Mr Cooper Group Inc (COOP)

[Johnnyiwantsome]

Safe Harbor legal Isolation 2008 rules

a. Safe Harbor
The goal of the FDIC in addressing the legal isolation concern was succinctly
stated by the FDIC’s General Counsel in Financial Institution Letters issued in conjunction with
the proposed rule and the final rule as adopted:
If the transferred assets [in a securitization or loan participation] are not
sufficiently isolated from the insured bank or thrift, its creditors or the receiver,
the transfers would not qualify for sale treatment under GAAP and the transferred
assets would continue to be reported as assets on the [transferor] institution’s
balance sheet.
The rule responds to those questions by reassuring interested parties that, subject
to certain conditions such as fraud, the FDIC - as conservator or receiver - will not
seek to reclaim, recover or recharacterize as property of the institution or the
receivership financial assets transferred by the institution in connection with a
securitization or participation. Accordingly, the rule should resolve the legal
isolation issue for insured depository institutions. The rule confirms existing
FDIC practice in dealing with securitization and participation transactions.28
With respect to the legal isolation issue, the rule provides a safe harbor determination for
transactions that fall within its terms.29 The FDIC rule states:
(b) The FDIC shall not, by exercise of its authority to disaffirm or repudiate
contracts under 12 U.S.C. 1821(e), reclaim, recover, or recharacterize as property
of the institution or the receivership any financial assets transferred by an insured
depository institution in connection with a securitization or participation, provided
that such transfer meets all conditions for sale accounting treatment under
generally accepted accounting principles, other than the “legal isolation”
condition as it applies to institutions for which the FDIC may be appointed as
conservator or receiver, which is addressed by this section.