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Understanding Securitization1
Understanding Securitization1
What’s important to understand is that to effect the securitization process both the
note and trust deed (the security interest) must be assigned from the Originator to
the Sponsor/Seller, then from the Sponsor/Seller to the Depositor and, finally, from the
Depositor to the Securitization Trust. Each assignee, up until it makes an assignment to the
next party along the chain of title, is the beneficiary under the trust deed. There is a break
in this chain of title where an assignment is not made or is otherwise invalid.
Also worth noting is that almost all Securitization Trusts elect to be treated as “Real
Estate Mortgage Investment Trusts” or “REMICS” pursuant to the rules and regulations
of Sections 860A‐F of the Internal Revenue Code (“IRC”). Consequently, a Securitization
Trust must adhere to certain strict and absolute requirements involving transfers of assets
into the trust. The IRC 860 outlines these requirements, which include a condition that all
loans that are stated to be in the REMIC trust must be acquired on the startup day of the
trust or within three months thereafter. Any other contributions to the REMIC after the
startup date or the subsequent 90 day window are treated as a “prohibited
transaction”.