According to the AI “lawyers” at Chat GPT, there are potential loopholes in the new clause, here’s a tldr, but I’d suggest prompting the full section yourself and digging in.
1. “Subject to the capital provider’s terms”
2. “ultimately held in segregated wallets” allows for temporary pooling or indirect use
3. No definition of re-hypothecation and on-lent: does this include derivatives and what about cross-margining or internal leverage on the capital provider’s balance sheet.
My take:
No modern day lender wants straight consumer book yield, they want their regular dose of leveraged rolled-up steroids. You get a mortgage, your house itself is not re-hypothecated: but the land title is altered, and the lender can and does rehypothecate the mortgage itself, which is now backed by your/their house.
This indirect mortgage re-hypothecation can cause a house of cards to be built atop an otherwise stable asset class, and when that house is big enough, stakeholders that are not the customer have direct incentives to manipulate the underlying asset to either stabilise or disrupt, for profit.
