Who really owns your home loan?

Four out of four securitisation audits so far conducted in SA apparently prove that the home loans have ended up thousands of miles away in Asia. Yet the banks still cling to their argument that they are the lawful owners of the loans, according to Moneyweb.

Securitisation audits present a new problem for banks attempting to repossess the homes of defaulting borrowers.

A newly formed company called Virtual Velocity has completed four audits so far and in each case the loans were apparently found to have been transferred to new owners in Taiwan and Thailand. Three of the loans were issued by Standard Bank, the fourth by FNB. In all cases, the banks have denied in court papers that the loans had been securitised. Audits are currently underway into loans issued by all major SA banks.

Securitisation is becoming a huge issue internationally, since a bank that securitises a loan no longer owns it, therefore has no legal right to pursue the borrower.

Virtual Velocity says it is currently involved in upwards of 50 more audits requested by borrowers in SA. The company is also fielding calls from Sweden, Australia and elsewhere. It is also launching a crowd funding campaign to increase the sample size of the audit. “Several thousand South Africans, most of them facing foreclosure, have tried to argue securitisation in the courts to no avail. This is why we decided to launch securitisation audits in SA. Now we can provide a level of proof that was not possible before,” according to a statement by Virtual Velocity.

“Securitisation audits are common the US and helped buttress the case against several banks recently convicted of fraud and forced to pay billions of dollars in fines. We are building a trail of evidence in SA that we will then hand over to the prosecuting authorities, or we may just bring legal action against the banks ourselves.”

The audit involves detailed searches of several databases internationally that allows it to track the movement of securitised loans. What the company is uncovering appears to blow holes in the banks’ claims that these loans have not been securitised. In four out of four cases, the loans appear to have travelled thousands of miles to new destinations in Asia.

Until now, it has been virtually impossible to prove securitisation in SA courts. This is because the respondent alleging securitisation is expected to provide proof, which has been all but impossible in the absence of evidence. That is now changing as audits – which in theory carry the same weight as a financial opinion by a company’s auditor – cast doubt on banks’ assertions regarding their ownership of these loans. It is reckoned that upwards of 10,000 homes are repossessed in SA each. They are then sold at auction, usually for a fraction of their market value.

Four years ago the New Economic Rights Alliance launched a campaign to educate the public about the shadowy banking practice known as loan securitisation. This involves packaging mortgage, vehicle and other loans into tradable securities and on-selling them to investors.

The first audit to be completed involved a loan taken out by Eastern Cape ostrich farmer Ash Davenport, who took out an overdraft facility of R3 million with Standard Bank several years ago. He put his farm up as security for the loan. When he asked for additional loan facilities, the bank froze his accounts and called up his loan. It took judgment against him and attempted to sell his farm for R4 million – when Davenport says it is worth R60 million. He managed to forestall the auction sale of his farm and then undertook a securitisation audit. The US-based auditor, Michael Carrigan – who has testified in close to 3 000 similar cases in the US – found Davenport’s loan had probably ended up in Taiwan. Standard Bank in its court papers denied it had securitised Davenport’s loan and has dismissed the audits as speculative.

Virtual Velocity says he has received a large number of queries from Absa clients whose loan documents appear to have been burnt in a fire at the Docufile storage facility in Cape Town in 2009. What has aroused the suspicions of many home owners is the banks’ reluctance to provide original “wet ink” documents they are purported to have signed. “Absa’s documents appear to be the most flammable,” says a spokesperson for Virtual Velocity, but other banks also have some interesting excuses for withholding documents from clients.

“Several of the clients who have contacted us report that they were not properly served with Section 129 letters as required under the National Credit Act, and many others were served summons to 10 year old addresses. Abusive late night call behaviour, SMS spam, unsolicited mail and generally abusive interaction by agents is voiced by many clients. There are also many complaints about procedural anomalies in courts.”