What Changed from 1996

Before 1996, the borrower’s loan was underwritten and approved as a qualified GSE endorsed package. The Fannie Freddie mortgage was highly marketable as it carried a Pool Cert or agency endorsement by the designated agency underwriter who approved the file. The GSE Cert was sufficient to allow the FDIC member bank to originate the loan on a warehouse line of credit for short-term hold prior to sale.

This practice also allowed a far east or Japanese bank i.e. Sumitomo Bank or Industrial Bank of Japan, to buy out the pool by advancing it wire for the underlying banks advances for lender revolving credit lines.

Exhibit “A”: “GES Funding” /Mortgage lending prior to 1996

FNMA FHLMC FDIC Bank   Japan/ Asian Bank Pay Off
Endorsement Origination T.O. Commitment Cash

The sale and transfer of $1.0 billion in mortgages would culminate with a wire from the counter party bank while the bank shared in the servicing revenue for rights held by the seller, a domestic member bank

Lender Affiliate    FDIC Bank   Lender Subsidiary Pay Off
Un-Covered Origination Trust /Registration Deposits

The borrower loans underwritten and approved after 1996 were to far looser standards from GSE underwriting guidelines. Herein the rating agencies and insurers agreed to label the pooled assets as AAA and AA rated quality receivables.

These agreements included mutual Rep and warranties amongst  parties as payors, payees, creditors and obligors to one another under the various agreements executed in good faith .  The loans were  no longer qualified by a strict GSE underwriter or endorsement. The private label files carried only a lender underwriter blessing for approval or delegated electronic approval in lieu of the pre 1996 method of GSE endorsement by the designated agency.

The Agency Fannie GSE certification was no longer needed as the Japanese institutional investor was replaced by the originating lender selling to its own subsidiary as a bank affiliate. The subsidiary sells the mortgages UPB into a private placement registration. The registration is brought to market albeit, the capitalized trust, consisting of common trust shares that are sold from the left hand to the right amongst the same ownership.

These sales are no less final and the transfer is performed by the originating lenders management team formed as an LLC.


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