pay the housing expense, along with their other monthly obligations. 2. Credit Quality: Fannie Mae will use both the credit score and the debt obligations to judge the creditworthiness of a borrower. Other factors used include previous 8-8 Legal Considerations - Real Estate Contracts - Financing Basic Appraisal Principles bankruptcies, judgments, collections, and pending lawsuits. 3. Source of Funds: Most borrowers need to provide all or part of their down payment from their own funds. Gifts, sale of assets, and other loans are considered. 4. Market Value: Fannie Mae uses an appraisal to establish the market value of the property. The appraisal will also note deficiencies in the property and whether it meets the minimum standards required by Fannie Mae . Fannie Mae is the largest purchaser of conventional loans. When a lender refers to a ‘conventional’ mortgage, they are talking about loans that will be, or are eligible to be, sold to Fannie Mae. However, there are many conventional mortgage that are not eligible to be purchased by anyone and the lender must keep them in their portfolio. Freddie Mac Freddie Mac was created by Congress in 1970, primarily to establish a reliable secondary market for the sale of conventional mortgages by and for Savings & Loans. Freddie Mac sells mortgage-participation certificates (PCs) and guaranteed-mortgage certificates (GMCs). PCs and GMCs are securities that represent an undivided interest in specific pools of mortgages. Freddie Mac guarantees payment of principal and interest to purchasers. Freddie Mac adopts most of the underwriting requirements and loan limits established by Fannie Mae. There are some minor differences that may be beneficial for some buyers, so make sure to check with your mortgage professional for current Freddie Mac guidelines. Freddie Mac will also purchase loans from Banks, Savings and Loans, and Mortgage Companies. Ginnie Mae Ginnie Mae (aka Government National Mortgage Association (GNMA)) Ginnie Mae was created in 1968 when Fannie Mae was converted to a private corporation. It is an agency of the Department of Housing and Urban Development (HUD). This agency purchases only government- backed or insured loans (VA and FHA). Mortgage Backed Securities (MBS) Many commercial banks, brokerage houses, and large mortgage companies issue their own securities, backed by mortgages, which are sold on the secondary market. These securities provide funds for mortgages that may not meet the underwriting guidelines imposed by Fannie Mae and Freddie Mac. As the lending industry became more competitive, lenders realized there were many financially viable and secure loans that did not fit the parameters set by Fannie Mae. Mortgage Companies wanted to increase their market share, and their subsequent profits, so they devised mortgage instruments to fill various niches. These include, but are not limited to: Basic Appraisal Principles Legal Considerations - Real Estate Contracts - Financing 8-9 --Loan Size: The increase in home values across the country has made many homes too expensive for FNMA financing. These loans are called jumbo loans. Most jumbo loans meet the same credit and income guidelines that have been established by FNMA. --Alternative Income Guidelines: Many borrowers may not have verifiable income. Often, with good credit and down payment, lenders will provide loans without proving income. These may be stated income loans, where the borrowers state their employment and income, no- ratio loans where the job is listed without any reference to income, or no- doc loans, where there is no mention of employment or income. These are referred to as ‘Alt A’ loans, ‘limited doc’ loans, or ‘no doc’ loans. 8.5 --Lower Credit Standards: Some lenders will provide high risk loans to customers who have poor credit or no credit. These loans carry a higher interest rate, usually based on the degree of bad credit. The interest rate increases as the quality of the credit decreases. These loans are referred to as non-conforming loans, sub-prime loans, or B & C loans. --Unique Properties: Many properties are ineligible for FNMA financing because they are unique. These include vacation condominiums that don’t meet FNMA guidelines (called non-warrantable condominiums), gentleman farms, mixed used properties, acreages, etc. Mortgage backed securities are sold in the secondary market to various investors; these include pension funds, insurance companies, banks, foreign governments, and individual investors. The issuer will include warrants (guarantees) regarding the loan quality and credit standards of the particular security. These may include, but are not limited to, minimum credit scores, maximum loan size, property type, etc.
Load more

Recommended publications
  • Initial Public Offerings
    November 2017 Initial Public Offerings An Issuer’s Guide (US Edition) Contents INTRODUCTION 1 What Are the Potential Benefits of Conducting an IPO? 1 What Are the Potential Costs and Other Potential Downsides of Conducting an IPO? 1 Is Your Company Ready for an IPO? 2 GETTING READY 3 Are Changes Needed in the Company’s Capital Structure or Relationships with Its Key Stockholders or Other Related Parties? 3 What Is the Right Corporate Governance Structure for the Company Post-IPO? 5 Are the Company’s Existing Financial Statements Suitable? 6 Are the Company’s Pre-IPO Equity Awards Problematic? 6 How Should Investor Relations Be Handled? 7 Which Securities Exchange to List On? 8 OFFER STRUCTURE 9 Offer Size 9 Primary vs. Secondary Shares 9 Allocation—Institutional vs. Retail 9 KEY DOCUMENTS 11 Registration Statement 11 Form 8-A – Exchange Act Registration Statement 19 Underwriting Agreement 20 Lock-Up Agreements 21 Legal Opinions and Negative Assurance Letters 22 Comfort Letters 22 Engagement Letter with the Underwriters 23 KEY PARTIES 24 Issuer 24 Selling Stockholders 24 Management of the Issuer 24 Auditors 24 Underwriters 24 Legal Advisers 25 Other Parties 25 i Initial Public Offerings THE IPO PROCESS 26 Organizational or “Kick-Off” Meeting 26 The Due Diligence Review 26 Drafting Responsibility and Drafting Sessions 27 Filing with the SEC, FINRA, a Securities Exchange and the State Securities Commissions 27 SEC Review 29 Book-Building and Roadshow 30 Price Determination 30 Allocation and Settlement or Closing 31 Publicity Considerations
    [Show full text]
  • Secondary Market Trading Infrastructure of Government Securities
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Balogh, Csaba; Kóczán, Gergely Working Paper Secondary market trading infrastructure of government securities MNB Occasional Papers, No. 74 Provided in Cooperation with: Magyar Nemzeti Bank, The Central Bank of Hungary, Budapest Suggested Citation: Balogh, Csaba; Kóczán, Gergely (2009) : Secondary market trading infrastructure of government securities, MNB Occasional Papers, No. 74, Magyar Nemzeti Bank, Budapest This Version is available at: http://hdl.handle.net/10419/83554 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu MNB Occasional Papers 74. 2009 CSABA BALOGH–GERGELY KÓCZÁN Secondary market trading infrastructure of government securities Secondary market trading infrastructure of government securities June 2009 The views expressed here are those of the authors and do not necessarily reflect the official view of the central bank of Hungary (Magyar Nemzeti Bank).
    [Show full text]
  • Mortgage-Backed Securities & Collateralized Mortgage Obligations
    Mortgage-backed Securities & Collateralized Mortgage Obligations: Prudent CRA INVESTMENT Opportunities by Andrew Kelman,Director, National Business Development M Securities Sales and Trading Group, Freddie Mac Mortgage-backed securities (MBS) have Here is how MBSs work. Lenders because of their stronger guarantees, become a popular vehicle for finan- originate mortgages and provide better liquidity and more favorable cial institutions looking for investment groups of similar mortgage loans to capital treatment. Accordingly, this opportunities in their communities. organizations like Freddie Mac and article will focus on agency MBSs. CRA officers and bank investment of- Fannie Mae, which then securitize The agency MBS issuer or servicer ficers appreciate the return and safety them. Originators use the cash they collects monthly payments from that MBSs provide and they are widely receive to provide additional mort- homeowners and “passes through” the available compared to other qualified gages in their communities. The re- principal and interest to investors. investments. sulting MBSs carry a guarantee of Thus, these pools are known as mort- Mortgage securities play a crucial timely payment of principal and inter- gage pass-throughs or participation role in housing finance in the U.S., est to the investor and are further certificates (PCs). Most MBSs are making financing available to home backed by the mortgaged properties backed by 30-year fixed-rate mort- buyers at lower costs and ensuring that themselves. Ginnie Mae securities are gages, but they can also be backed by funds are available throughout the backed by the full faith and credit of shorter-term fixed-rate mortgages or country. The MBS market is enormous the U.S.
    [Show full text]
  • Massive Delisting on the Prague Stock Exchange
    CAN THE MARKET FIX A WRONG ADMINISTRATIVE DECISION? MASSIVE DELISTING ON THE PRAGUE STOCK EXCHANGE Zuzana Fungáčová CERGE-EI Charles University Center for Economic Research and Graduate Education Academy of Sciences of the Czech Republic Economics Institute WORKING PAPER SERIES (ISSN 1211-3298) Electronic Version 335 Working Paper Series 335 (ISSN 1211-3298) Can the Market Fix a Wrong Administrative Decision? Massive Delisting on the Prague Stock Exchange Zuzana Fungáčová CERGE-EI Prague, August 2007 ISBN 978-80-7343-134-1 (Univerzita Karlova. Centrum pro ekonomický výzkum a doktorské studium) ISBN 978-80-7344-123-4 (Národohospodářský ústav AV ČR, v.v.i.) Can the Market Fix a Wrong Administrative Decision? Massive Delisting on the Prague Stock Exchange Zuzana Fungáčová* CERGE-EI† Abstract This research contributes to the investigation of the emerging stock markets in transition economies, namely in the Czech Republic. We estimate the impact of the various determinants of shares delisting e.g. exclusion from public trading on the Prague Stock Exchange (PSE) during the period 1993 – 2004. Unlike its counterparts in Poland or Hungary, exceptionally large amounts of shares were delisted from the PSE. Using the data on listed and delisted companies we show that the pre-privatization and privatization characteristics of the companies were decisive for delisting. This further indicates that it would have been possible to prevent massive delisting if these factors had been taken into account when deciding which companies to place on the stock exchange for public trading. Moreover, therefore companies that were not suitable for public trading were also not suitable for voucher privatization.
    [Show full text]
  • Secondary Market Trading and the Cost of New Debt Issuance
    Secondary Market Trading and the Cost of New Debt Issuance Ryan L. Davis, David A. Maslar, and Brian S. Roseman* November 29, 2016 ABSTRACT We show that secondary market activity impacts the cost of issuing new debt in the primary market. Specifically, firms with existing illiquid debt have higher costs when issuing new debt. We also find that with the improvement in the price discovery process brought about by introduction of TRACE reporting, firms that became TRACE listed subsequently had a lower cost of debt. The results indicate that the secondary market functions of liquidity and price discovery are important to the primary market. The results offer important implications for regulators and managers who are in a position to impact secondary market liquidity and price discovery. The results are also important for understanding the connection between the secondary market and the real economy. *Ryan L. Davis is at The Collat School of Business, University of Alabama at Birmingham; David A. Maslar is at The Haslam College of Business, University of Tennessee; Brian S. Roseman is at The Mihaylo College of Business and Economics, California State University, Fullerton. Understanding how financial market activity impacts the real economy is one of the most important topics studied by financial economists. Since firms only raise capital in the primary market it is easy to conclude that trading in the secondary market does not directly affect firm activity. This potential disconnect leads some to view secondary markets as merely a sideshow to the real economy, an idea that has been debated in the academic literature since at least Bosworth (1975).
    [Show full text]
  • Initial Public Offering Allocations, Price Support, and Secondary Investors
    Working Paper No. 2/2011 Initial Public Offering Allocations, January 2011 Price Support, and Secondary Revised March 2015 Investors Sturla Lyngnes Fjesme © Sturla Lyngnes Fjesme 2015. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission, provided that full credit, including © notice, is given to the source. This paper can be downloaded without charge from the CCGR website http://www.bi.edu/ccgr INITIAL PUBLIC OFFERING ALLOCATIONS, PRICE SUPPORT, AND SECONDARY INVESTORS Sturla Lyngnes Fjesme* The University of Melbourne, 198 Berkeley Street, Melbourne, 3010, Victoria, Australia, Telephone: +61-3-9035-6354, Fax: +61-3-8344-6914, Email: [email protected] March 2015 Forthcoming, Journal of Financial and Quantitative Analysis Abstract Tying Initial Public Offering (IPO) allocations to after-listing purchases of other IPO shares, as a form of price support, has generated much theoretical interest and media attention. Price support is price manipulation and can reduce secondary investor return. Obtaining data to investigate price support has in the past proven to be difficult. We document that price support is harming secondary investor return using new data from the Oslo Stock Exchange. We also show that investors who engage in price support are allocated more future oversubscribed allocations while harmed secondary investors significantly reduce their future participation in the secondary market. JEL classification: G24; G28 Keywords: IPO allocations; Laddering; Price
    [Show full text]
  • The Use of Efficient Market Hypothesis: Beyond SOX
    Michigan Law Review Volume 105 Issue 8 2007 The Use of Efficient Market Hypothesis: Beyond SOX Dana M. Muir University of Michigan Cindy A. Schipani University of Michigan Follow this and additional works at: https://repository.law.umich.edu/mlr Part of the Business Organizations Law Commons, Law and Economics Commons, and the Retirement Security Law Commons Recommended Citation Dana M. Muir & Cindy A. Schipani, The Use of Efficient Market Hypothesis: Beyond SOX, 105 MICH. L. REV. 1941 (2007). Available at: https://repository.law.umich.edu/mlr/vol105/iss8/10 This Article is brought to you for free and open access by the Michigan Law Review at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in Michigan Law Review by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact [email protected]. THE USE OF EFFICIENT MARKET HYPOTHESIS: BEYOND SOX Dana M. Muir* Cindy A. Schipani** This Article focuses on the regulatory use offinance theory, particularly the efficient market hypothesis ("EMH"), in two areas where securities pricing is at issue: shareholder appraisal cases and the use of employer stock in benefit plans. Regarding shareholderappraisal cases, the Article finds that the Delaware courts seem to implicitly respect the principles of EMH when ascertaining the fair value of stock, but recognize that markets cannot operate efficiently if information is withheld. Regarding employer stock in benefit plans, it concentrates on the explicit adoption of EMH by the Department of Labor to exempt directed trustees from traditional duties of inquiry regarding the prudence of investment directions.
    [Show full text]
  • {670031-4} 1 Collateral Assignment of Leases And
    COLLATERAL ASSIGNMENT OF LEASES AND RENTS THIS COLLATERAL ASSIGNMENT OF LEASES AND RENTS (this “Assignment”) is entered into as of _________, 2021, by and between Yingling Aircraft, Inc., a Kansas corporation (“Assignor”); and INTRUST Bank, N.A., a national banking association (“Lender”). Recitals A. Wichita Airport Authority, Wichita, Kansas (“Lessor”) and LeaseCorp Financial, Inc., a Kansas corporation, entered into that certain Master Lease Agreement dated June 12, 2012, which was assigned by LeaseCorp Financial, Inc. to LeaseCorp Aviation, LLC, which was then assigned by LeaseCorp Aviation, LLC to Yingling Aircraft, Inc., as may be amended, all of which are incorporated herein by reference (together, “Master Lease 1”), covering certain aircraft hangar operation facilities located at the Dwight D. Eisenhower National Airport, Wichita, Kansas, further described as Tract 1 on Exhibit “A” attached hereto and incorporated by reference, and any and all improvements now or hereafter located thereon (such land and improvements being herein referred to collectively as “Tract 1”). B. Wichita Airport Authority, Wichita, Kansas (“Lessor”) and LeaseCorp Aviation, LLC, a Kansas limited liability company, entered into that certain Master Lease Agreement dated October 14, 2014 and Supplemental Agreement No. 1 dated March 1, 2016, as may be amended, all of which are incorporated herein by reference (together, “Master Lease 2”), covering certain aircraft hangar operation facilities located at the Dwight D. Eisenhower National Airport, Wichita, Kansas, further described as Tract 2 on Exhibit “A” attached hereto and incorporated by reference, and any and all improvements now or hereafter located thereon (such land and improvements being herein referred to collectively as “Tract 2”).
    [Show full text]
  • A Potential Pitfall for the Unsuspecting Purchaser of Repossessed Collateral
    A Potential Pitfall for the Unsuspecting Purchaser of Repossessed Collateral: The Overlooked Interaction Between Sections 9- 504(4) and 2-312(2) of the Uniform Commercial Code ROBYN L. MEADOWS* TABLE OF CONTENTS Introduction . .................................... 168 I. The Problem . ............................... 169 II. Rights of Purchaser of Repossessed Collateral in the Absence of Default ........................ 172 A. Purchaser's Rights Under Article Nine .......... 173 B. Other Law Governing the Purchaser's Rights ..... 181 III. Debtor's Remedies Against Purchaser ............. 190 IV. Purchaser's Rights Against Selling Secured Party ..... 195 A. The Warranty of Title Under Article 2 .......... 195 B. The Right of Restitution .................... 201 V. The Inadequacy of the Purchaser's Common Law Remedy . ................................... 204 VI. Proposed Amendment to Section 9-504(4) .......... 209 A. Method for Allocating Risks Between Debtor and Purchaser ............................... 210 B. Statutory Solution ......................... 216 * Associate Professor of Law, Widener University School of Law, Harrisburg, Pennsylvania. J.D., University of Louisville; LL.M., Temple University. The author wishes to thank John Wiadis, Carolyn Dessin, andJuliet Moringiello for their insights and comments on earlier drafts of this Article and Ronald Phillips and James Annas for their valuable research assistance. THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 44:167 INTRODUCTION Under the provisions of the Uniform Commercial Code (the Code),
    [Show full text]
  • Home Equity Loans - FREQUENTLY ASKED QUESTIONS
    Home Equity Loans - FREQUENTLY ASKED QUESTIONS WHAT IS A HOME EQUITY LOAN? Home equity loans fall under the provisions of Section 50(a)(6), Article XVI, of the Texas Constitution. A home equity loan can be for any legal purpose which uses the equity (the difference between the home’s value and any outstanding debts against the home) in a member’s home for collateral. For home equity lending, Texas law restricts the total amount of all loans secured by the homestead to a maximum of 80% of the home’s value. Texas home equity loans can be a closed end loan with substantially equal payments over a fixed period of time, or an open end Home Equity Line of Credit (HELOC). WHAT PROPERTIES CAN BE CONSIDERED? The property used for collateral must be a single-family, owner-occupied homestead property, located within the Austin Metropolitan Statistical Area (Travis, Williamson, Hays, Bastrop and Caldwell counties). Qualifying properties are defined as either urban or rural. Urban properties consist of not more than 10 acres of land with any improvements contained thereon, within the limits of a municipality or it’s extraterritorial jurisdiction, or a platted subdivision; AND served by police protection, paid or volunteer fire protection, and at least three of the following services provided by a municipality or under contract to a municipality: electric, natural gas, sewer, storm sewer, or water. Rural property shall consist of not more than 200 acres for a family (100 acres for a single, adult person not otherwise entitled to a homestead), with the improvements thereon.
    [Show full text]
  • Foreclosing on Collateral That Includes Intangible Rights
    Foreclosing on Collateral That Includes Intangible Rights JOHN I. KARESH* Table of Contents I. Introduction II. In Re Northwest Airlines Corporation 1. Court Held That Secured Party Could Not File a Proof of Claim Against Bankrupt Lessee Because Secured Party Had Not Foreclosed on Lease Rights 2. Comments on the Northwest Airlines Corporation Decision: (a) UCC Article 9 Actually Does Not Require Fore- closure for Secured Party to Enforce Assigned Lease Rights and Remedies (b) Practical Diculties in Requiring Foreclosure as a Condition to Enforcement by Secured Party of Assigned Lease Rights and Remedies III.Bremer Bank, National Association v. John Hancock Life Insurance Company et al. 1. Court Held that Early Steps Taken by Secured Party to Protect its Interests in Assigned Lease Constitute Enforcement of Remedies 2. Comments on the Bremer Decision: Why Foreclosure Was Necessary IV. Conclusion V. Appendix: Suggested Provisions to Avoid Issues Raised by the Northwest Case *John Karesh is a shareholder at Vedder Price P.C. The views expressed in this article are those of the author and do not necessarily reect the views of Vedder Price P.C. on any of the matters addressed herein. The author gratefully acknowledges the assistance of Erin Zavalko-Babej, a former associate at Vedder Price P.C., in the prepara- tion of this article. 157 Uniform Commercial Code Law Journal [Vol. 42 #2] I. INTRODUCTION Issues faced by a secured party in foreclosing on its collat- eral are particularly troublesome in leveraged lease1 or other secured transactions in which the collateral includes intangibles such as the rights of a lessor under a lease of personal property and the right to le a proof of claim against a lessee that may be appropriate if the lessee les a petition for relief under the bankruptcy code, 11 U.S.C.A.
    [Show full text]
  • Conventional Vs. Collateral Mortgage Charges
    All our mortgage loans are secured by real property Conventional Charge: such as a house. The Bank of Nova Scotia (carrying (in Quebec, this is referred to as an “immovable on business as "Scotiabank") or Scotia Mortgage hypothec”): Corporation (SMC) will obtain mortgage security that will be registered on title against your home in the The conventional charge is granted in favour of Scotia Conventional vs. appropriate land registry office. This is referred to as Mortgage Corporation (SMC), a wholly-owned the registration of a mortgage or a "charge" and it subsidiary of Scotiabank, and is registered in first Collateral Mortgage gives Scotiabank the legal right to take action against position priority against the home. The conventional you and your home and sell it to get our money back charge covers both the land and building. Charges if you do not pay as promised or honour the terms of The specific details of the mortgage loan such as the your mortgage loan with us. amount, term, payment amount and due date and interest rate are included in the charge registered on title against your home. Collateral Charge: This conventional charge secures only the amount of The collateral charge is granted in favour of the mortgage loan. There may be costs such as legal, Scotiabank and is registered in first position priority administrative and registration costs. against the home usually for an amount that is greater than the actual amount of the mortgage loan. By registering the collateral charge for a higher Comparing Collateral Charge Mortgages
    [Show full text]