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Sunday, September 4, 2011

MASTER REPURCHASE AGREEMENT

This is a MASTER REPURCHASE AGREEMENT, dated as of November 30, 2006, between NEW CENTURY MORTGAGE CORPORATION, HOME123 CORPORATION, NEW CENTURY CREDIT CORPORATION, NC CAPITAL CORPORATION (each a "Seller" and collectively, the "Sellers") and NEW CENTURY FINANCIAL CORPORATION (the "Guarantor") and GOLDMAN SACHS MORTGAGE COMPANY, a New York limited partnership (the "Buyer").


The Housing Markets collapsed, was based on Master Repurchase Agreement, Wet-Ink Loans, and Over-Stated Income.

  • Master Repurchase Agreements – The Banks and Mortgage Companies used master repurchase agreements (“Master Repurchase Agreements”) and their own working capital to fund the origination and purchase of mortgage loans and to hold these loans pending sale or securitization.

  • How does this work: The Master Repurchase Agreements typically provided that the Seller would sell mortgage loans to a “Repurchase Counter-Party” and commit to repurchase these loans on a specified date for the same price paid, plus a fee for the time value of money, termed a “Price Differential.” The Price Differential was specified in a pricing side letter and was generally set at a floating rate based on LIBOR – London Interbank Offered Rate, plus a spread.

  • This Repurchase Agreement is not a commitment by the Buyer to enter into Transactions with the Sellers but rather sets forth the procedures to be used in connection with periodic requests for the Buyer to enter into Transactions with the Sellers. The Sellers hereby acknowledge that the Buyer is under no obligation to agree to enter into, or to enter into, any Transaction pursuant to this Repurchase Agreement. Each such transaction shall be referred to herein as a "Transaction" and shall be governed by this Repurchase Agreement, unless otherwise agreed in writing.

  • Under the Master Repurchase Agreements, in the event of default, each of the Repurchase Counter-parties had a right to accelerate the Seller's obligations to repurchase the loans subject to the facility. If the Seller did not pay those repurchase obligations, the agreements generally provided that the Repurchase Counter-parties could sell the mortgage loan to third parties (often on short notice) or retain the mortgage loans for their own account and credit the value of the mortgage loans against the Seller's repurchase obligation (termed a “buy-in”), in effect foreclosing the Sellers right to repurchase such mortgage loans.

  • Notice of Repurchase and Termination of Transactions - An Agreement to require the Company and/or its subsidiaries to satisfy their obligation to repurchase all outstanding mortgage loans financed under the Master Repurchase. The letters also purport to accelerate the obligation. Company has received notices from certain of its lenders asserting that the Company and/or its subsidiaries have violated their respective obligations under certain of these financing arrangements and that such violations amount to events of default. Certain of these lenders have further advised the Company that they are accelerating the Company's obligation to repurchase all outstanding mortgage loans financed under the applicable agreements. Below is a summary of the Company's financial obligations that are purported to have been accelerated by the Company's lenders as well as a description of certain additional notices received by the Company from its lenders.

    How does this work: This in effect created a margin calls.


"Wet-Ink Mortgage Loan" shall mean a Mortgage Loan which a Seller is selling to the Buyer simultaneously with the origination thereof by such Seller and for which the Mortgage Loan Documents have not been delivered to the Custodian.

"Wet-Ink Trust Receipt" shall mean a trust receipt issued by the Custodian evidencing Purchased Mortgage Loans which are Wet-Ink Mortgage Loans, substantially in the form attached to the Custodial Agreement.


Borrowers hit with a Margin Call - Foreclosure

When the margin posted in the margin account is below the minimum margin requirement, the broker or exchange issues a margin call. The investors now either have to increase the margin that they have deposited or close out their position. They can do this by selling the securities, options or futures if they are long and by buying them back if they are short. But if they do none of these, then the broker can sell their securities to meet the margin call.

This situation most frequently happens as a result of an adverse change in the market value of the leveraged asset or contract. It could also happen when the margin requirement is raised, either due to increased volatility or due to legislation. In extreme cases, certain securities may cease to qualify for margin trading; in such a case, the brokerage will require the trader to either fully fund their position, or to liquidate it.

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