RISKS OF RESIDENTIAL MORTGAGE-BACKED SECURITIES IN AUSTRALIA – LEGAL AND REGULATORY ASPECTS
IV CONTRACTUAL CONSIDERATIONS
http://www.austlii.edu.au/au/journals/UNSWLawJl/2006/42.html
A Notice to Borrowers
.......Securitisation via RMBS programs involves the risk that borrowers might find their homes sold by
downstream financial intermediaries who have ‘purchased’ their bank’s or independent mortgage provider’s
(‘IMP’s’)[123] mortgagee rights. This is not because of a failure to pay on the part of the borrowers, but as a
result of some act or omission by one of the financial intermediaries in the supply chain or the insolvency of the
intermediary.[124] This begs the question of whether most home loan borrowers are aware of this risk at the
time of taking out their loans. Experience would indicate that most are not, nor is it specifically brought to their
attention.
Furthermore, if they adopt novel financing arrangements that may impact on the borrower, the banks and IMPs may have a duty to explain the technical aspects of the arrangements to their borrowers;[133] however, this is by no means certain, and probably depends on the circumstances,[134] for example, whether the customer is even likely to understand the explanation given. If they were to give an explanation or advice, the banks and IMPs would of course need to exercise reasonable care and skill in giving that explanation or advice.[135]
Having said this, it is likely that the past cases could be easily distinguished in the event of litigation over RMBS programs,
precisely because they involved foreign currency risk, rather than other risks to borrowers in RMBS Transactions.
The risk to housing loan borrowers that they might lose their homes through no fault of their own;
the uncertainty of whether, at common law, the banks and IMPs even owe a duty to explain that risk and other technical aspects of RMBSs to their home loan borrowers; and the risk that many, or even most, bank managers, loans officers and independent lawyers are themselves unaware of that risk,
are compounded by the fact that, at present, there is no specific legislation requiring the banks or IMPs to bring
those risks to the attention of home loan borrowers.
While it is true that borrowers may be protected by section 52 of the Trade Practices Act, and equivalent provisions in the Corporations Act, this is by no means clear and unequivocal.[136] In the longer term, there remains the risk of moral hazard, and appropriate regulation may be needed to correct this.