"Are securitisation companies above the law?"

Carmel B Butler has sent me a brief summary of evidence she submitted to the Treasury Committee looking at the banking crisis (submission 107, available online here, Word Doc), as follows:

The Land Registration Act 2002 provides that a transfer of a mortgage charge must be registered at H.M. Land Registry. Therefore, when a securitisation company buys mortgages from the banks, the law requires that the securitisation company register as the new owner of the mortgage. Given that 80% of recently issued UK mortgages were securitised* and therefore up to 80% of UK mortgages are owned by securitisation companies, have you ever wondered why no securitisation company is registered as owning a UK mortgage and why the banks incorrectly remain the registered as the owner of the mortgages?

The banks have received billions from the public purse because they say, they are the victims of bad borrowers. The Government have asked the banks to declare the extent of the bad debts on their books and the banks are apparently unable to answer that simple question. It is possible that the real reason that banks do not answer the question is because that would require admitting that the banks do not own the mortgages which are the allegedly bad debts on their books and, they would have to admit that they are falsely registered at H.M. Land Registry as the owner of the mortgages.

If the Government insisted that securitisation companies register their ownership of the mortgages at H.M. Land Registry in compliance with section 27 of the Land Registration Act 2002, the banking crisis would be seen in a whole new light and the Government would not have to ask the banks how much bad debt they have on their books.

The politicians like to mutter darkly about "the shadow banking system" as if there is lots of stuff that is hidden away; whereas it turns out that the reverse is probably true - in the specific case of Northern Rock, it appears that auditors misapplied International Accounting Standard 39 and treated securitisation vehicles as subsidiaries, even though under the terms of the agreement between NR and the SPVs, most or all of the potential losses accure to the SPV and NR is actually just the day-to-day administrator and (incorrectly), the registered legal holder of the mortgage at HM Land Registry.

The terms of all the different SPVs that UK banks set up are all slightly different of course, some may be recourse and some non-recourse, and in turn, the investment arms of banks may have invested in SPVs holding mortgages from other banks and so on, but it does support my overall theory that banks are not just wildly overstating their assets/liabilities, but, now that the taxpayer tap has been turned on, are wildly overstating their losses in the hope of filling their boots.

I asked a chap who works in the business, and he reckoned that Carmel's theory is perfectly plausible, the only question is, what sort of overall proportion of UK mortgages have been securitised?

* The 80% figure is taken from Paragon's written evidence, which ought to be here somewhere. It stands to reason that as house prices rose, mortgages became riskier and riskier and more and more were securitised, so the chances are that of the really bad mortgages, the vast majority are securitised.