Last week the American Securitization Forum released the model contractual provisions for MBS issuers to use with their existing loan purchase and servicing agreements. The new provisions, known as "Model Provisions for Residential Mortgage Loan Purchase and Servicing Agreements," are aimed at facilitating compliance with Regulation AB, which becomes effective Jan. 1.
Tom Deutsch, associate director at the ASF, said that this would be of help specifically to smaller originators who do not have as many resources as the bigger players in the market. These provisions are written in model language that should be applicable to most transactions and that market participants could easily duplicate and include as their current terms and conditions. Deutsch adds that market acceptance has been widespread. "The provisions are being used right now by a significant number of buyers and sellers as their base document," Deutsch said. "Although there might be some modifications, market participants are using the model provisions as a base point to start negotiations on terms and conditions."
These provisions, developed by ASF's RMBS subforum, contain suggested disclosures, certifications and reports provided by originators and servicers relating to Reg AB-compliant RMBS deals. They were made to provide counterparties with a basic framework to use in negotiations for mortgage loan purchase agreements. For instance, Deutsch said that one industry question not resolved for months of Reg AB implementation was whether purchasers would require a "comfort letter" or an "agreed upon procedures letter" from accountants validating the procedures and data from the sellers of loans originated prior to Jan. 1, 2006. The new provisions make it clear that most purchasers will likely not ask for these letters.
The ASF said that the model provisions do not include excerpts from Regulation AB, although purchases could provide copies of the rule's relevant portion to sellers along with a draft contract or agreement. They generally also do not address terms of purchase and servicing agreements that were included in this agreement before Reg AB's adaptation.
In a release, Deutsch said that the model provisions are an example of how the ASF, through it broad membership, is able increase the efficiency and reduce transaction costs by developing market solutions to common Reg AB implementation challenges.
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