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CHAPTER 7 Early Deregulation: The Transactions That Replaced Depression-Era Thrifts

By the early 1970s, the Uniform Commercial Code (UCC) had been adopted in just about every state. Louisiana based many of its laws on the Napoleonic Code and was reluctant to change. In 1990 it became the last state to adopt the UCC. Until 1990, Louisiana only recognized real estate and chattel mortgages, entirely precluding pledges of incorporeal hereditaments (a fancy way of saying financial collateral, such as accounts, loans, or contract rights).

Article 9 of the Uniform Commercial Code resolved most problems caused by the Supreme Court’s 1925 Benedict opinion precluding a pledge of assets because it “imputes fraud conclusively.” In 1971 the Government National Mortgage Association (GNMA; Ginny Mae) successfully launched the first post-Depression mortgage-backed security, relying on the supremacy of a federal law that protected holders of GNMA pass-through certificates. Moreover, since GNMA only issued securities backed by mortgages that other federal agencies guaranteed, its full faith and credit guarantee of repaying investors ended debate on the security it offered investors.

GNMA constructed its program with great attention to legal details. Mortgage seller-servicers had to deliver duly endorsed mortgage notes and related papers to a specified custodian who carefully reviewed everything (and retained custody) before countersigning the guaranteed certificates for GNMA. Sellers made, and ...