Question
From: (redacted)
Sent: Tuesday, April 22, 2008 7:04 PM
To: Verne, B. Michael
Subject: Questionregarding mortgage servicing transaction
Mike, hope all iswell.
We had a vexingquestion regarding a purchase of mortgaging servicing rights.
Assume someonecontemplates buying all of the mortgaging servicing rights that a seller ownsfor $8 million but, in connection with the transaction will also reimburse thecurrent owner an amount equal to the so-called "UnreimbursedAdvances" made by the Seller and all "accrued and unpaid ServicingFees."
"UnreimbursedAdvances" refers to payments the servicer has made on behalf of themortgagees to pay for things like insurance and property taxes. Assume thisamount is large -say $300 million. In the ordinary course, the mortgagee wouldpay these back. The seller, which also operates a bank, is not through thistransaction exiting entirely the business of extending credit to customers,although it is exiting the mortgage servicing business (and may well later sellout of the banking business entirely, although, again, not in thistransaction). So one might argue this piece of it is an ordinary coursedisposal.
Accrued and unpaidServicing Fees refers to what the servicer is entitled to from the mortgageholder for servicing but has not yet received. (This is in the nature ofaccounts receivable I suppose.) Assume this amount is about $30 million.
Under 802.4, Iunderstand the transaction would not be reportable unless the"Unreimbursed Advances" are reportable assets. I would think they arenot under the ordinary course argument (or perhaps something else), butwondered if you have ever encountered this issue before or could offerguidance.
I understand thatthe other two categories (the $8 million for the mortgage servicing rights themselvesand the payment for accrued and unpaid servicing fees) probably are reportablebased on interpretations I have seen, particularly Interp. 9 in the ABA book(referring to HSR Informal Interpretation Letters #0410001 and 0406002) andFormal interpretation 9.