- 10 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011