Securitisation
Securitisation is a mechanism whereby assets, for instance mortgages, are used to support the issue of investment securities. The process involves the transfer of the asset to a special purpose vehicle (SPV), which is often a company registered in an off-shore tax haven. The SPV then raises finance by issuing bonds on the commercial market which are sold to investors. Mortgages were the first assets to be securitised, although many other types of asset which produce a regular income stream have been securitised.

When mortgages are securitised, banks and other lenders bundle together loans and transfer them to a SPV which uses them to back bonds, which are sold often to large institutional investors including banks and pension funds. Home loans were often perceived as attractive assets to securitise because they were considered a good credit risk. With house prices rising and a growing economy the likelihood of default by the borrower was low and, even if the borrower did default, the loan should be comfortably repayable from the sale of the home. However, as the availability of credit grew lenders were tempted to lend irresponsibly – see Chapter 30 section 2. They made loans to sub-prime borrowers, who presented a poor credit risk, or to borrowers without adequate independent checks on their income and for sums that were equal to, or even in excess of, the value of the home against which they were secured. These high risk loans were in turn securitised and bundled with lower risk loans in a complex missing process that could mask the risk and result in a misleading investment rating. Indeed the whole securitisation process tended to become self perpetuating. Lenders, keen to continue to reap the benefits of securitising their loans, both from the profit to be made and the shifting of risk, were encouraged to explore every more riskier credit markets to feed the securitisation machine.

The decline in the American housing market, and in particular default on sub-prime mortgages, called a halt to the attraction of mortgaged backed securities. They instead have been dubbed toxic assets, which having been sold across the world through international markets, have quickly spread the contagion to trigger the global banking crisis.

Charging Orders – see Chapter 29 Section 4.4
There have been recent press reports that creditors who have obtained a judgment debt for the repayment of their unsecured debt are seeking charging orders against the home of the defaulting debtor. Sometimes these loans are for relatively small sums. For instance, the debt may be an outstanding credit card balance. By doing so unsecured creditors are obtaining some of the advantages of security in particular, the attachment of their debt on the debtor’s home with a possible right of recourse if the court can be persuaded to order enforcement of the charging order by an order for sale. Where the debtor's home is already subject to a legal charge, the charging order will rank in priority behind the legal charge which will have to be paid off first on any sale of the home. A charging order can thus also make use of the hostage function by persuading a debtor to repay the debt to which it relates before his or her other unsecured debts.

It should be noted from our consideration of charging orders that the court has discretion whether or not to make a charging order. The debtor may thus be able to persuade the court that a charging order should not be made because of his or her personal circumstances or the prejudice that it would cause his or her other creditors – see section 1 Charging Orders Act 1979. A court will generally not make a charging order nisi where they have made an order that the judgement debt should be repaid by instalments and the debtor has complied with that order see Mercantile Credit Co Ltd v Ellis¹. However, where a charging order nisi has already been made an order for the payment of a judgment debt by instalments will not necessarily prevent the court deciding that the charging order be made absolute see Ropaigealach v Allied Irish bank Plc².

References:
¹The Independent March 17 1987.
²[2001] EWCA Civ 1790.