Interpretation of Legal Points of Auto Mortgage Loan Asset Securitization

Interpretation of Legal Points of Auto Mortgage Loan Asset Securitization

In recent years, with the development of the economy and the improvement of people’s living standards, a huge auto consumption market and auto finance market have been formed. In 2005, the “Measures for the Administration of the Pilot Securitization of Credit Assets” and the “Measures for the Supervision and Administration of the Pilot Securitization of Credit Assets of Financial Institutions” were promulgated, and the asset securitization business entered the pilot stage. And the 2015 “People’s Bank of China Announcement 2015 No. 7 – Announcement on Matters Related to the Issuance and Management of Credit Asset-Backed Securities” and other regulatory provisions, credit asset securitization has entered the era of filing + registration. Under the above background, the development of auto mortgage loan asset securitization products in the inter-bank bond market has become more and more mature, and it has become one of the important products in the inter-bank bond market.

Since 2004, lawyer Wang Lihong has led his asset securitization team to focus on the asset securitization business field and has achieved more than dozens of performances in the field of credit asset securitization. In the field of

asset securitization, the team provides legal counsel as a legal advisor. Clients served to include auto finance companies such as FAW Auto Finance Co., Ltd., BYD Auto Finance Co., Ltd. and Changan Auto Finance Co., Ltd., and commercial banks such as Jincheng Bank Co., Ltd. Based on the previous project experience and research of our team, this paper briefly introduces the operation of auto mortgage loan asset securitization from the perspective of law, including the characteristics and screening of basic assets of auto mortgage loans, guarantee measures, restrictions on assignment of creditor’s rights, and the introduction of foreign investors. combing.

Characteristics and screening of underlying assets

Small decentralization, short term, standard loan issuance process, homogeneity, and a large number of asset pools are important characteristics of the underlying assets of auto mortgage loan asset securitization. In addition, the main players in the used car market are Internet e-commerce platforms or Financial leasing companies, and based on the comprehensive loan cost of used cars and other reasons, the vehicles corresponding to the underlying assets that are required to be pooled in the securitization of auto mortgage loans are mainly new cars.

A very important step in the auto mortgage loan asset securitization product is the screening of the asset pool. The screening standard is the eligibility criteria set in the product, and this eligibility criterion will be based on the subject dimension of the borrower and the guarantor, the terms of the loan contract, Amount, billing period and vehicle type, new and old, mortgage, insurance and other dimensions to set. Given a large number of asset pools and the need for compliance with the eligibility standards, lawyers will conduct legal due diligence on a sample basis in auto mortgage loan securitization products and usually analyze the borrower’s age, occupation, location, loan amount, The asset pool is sampled from multiple dimensions such as account period, maturity date, vehicle type, mortgage, and insurance to ensure that the sampled assets can represent the state of the entire asset pool to the greatest extent. In addition, the originator may conduct business cooperation with a third party in the auto loan business. For this cooperation model, the cooperation agreement signed with the third party and the relevant documents signed under the cooperation model, including but not limited to the letter of guarantee, Guarantee insurance policy and other materials are also the content that lawyers focus on reviewing.

At the same time, given the long time lag between the launch and the official issuance of auto mortgage loan asset securitization products, the quality of the underlying assets will deviate from the original asset quality due to early repayment and other reasons. The model of “red pool” and “black pool” is adopted, that is, “red pool” is used for declaration, and “black pool” is used for issuance. The properties are basically the same.

Guarantee measures

(1) Vehicle mortgage registration. According to Article 24 of the “Measures for the Administration of Auto Loans”: “When a lender issues a car loan, it shall require the borrower to provide a mortgage or other valid guarantee for the purchased car. After the lender’s review and evaluation, it is confirmed that the borrower has good credit and can If the loan is repaid, no guarantee is required.” and Article 24 of the “Property Law of the People’s Republic of China” (hereinafter referred to as the “Property Law”): “The establishment, alteration, transfer of property rights such as ships, aircraft, and motor vehicles Without registration, it is not allowed to confront a bona fide third party.” Therefore, in the auto mortgage loan asset securitization product, the use of auto mortgage as a lending condition is an important feature, that is, when the originating institution issues the auto mortgage loan to the borrower, The purchased vehicle needs to complete the mortgage registration with the originator as the first mortgagee. Given the different requirements for the process of vehicle mortgage registration, the time required, and the formalities of the vehicle management offices in various places, some originators will place the loan process in the vehicle mortgage registration process. Generally, third-party guarantee companies will be introduced to provide periodic guarantees or insurance companies will provide corresponding guarantee insurance.

(2) Determination of the mortgage rate. In auto mortgage loan asset securitization products, the mortgage rate is one of the basic requirements of the qualifying standard. The amount of the car loan issued by the borrower accounts for the proportion of the price of the car purchased by the borrower.” And the car price is also clearly stipulated: “For a new car, it refers to the actual transaction price of the car (after deducting government subsidies, and excluding various additional taxes, fees, and insurance premiums), etc.) and the lower of the price announced by the car manufacturer, for used cars, it refers to the lower of the actual transaction price of the car (after deducting government subsidies and excluding various surcharges, fees and insurance premiums, etc.) and the lender’s assessed price .” and Article 2 of the “Notice of the People’s Bank of China and China Banking Regulatory Commission on Adjusting Policies on Auto Loans” stipulates: “The maximum proportion of loans for self-use traditional vehicles is 80%, and the maximum proportion of loans for commercial traditional vehicles is 80%. 70%; the maximum issuance ratio of self-use new energy vehicle loans is 85%, the maximum issuance ratio of commercial new energy vehicle loans is 75%; the maximum issuance ratio of used car loans is 70%.” For the determination of the mortgage rate, it is necessary to determine the mortgage rate according to the type of vehicle, new and old, purchase price, and down payment ratio, among which the purchase price is the main point of the lawyer’s verification. In practice, the vehicle purchase price agreed in the vehicle purchase contract, the vehicle purchase invoice and the loan contract are not completely consistent. Lawyers need to check and understand the details of the expenses included in the purchase price corresponding to the above materials and the reasons for the different reasons, to comprehensively judge the vehicle. the actual transaction price.

(3) Arrangements for the registration of changes in mortgage rights. Because among the auto mortgage loan asset securitization products, there are a large number of personal auto mortgage loans in the pool and according to the requirements of the eligibility standards, each of them needs to undergo mortgage registration. To change the mortgage registration one by one, the cost is too high and the operation is difficult, so it is not required to go through the mortgage change registration after the transfer. According to Article 192 of the “Property Law”: “Where a creditor’s right is transferred, the mortgage right to secure the creditor’s right shall be transferred together, unless otherwise stipulated by law or otherwise agreed by the parties.” and “Contract Law of the People’s Republic of China” (hereinafter referred to as the “Contract Law”) Article 81 stipulates: “If the creditor transfers the rights, the assignee obtains the subordinate rights related to the creditor’s rights, except that the subordinate rights are exclusive to the creditor itself.” No mortgage right shall be handled. The registration of changes does not affect the legality and validity of the mortgage rights that have in fact been transferred from the originator to the trustee, but according to the provisions of Article 24 of the Property Law, if there is no change, it will not be effective against a bona fide third party. Therefore, given the risk that the mortgage right has not been registered for change, lawyers will generally add corresponding risk mitigation measures when drafting transaction documents:

(a) If the registration of change of the mortgage right is not handled and a bona fide third party claims the right of the mortgaged property occurs If the mortgage rights enjoyed by the trustee cannot be against a bona fide third party, the asset is an unqualified basic asset, and the initiator needs to redeem it;

(b) In the event of a rights improvement event, the trustee has the right to request the initiator Assist in the registration of changes in mortgage rights;

(c) If an individual asset is involved in litigation or arbitration, and registration of changes in mortgage rights is required, the trustee has the right to request the originator to assist in the registration of changes in mortgage rights so that the trustee can conduct litigation or arbitration procedures.

Restrictions on assignment of creditor’s rights

(1) There is an agreement on unlimited transfer in the contract. Article 79 of the “Contract Law” stipulates: “The creditor may assign all or part of the contract’s rights to a third party, except in one of the following circumstances:

(1) It cannot be assigned according to the nature of the contract

(2) According to the nature of the contract

(3) It shall not be transferred by the law.”

In auto mortgage loan asset securitization products, the originator needs to transfer the legally held creditor’s rights assets to the trustee, so it determines the loan corresponding to the pooled assets. It is an important prerequisite for judging whether the assets in the pool meet the transfer conditions whether there is an agreement on whether or not to limit the transfer of the creditor’s rights in the contract and the guarantee contract. Based on this, lawyers generally require the originator to provide all contract templates related to the assets in the pool, and at the same time, check the terms of the loan contract and guarantee contract corresponding to the sampled assets one by one to determine whether the creditor’s rights can be transferred legally and effectively.

(2) The risk that the debtor is not notified of the assignment of the creditor’s rights. Article 80 of the “Contract Law” stipulates: “If a creditor transfers rights, it shall notify the debtor. Without notification, the transfer will not take effect on the debtor.” Based on a large number of underlying assets in the asset pool of auto mortgage loan securitization products and the fact that The debtors (including the borrower, the guarantor, and the insurer of the relevant mortgaged vehicle, subject to the specific terms and conditions) are relatively scattered, so it is not practical to notify the debtors one by one when the creditor’s rights are transferred. The risk of not taking effect for the debtor, in addition to not changing the repayment path to the account designated by the debtor to the originator as the loan servicer, also sets that in the event of a rights improvement event, the originator shall send a rights improvement notice to the corresponding debtor in an agreed manner, Inform him of the fact that trust has been established for the loan, and require the debtor to pay the amount due for the loan or insurance indemnity directly to the trust account, and agree that the fund custodian institution will keep the recovered funds. After the debtor receives the notice of assignment of the creditor’s rights, the transfer of the creditor’s rights takes effect on the debtor.

The introduction of foreign investors

As mentioned above, among the auto mortgage loan asset securitization products, the originator has a mature business management model and rich experience in the asset securitization business. At the same time, based on the high dispersion of underlying assets and high asset quality, this type of product is a well-received concern of foreign investors. On July 2, 2017, the People’s Bank of China and the Hong Kong Monetary Authority issued a joint announcement: Approving the China Foreign Exchange Trading Center and the National Interbank Funding Center, China Central Depository & Clearing Co., Ltd., Interbank Market Clearing House Co., Ltd. and Hong Kong Trading and Clearing Co., Ltd. and the Hong Kong Central Clearing and Settlement System for Debt Instruments, the Hong Kong-Mainland bond market interconnection cooperation (hereinafter referred to as “Bond Connect”) was launched. Bond Connect includes “Northbound” and “Southbound”, in which qualified foreign investors can invest in securities traded and circulated in the inter-bank bond market through “Northbound”. With the help of the “Bond Connect” connection, the financing channels of the originator have been further enriched.

This article is mainly based on the project experience and research of the team to briefly analyze the auto mortgage loan products from a legal perspective. In practice, based on the special needs of each project transaction arrangement, there are still a lot of legal issues that need to be further discussed. The team will also continue to pay attention and continue to research and discuss with you.

By aamritri

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