Volume 42 | Number 3 Summer 2007
IV. Summary and Conclusions
This paper reviewed the introduction process of securitization to the Israeli marketplace. This process started in three areas: mortgages, securitization of the indebtedness in leasing transactions, and securitization of tax money owing to local government. We focused on the securitization of mortgages and the legal issues surrounding such transactions.
The popularity of securitization depends on economic factors. A low financial margin in the mortgage sector would hinder securitization, because it would leave no profit to be divided between the bank and the SPV. But economic factors are not the only possible hindrance—judicial uncertainty might also hold back the development of this market. Since the legislature has not given much thought yet to this financing instrument, an analysis must be made based on the general provisions of the law.
In 2005, a government committee examined the local securitization market and recommended the adoption of a designated statute that would regulate the field. Such special legislation would answer the main issues reviewed above:
Protection of the debtors whose indebtedness has been securitized. This protection is particularly important in the mortgage industry. Generally, when borrowers default on their loans, mortgage banks work out arrangements with the borrowers—such as debt rescheduling—which help borrowers avoid final breach. The loan agreement does not oblige the bank to make such concessions, but this is nevertheless standard practice. Securitization transactions give rise to the concern that the SPV would not be as considerate to the borrower. The bank intends to stay in the mortgage industry in the long-term, and looks out for its reputation. The SPV, on the other hand, is an outsider that has no incentive to make any concessions. Protection of the borrowers should therefore be regulated by statute.
Clear criteria distinguishing between a true sale and a security interest. A true sale protects the SPV more effectively, and such protection would incentivize the securitization market.
The SPV as a secured creditor even though the named mortgagee in the Land Registry remains the bank. Uncertainty might seriously undermine the securitization of mortgages because the cost of amending the registration to name the SPV as mortgagee with regard to all the assigned rights would be very high.
We hope that the committee’s recommendations are accepted and that a comprehensive arrangement regulating the securitization sector passes into law. Such an arrangement would certainly give this sector a serious boost.
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Footnotes
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