88-3

March 16, 1988
Re: ________
Dear Mr. ________:
Let me preface this letter with the understanding that the following represents my interpretation of the provisions of Sections 1220 and 1221 of the Financial Code. While consistent with the way these Sections have been interpreted by this office in the past, it does not represent the product of any legal research on the factual issues raised in your letter.
Your letter of March 4, 1988 correctly reflects the substance of our conversation as regards to aggregation for purposes of Financial Code Section 1220 of the limited recourse of the “________” for delinquent loans sold to ________. Since the sales agreement limits the “________” liability to ________ to only contracts 90 days or more delinquent, and further limits the liability of the “________” to repurchase no more than 10 percent of the contracts sold in any one year, the amount of contracts which need to be aggregated for determining the “________” Financial Code Section 1220 obligations pursuant to this provision is the lesser amount of the 90 day delinquent contracts or the 10 percent per annum limitation.
As regards to the second repurchase obligation of the “________” to repurchase all contracts found to be non-conforming within 60 days of the purchase date, your letter does not correctly reflect my opinion. In my reading of the contract provision at issue it appears that the “________” is liable for the full amount of the contracts sold during this 60 day period. Although the liability of the “________” is limited to the repurchase of only those notes which conflict with the warranties in the sales agreement, it is impossible to determine the amount of such non-conforming loans, or conversely the amount of the conforming loans. In the absence of an ability to quantify the amount of non-conforming loans, the total of all loans subject to the 60 day “put back” provision would have to be aggregated for purposes of determining the indirect liability of the “________ ” pursuant to Section 1220 of the Financial Code.
All of the above analysis is premised upon ________ making an independent credit analysis of the note assets being purchased. Furthermore, that the purchase of the subject notes is premised upon that review with the contingent liability of the “________” to repurchase contracts in the event of default being only an abundance of caution.
I hope the foregoing is an adequate response to your letter. I of course stand ready to answer any additional questions you may have.
Yours truly,
HOWARD GOULD
Superintendent of Banks
By:
DAVID L. SCOTT
Deputy Superintendent