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incentive consistent with petitioner’s business preference to buy
mortgages in the secondary market.6
Under the prior approval program, an originator had the
right, but not the contractual obligation, to elect at any time
during the ensuing 60 days (or in some cases 15 days) to enter
into a mandatory commitment to deliver a conforming mortgage to
petitioner. Under this program, petitioner committed to
purchasing a mortgage when an originator delivered it to
petitioner within the delivery period.7
Petitioner required originators to service the mortgages
they sold to petitioner. Originators received compensation for
performing this service (the compensation is known as the minimum
servicing spread). For the years at issue, the minimum servicing
fee (the originator’s retained spread over the life of the
mortgage) was 25 basis points (bps)8 on mortgages less than $1
million, 12.5 bps on mortgages between $1 and $10 million, and
was negotiable on mortgages more than $10 million.
6 For Federal income tax purposes, the 1.5-percent
refundable portion of the commitment fee was treated by
petitioner as a payable upon its receipt and was taken into
income only if the underlying mortgages were not delivered to
petitioner. Petitioner’s tax accounting for the 1.5-percent
refundable portion of the fee is not at issue.
7 The Sellers’ & Servicers’ Guide does not use the term “put
options” or “put option” to describe these commitment
arrangements.
8 A basis point (bp) is 1/100th of a percent.
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Last modified: May 25, 2011