Ref: CB, in your opinion is the loan portfolio in safe harbor in runoff mode or is JPM required to replace loans that have been refinanced or paid off?
For example, if the portfolio started at $300 billion but $100 billion of loans have been refinanced or paid off during the last 9 years, is JPM required to replenish those loans with new ones?
My concern is that the portfolio is required to pay back 1.9% interest to the wamu deposit base that JPM acquired...and overtime as the portfolio in safe harbor gets smaller, that will start eating into the profitability of the portfolio unless JPM replaces to paid off loans with new ones.
I guess the other possibility is that once a loan has been paid off, the portfolio hands back the principle back to JPM to "pay off" the deposit base and then JPM at that point is responsible for redeploying that deposit principle and is now responsible for that 1.9% interest cost.
Comments:
Safe Harbor as in protection of wamu deposit base?
Sorry, I am not real clear here. Safe Harbor rules are to protect the investors interest within securitization. Specifically not allowing the FDIC / Courts the power to claw back those pooled receivables transferred in a "True Sales" accounting classification trusts.
If we are talking securitization then the pooling and service agreements (PSA) provisions; terms / conditions / duties / responsibilities / obligations would be clearly express. So if with-recourse - then yes a obligation to repurchase and/or replace non performing / refinanced / paid off assets most likely against the original originator - WMB. Since WMB in receivership the PSA would address / provide standing of asset / investor protection by how / whom would have this continued obligation to repurchase and/or replace not performing assets.
Without-recourse PSA, WMB would have no continued obligation.
So if not talking securitization then we are not talking Safe Harbor. So if JPM is required to pay 1.9 % to the WAMU deposit base then they are on the hook to do so and must deal with that obligation.
Really I don't see a problem if a $ 300 Billion Loan portfolio vs. an equal $ 300 Billion acquired deposit base. Loan Yield % / origination fees far out weight the 1.9 % Rate needed for depositors. The $ 100 Billion reduction via payout / refinanced will be used to repurchase / replenished back to $ 300 Billion.
