Question
May 8, 1995
BY MESSENGER
Richard B. Smith, Esquire
Premerger Notification Office
Bureau of Competition
Federal Trade Commission
600 Pennsylvania Avenue, NW, Room 303
Washing ton, D.C. 20580
Re: Eligibility For Exemption From Hart-Scott-Rodino Reporting Requirements
Dear Dick:
This letter is to confirm our conversation of today, whereby you advised me that my clients proposed transaction would qualify for a exemption from the Hart-Scott-Rodino premerger notification requirements pursuant to 15 U.S.C. 18a(c)(l). The basis for this exemption is the following fact situation.
The Purchaser is a firm that is engaged in the mortgage banking business, including the servicing of mortgage loans. It is proposing to purchase, for approximately $25 million, the servicing rights to a portfolio of approximately $2.2 billion in mortgage loans.
My client, the Seller in the proposed transaction, is a firm that is engaged in the mortgage banking business, including the organization, sale, and servicing of mortgage loans. The Seller is a single entity, and does not have any subsidiaries or affiliates. It regularly, and in the ordinary course of its business, sells packages of mortgage servicing rights to other firms that engage in mortgage servicing. During 1994, it engaged in twelve such sales, none of which were reportable under Hart-Scott-Rodino because they did not satisfy the Size-of-the-Transaction jurisdictional requirement. Following the consummation of this proposed transaction, the Seller will still own the servicing rights to approximately $1.0 billion in mortgage loans. In addition, the Seller will continue to own a facility for mortgage loan origination, which generates over $100,000,000 in mortgage loans every month, and which loans are then added to the servicing rights portfolio of the Seller.
Many firms that engage in the mortgage servicing business purchase and sell portions of their portfolio of loan servicing rights to other mortgage servicers. In general, the decision to sell servicing rights is based upon managements assessment of the firms cash requirements, debt-to-equity ratio and other significant financial ratios, the market value of the servicing rights, and the firms current and future earnings objectives.
Based on the above information, you advised that this transaction would qualify for a Section 7A(c)(1) exemption because the proposed acquisition does not involve substantially all the assets of an operating business, and therefore would be deemed to be goods transferred in the ordinary course of business.
In reliance on our conversation, I am advising my client that the proposed transaction is not reportable under the Hart-Scott-Rodino Act. If you believe the information contained in this confirmation letter does not accurately reflect our conversation, please contact me immediately at (redacted).
We appreciate your consideration in this matter. Thank you.
Sincerely,
(redacted)
cc: (redacted)