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15-day) optional delivery period; if the required net yield moved
downward, an originator could select the lower required net
yield. The purchase price and net yield to petitioner became
fixed upon an originator’s selection of either the maximum
required net yield, or the alternate required net yield on any
day during the 60-day (or 15-day) period that an originator
elected an alternate required net yield. The purchase price
either would reflect a discount from par (100 percent of unpaid
principal balance (UPB)) or would be at par, depending on the
relationship of the rate on the mortgages (coupon rate) actually
tendered by an originator to the “minimum gross yield”, which was
the sum of the required net yield selected and the minimum
servicing spread.11
For example, suppose an originator and petitioner entered
into a prior approval purchase contract with respect to a
mortgage in the maximum amount of $6 million. The originator
paid the 2-percent commitment fee in the amount of $120,000. The
mortgage was subject to a maximum mortgage interest rate of
12.595 percent, and the maximum required net yield to petitioner
was 12.470 percent. The difference, 0.125 percent or 12.5 bps,
represents the minimum spread to be retained by an originator for
11 When an originator serviced a mortgage for petitioner, it
received the amount of interest on the mortgage in excess of the
required net yield. The minimum servicing spread is the
difference between the maximum mortgage interest rate and the
maximum required net yield.
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