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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions


Agreement to Sell Loans Servicing Rights

FDIC-80-18

July 31, 1980

Jerry L. Langley, Senior Attorney

This responds to your recent memorandum in which you ask whether the subject agreement violates Part 332 since it commits the bank to indemnify FHLMC on the loan "servicing performance" of another party.

Section 332.1 of FDIC's regulations provides, among other things, that an insured state nonmember bank may not guarantee or become surety upon the obligations of others. However, several exceptions to this restriction have been developed under interpretative rulings. One exception permits a bank to engage in the otherwise prohibited activity if a bank has a substantial interest in the performance of the transaction involved.

In the present case, the bank is selling to (***) its loan servicing rights under various contracts with certain loan owners (including FHLMC). In order to obtain the consent of the loan owners to the transfer of the bank's servicing obligations, the bank has agreed to indemnify FHLMC against loan servicing losses and to "stand behind" *** performance with respect to the servicing of the loans of the other loan owners. Since the effective performance of *** is an important element in the bank's arrangement with the loan owners to transfer the bank's servicing responsibilities, we conclude that the bank has a substantial interest in the *** loan service activity. Consequently, the bank's "indemnity" and "stand behind" arrangements under the agreements relating to the transfer of its servicing responsibilities fall within the part 332 exception cited above and no violation of the part exists.


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