RMBS: Master loan purchase agreements
By John Levonick, Pepper Hamilton, LLP
The contract that dictates the terms of a mortgage loan purchase between a mortgage loan lender or Seller and a mortgage loan Purchaser is the Master Loan Purchase Agreement or Master Loan Purchase and Sale Agreement (“MLPA” or “MLPSA”).
The MLPA controls the terms under which the loan will be purchased, included attestations to manufacturing specifications, and most importantly contractual remedy/liability provisions should the loan contain a defect. The MLPA unfortunately has not evolved as fast as the regulatory compliance requirements that drive the most significant risk facing loan purchasers, securitisation issuers/underwriters and the trusts themselves. As a result, many MLPAs are lacking standardisation in their key terms with unclear obligations resulting in disproportionate
liability between the parties to the transaction, that also results in a lack of clarity, transparency and comprehensive understanding of risk associated with the securitisation collateral by Nationally Recognised Statistical Rating Organisations (NRSROs) as reported to them by the due diligence providers, that must be approved Third Party Review (TPR) firms by said NRSROs through the SEC mandated reporting requirements under the relevant portions of Regulation AB II.1