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maximum yield, petitioner is required to purchase the mortgage on
terms less favorable than they would have been at current rates.
The option of whether to sell the mortgage also protects an
originator from the risk it might not close the subject mortgage,
making the sale to petitioner impossible. Without the option,
the originator’s failure to deliver could result in serious
sanctions including the originator’s disqualification from
further dealings with petitioner. An originator could avoid the
commitment fee altogether by entering into an immediate delivery
purchase contract; however, a failure to deliver the mortgage to
petitioner under an immediate delivery purchase contract can
result in sanctions including disqualification of an originator
from future mortgage sales to petitioner. In most cases, the
penalty for nondelivery is disqualification of an originator from
eligibility to sell mortgages to petitioner. Given petitioner’s
prominent position in the secondary mortgage market,
disqualification of an originator would seem to be of great
importance to an originator and would explain why an originator
is willing to pay the nonrefundable commitment fee in return for
retaining the option to deliver the mortgage. The uncertainty of
an originator’s ability to deliver a mortgage that has not closed
and the potential detriment to be suffered in that event,
constitutes a future contingency that the optionee is willing to
pay to protect itself against. This contingency, while
apparently unlikely to occur, is obviously of sufficient concern
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