Rehypothecation

See: Hypothecation.

It sounds like an obscure math term, maybe something to do with a hypotenuse. Or perhaps some esoteric alternative medicine that involves flooding the rectal area with a high-powered water injection. (Why did our minds go there? Probably time to switch therapists.)

Anyway, the actual term "rehypothecation" has to do with a particular lending policy. It basically means pledging something as collateral. You get a mortgage. If you default on the mortgage, the bank takes your house. That's hypothecation: offering your house as collateral for the loan.

Okay, so rehypothecation does that process...again. You pledge your house as collateral for a loan. The lender then turns around and pledges your house as collateral for its own loan. It's now double collateral (well, not really...it's just collateral for someone else).

It comes up most often in the case of securities: stock or bonds used as collateral for loans. The process isn't allowed in all cases. The Federal Reserve lays out rules and regulations about how the process has to proceed.