premier mortgage no action letter

8/4/2019 Premier Mortgage No Action Letter

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P U B L I C _ ~r~1 0 1983RESPONSE OF 1~ OFFICE OF CHIEF COUNSELDIVISIONO F I NV ES Tt -E m' M \N AG El -E NT

Out" Ref. tlo. A2-7C-CCPrrmiez tbrtgagc corporat ionFile No. 132-3

Based on the representations in your letters of Mlrch 2, Apd.l 21,Augusl 20, and Decenber 22, 1982, and .ranuary 24, 1983, WE' understand thefollowing. Premier r-bttgage Corporat ion ("Pt:"Emier:")proposes to offer tothe public non-redeenab1e series of bonds and, wi th the proceeds of theoffering, acquire non-recourse notes of savings and loan associations (ItS &Ls") having a total face anount equal to the total face amount of the bonds.Each note would be secured by a pool of wmle mortgage loans, which arefirst liens on real property, owned or originated by a S & L, which wouldexecute and deliver to Premier a master assignnent of the mor.tgage loans i;.reoot"dable fozm and a UCC-I Financing Statment evidencing the debt createdby the note. In tum, Premier would assign the notes, the payments to bemade under each note, and the mortgage loans to a trustee under an j ndenturefor the benefit of the bondhalders (lithe tt"l.istee"). The mortgage Loans in apool accepted by Prelder as collateral would be fixed after a cut-off date(which is the day immediately preceding the effective date of the reg::.strationstatemel1t for the bonds) and no mortgage loans could be added to, with::!~"awnfran, or substituted in the pcol . On the S & L's default, the lIlaturit~' ofits note would be accelerated and tl~ trustee could sell tl~ mortgage loansor retain thEm. If the trustee retatns a mortgage loan,. it could forecloseit upon the mortgagor's default. Prcpal'ments~n.,.and adjusted: proceeds offoreclosures of, mortgage loans would flow through to the trustee to be ap-plied to the mandatory redenption of the bonds , Except to the extent that themortgage loans ar.e prEpaid, the notes c o u l d not be pr~paid without Premier'swritten consent. The monthly debt service on the notes would equal the adjust-ed scheduled monthly pa}'ments of principal and interest on the mortgage loans.Similarly, ti~ !?rincipal arid interest rate on the notes would be the sane asthe principal and weighted average interest rate of the mortgage loans.

M:>reover,we understand t~nt Premier. will not proceed with its proposedoffering unless, amongother things, the Federal Hone Loan Bank Board or theFederal Savings and IDan Insurance Corporation decermines that, if and whena S & L is placed in rec~ivership, (1) Premier, as a secured creditor, wouldbe enti tled to the full principal anount of the notes outstanding based eitheron the notes' face amount or their initial offering price plus that portionof the initial issue discount anortized or (2) tr.e receiver would arrange forthe continued servicing of the mortgage loans and the cont.Loued payments onthe notes.Because Premier, though Investinq in the notes, would have essentiallythe same investment experience that it would rove were it directly Invest inqin the mortgage loans, we would not reeormend ttat the Caunission take anyenforcenent action under the Investment ConpanyAct of 1940 ("Act") against


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Premier if it proceeds wi tll its proposed offering wi thout n.>g istering underthe Act in reliance upon your opinion ~s coLlnsel that it is excepted undersection 3(c)(5){C) of the Act fran the dE:.Unition of "Investment company."Cf., American Hane Finance Corporat Ion (pub. avail. Hay 11, 1981).:z;;4.~Stanley OdO 'Deputy Chief Counsel


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S t anl ey B. Ju dd, E sq.March 2, 1982P age 2

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pr em ier was o rganized t o facil it at e t he financingo f r eal est at e ~ o r t gage l o ans by pr o viding t o savings andl o an asso ciat io ns a m eans t o r aise addit io nal capit al bybo r r o wing fu nds o n t he secu r it y o f l o w- int er est no t essecu red by m or tgages 0 1 ' . : . " deeds o f t r ust ("M o r tgage L o ans")cu r r ent l y hel d in t heir po r t f.o l io s, I t is pr o po sed t hat t hefinancing wil l be acco mpl ished t hr ou gh t he issu ance byP r em ier o f Bo nds in ser ies and t he sim u l t aneo u s l o an o f t hepr oceeds o f su ch issu ance t o cer tain feder al ly -char ter ed o rsta.te-licensed aavinqc and Lear, a ss o ci at i o ns ( I l P ar t i ci pa t in gA sso ciat io ns"). E ach l o an wil l be evide~ ced by a m o rt gage-backed pr o.nisso ry no t e (t he "N o t e" I issued by a P ar t ici pa tin gA sso ciat io n secu red by a p o o l o f M o r tgage L o ans (see bel o ~).T he Bo nds wi 1 1 be gu ar ant eed by (i ) pr ivat e m or tgage insu r-ance co ver ing 2 po r t io n o f t he pr incipal am o u nt o f t heN or tgage L oan!' and (ii) cer tain acco unt s (t he "A cco unt s"),incl u ding a cash r eser ve acco u nt equ al t o 1 % o f adju st edval u ~ o ~ t he M o r t gage L o ans secu r ing t hat ser ies. P r em ierwil l no t acqu ir e o r dispo se o f any o f t he N o t es o t her t hanin co nnect io n wi~ h t he o r iginal issu ance o f each ser ies o fBends.' F unds depvsi t ed in t he A cco unt s, incl uding fu ndsdepo sit ed in t he r eser ve acco u nt , which wil l co nst it u t e l esst han 5% o f P r em ier ' s asset s, m ay be invest ed t em po r ar il yo n l y i n dir ect o b!igat io ns o f t he U nit ed st at es go ver nm ent ,dir ect o bl igat io ns o f a st at e o r m u nicipal it y wit hin t heU nit ed. S tat es r at ed in t he highest cat ego r y by a r eco 9niz~ dr at ing agency , co m m er cial paper r at ej in t he highest cat ego r yby a r eco gnized r at ing agency , full y insu r ed cer tificat es o fdepo sit and cer tain r epu rchase agr eem ent s (co ll ect ivel yr efer red t o as "E ligibl e S ecu rit ies").

P r em ier wil l no t be engaged in any o t her bu sinessand is no t expect ed t o have any significant asset s o ~ hert han t he N o t es secu r ing t he Bo nds.E ach P ar ticipat in~ A sso ciat io n, pu rsu ant t u gu ide-l ines est abl ished by P r em ier , wil l assem bl e a po o l o f M o r t -

gage L oans, o wned o r o riginat ed by it , t o ser ve as co l l at er alfo r it s N o t e. T he P ar t icipat ing A sso ciat io n wil l assign t heM o r t gage L o ans t o P r em ier pu r su ant t o a l o an and secu r it yagr eem ent . P r em i~ r im m ediat el y wil l assign t he ~ o t es, t hepay m ent s t o be m ade u nder each N o t e and t he M o r t gage L o anst o a co rr uner cialbank act ing as t r ust ee (t he "T ru st ee") u nder


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n o 0 0 .14S t anl ey 8. Ju dd, E sq.March ?, 1982P age 3

an ihdent u re bet ween t he l ' nl st .eeand P r em ier fo r t he benefito f t he ho l der s o f t he Bo nds. E ach P ar t icipat ing A sso ciat io nwil l r epr esent and war rant . t o P z emie r and Pz-eru ier wil lr epr esent and war r an~ t o t he T r u st ee t hat each M o r t gage L o anis a fir st pr io r it y secu r it y int er est o n t he u nder l y ing r ealpr oper ty . I n co nr .ect io n \ ,ih t he assignm ent o f t he r 10r tgageL o ans, t he P ar ticipat ing A sso ciat io n wil l du ly execu te anddel iver a m ast .er assignm ent 0: t he M o r t gage L o ans in r eco r d-abl e fo r m and a UCC-l F inancing st at em ent evider.c tnq t hedebt cr eat ed by t he N o t e. I n t u r n, P r ~ m ier wil l assign anddel iver su ch dccu ment .s t o t .heT r ust ee. E ach ;~ ot e is basedo n and backed by al l o f t he M o r t gage L o ans po o l ed by aP ar t icipat ing A sso ciat io n and hel d by t he T r u st ee. A ft er acu t- o ff dat e, t he M o rt gage L o ans in a P ar t icipat ing A sso =ia-t io n' s po ol accept ed ~y r r em ier as co l l at er al fo r it s N o t ewil l bp fixed and no M o r t gage L o ans m ay be added, wit hdr awno r su bst it u t ed in co nnect io n wit h t he 0r iginal issu ance o feach ser ies o f Bo nds. P u r su ant t o a l o an and secu r it yaq re em er -t ; t he P ar ticipat ing A sso ciat io n wil l co nt inu e t oper fo rm r ou t ine l o an ae r v.iinq fu nct io ns wj.t h r espect t o t heindividu al M ~ r t gage L o ans in it s po ol .

E Qch N o t e pr o vides fo r t he pay m ent by a P ar t icipat -ing A sso ciat io n t o P r em ier o f a fixed m o nt hl y su m equ al t ot he schedu l ed m o nt hl y pay m ent s o f pr incipal and int ar est o nt he M o r t gage L o ans in t he po o l secu r ing t he N o t e. I n addi-t io n, each N o t e pr o vides t hat an am o u nt ; equ al t o t he val u eo f each fu l l o r par t ial pr epay m ent and t he val u e o f t hepr o ceeds o f fo r ecl o su r es, as t he case m ay be, o n t he M o r t -gage L o ans, al l 3S adju st ed pu r su ant t o a l o an and secu r it yagr eem ent , wil l pass t hr o u gh t he N o t e t o t he T r u st ee. A l lam o u nt s r eceived by t he T r u st ee wil l be al l o cat ed pu r su antt o t he indent u r e int o t he A ~ co u nt s. incl u ding t he r eser veacco u nt , fo r t he benefit o f t he bo ndho l der s. u nt il t her eser ve acco u nt is fu l l y fu nded by su ch pay m ent s, it wil l befunded in fu l l by a l et t er o f cr edit pu r chased by P r em ier .T he am o u nt s depo sit ed in cer t ain o f t he acco u nt s ar e u sed t om ake pay m ent s o f pr incipal and int er est du e o n t he Bo nds.S ect io n 3 (c) (5) u nder t he A ct pr o vides al l .CXt?lItP-t io n fr o m r egist r at io n as an invest m ent co m pany fo r U [ajnyper so n who is no t engaged in t he bu siness o f issu ing r edeem -abl e secu rit ies, faceam ou nt cer tificat es o f t he inst al lm ent


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st anl ey B. Ju dd, E sq.March 2, 1982P age 4

t y pe o r per io dic pay m ~ nt pl an cer t ificat es, dnd who ispr im ar il y engaged in . . . (C ) purchasing 01" othe rwiseacqu ir ing m o r t gages and o t her l iens o n and i:l t er est s in r ealestate."P rem ier E ngaged I n P ur cha~ _iDg al. I nt ~ Jest I n neal E st at e

T he Bo nds t o be issu ed by P r em ier wil l be secu r edby N o tes pu rchased by P r em ier fr 0m P ar ticipat ing A sso cia-t.ior.s . T he nat u r e o f t he N o t es as "int er est s in r eal est at e"is best u nder st o o d by r eviewing t heir ch.vr act -eistics andco mpar ing t he sim il ar i t ies 0f t he N o t es t o o t her i.1 Str u ment;swhich t he Divisio n has r eco gnized in pr io r "no - act io n"l et t er s, discu ssed bel ow, as l Iint er est s in ":~a.l estate. 1IT he st r u ct u r e and char act er ist ics o f t he Bo nds andt he co l l at er al secu r ing t he Bo nds ar e sim il ar in m anyr espect s t o t he m o rt gage- backed b0nd o ffer ~ngs r eviewed byt he Divisio n (e.o ., u.s. H o m e F i:i an ce. Co r po r at io n, A pr i l 30-,1 980, pu bl icl y ~ il abl e M ay 30, 1 980) and t o t he m o r .t gagepass- thr o ugh o ffer ing3 l :eviewed b y t h,.e ivisio n which havebeen cr eat ed by a nu m ber o f m o r t gage l ending inst it u t io ns,st ar t ing in S ept em ber , 1 977 w~ t h t he o ffer ing o f m o r t gagepass- thr ou gh cer tificat es issu ed by Bank o f A mer i.ca N ar .io nalT r u st and S avings A sso ciat io n and m o r e r ecent l y , t he m o di-

fied pass- t hr ~ u gh o ffer ings. (S ee, H o m e S avings and L o anA sso ciat io n, S ept em ber 1 6, 1 980~ u bl icl y avail abl e o ct o -ber 1 6, 1 980, A m er ican H o m e F inance C o r po r at io n, A pr il 9,1 981 , pu bl icl y avail abl e M ay 1 1 , 1 981 and M er r il l L y nch,pi~ r ce, F enner & S m it h I nc. O ct o ber S , 1 981 , pu bl icl y avail -abl e N o vem ber 4, 1 981 ).P r em ier , l ike t he issu er in A m er ican H o m e and t heissu er in U .S . H o m e F inance, is a l im it ed- pu r po se, who l l y -o wned su bsidiar y who se o nl y asset s ar e t he co ll a.t er al pl edgedfo r t he secu r it ies t o be o ffer ed t o t he pu bl ic. T he fo r m a-t io n o f and t he fixed nat u r e o f t he po o l s o f M o r t gage L o ansar e sim il ar t o t he po o l s descr ibed in H o m e S avings and

M er r il l L Ynch. T he assignm ent o f t he N o r t gage L o ans t o acu st o dian wit ho u t r eco u r se is sim il ar t o t he assignm ent in~ ~ er ican H o m e and M er r il l L y nch. I n addit io n, t he m eansdesigned t o i n s u r e t hat pay m ent s t o bo ndho l der s ar e m ade ina t im el y m anner , ar e sim il ar t o t ho se u sed in o t her o ffer ings.


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()OO{).1 nst anl ey D. Ju dd. E sq.March 2, 19R2P age 5

F o r exam pl e. P r em ier , as in u . s . H o me F inance and A m er icanH o me. has est abl ished a cash r eser vc- acco unt ;- and, l ~ keM er r il l L y nch. wil l pu r chase a l et t er o f cr edit . bo t hdesigned t o assu r e t im el y pay m ent s t o bo ndho l der s. I naddit io n, as in H o me S avings, P r em ier wil l pu r chase po licieso f insu r ance t o pr o t ect bo ndho l der s fr o m cer t ain defau l t swhich m ay ar ise o n par t icu l aL M o r t gage L o ans.T he 80nds and t he N o t es differ fr o m t he t .zad.i>t io nal and m o dified pass- t hr o ugh inst r um ent s in o nl y o nem at er ial r espect fo r pu r po ses o f t he A ct . R at her t hanst r u ct u ring t he Bo nds and t he N o t es as pass- t hr o u gh cer t ifi-

cat es, t he Bo nds and N o t es ar e st r .u ct u r ed aG pay - t hr o ughinst r u m ent s t o acco m m o dat e t he needs o f m any R avings andl o an asso ciat io ns who seek a m et ho d o f financing t hr o u ghwhich t hey can u se t heir seaso ned, l o w- co u po n M o r t gage L o anst o gener at e cash which can be invest ed in higher y iel dingM o r t gage L o ans t o incr ease ear nings o r t o m eet r egu l at o r yl iqu idit y r equ ir em ent s. T hese M o r t gage L o ans ar e cu r r ent l y .y iel ding a l o w r et u r n (~ . 8% - 10%) at a t im e when t hesavings and l o an asso ciat io ns m u st pay significant l y higherint er est r at es t o at t r act depo sit o r s. T hes0 savings andl o an asso ciat io ns, ho wever , wo u l d pr efer no t t o sel l t hesel o w- co u po n M o r t gage L o ans becau se a sal e wo u l d r esu l t in at "eco gnit io n o f an im mediat e l oss fo r financial acco unt ingpu rpo ses. A cco r dingl y , m o st asso ciat io ns ar e u nwil l ing o ru nabl e t o sel l t heir M o r t gage L o ans and r edu ~ e t he size o ft heir net wo r t h. Becau se a pass- t hr o u gh cer t ificat e fo rfinancial acco unt ing pu rpo ses is t reat ed a.s a "puzchas e " o fan Jndivided int er est in t he M o r t gage L o ans by t he pu r -chaser s and t r eat ed as a "sal e" o f t he M o r t gage L o ans by t heo wner s o f su ch M o r t gage L o ans, t he pay - t hr o u gh bo ad wascho sen as an al ter nat ive financing vehicl e.

N ot wit hst anding t he st ru ct ur al differ ence bet weent he N o t es and pass- t hr o u gh cer t ificat es, we ar e o f t heo pinio n t hat t he t r adit i~ nal and m o dified pass- t hr ou gh cer -t ificat es in Bank o f A m er ica and M er r il l L y nch and, absenct he go ver nm ent ansu rance pr ovided by GNMA, t he GNM.l\ Certifi-cat es in A m er ican H o m e bear a cl o se eco no m ic r esem bl ance t ot he N o t es and, as su ch, r epr esent an "int er est in r ealestate."


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OOOD ' 7I "" ----__ I ~ _ V ~tI. II ,,' " . t.] t " ' I ' '--, -,, . , I 1111'1/' '" 1iRECEIVE'oi

(I JI;ti" ret" 0" ,..J :'. \P!' r " r r.~r r0~:~I t. :if) In;;:c fiJ I ', ': ' r: t - ,,,.These economic Sl.nulal i t :: -res at li ' Ibes t unde rstoad bybrie t'Ly describing the nature of the Bonds and the Notes.The Bonds and Notes are pay-through instruments. The essen-tial concept of the Bond is to match the debt service on theBond with the cash flow from the Mortgage Loans which serveas collateral for the Notes. The Note acts as a conduit forthese payments from the Participating Associations to Premierto the Trustee for the berie f'Lt of the bondholders. Specifi-cally, the scheduled monthly payment on each Note rep reue.rt sthe adjusted amount required to match the debt service onthe Bond with the payments of principal and interest gen-erated by the t-JortgageLoans which aerve as collateral for

the Notes. consistent with the pay-through concept, themonthly debt service payments on the Bonds of any serieswill be equal to the adjusted amount of the cash flow whichis generated by the aggregate principal and interest pay-ments made on the Mortgage Loans. Pursuant to each securityagreement, all such principal and interest payments from theMortgage Loans in a pool will be deposited in an account forthe benefit of Premier until the Participating Associationmakes the fixed monthly payment on its Note. With respect'to prepayments made on the Mortgage Loans, an amount equalto the value of each prepayment made , as adjusted pursuantto the loan and security agreement, will flow through theNote to Premier within one day of payment to the Participat-ing Association and will be applied by the Trustee accordingto the mandatory redemption provisions set forth in theindenture. For example, assume that one of the pools ofMortgage Loans has the following charac..t:eristics: theaggregate principal amount of the Mortgage Loans is $790,000with a weighted average interest race of 8.66% and an averageremaining term to maturity of 22.3 years. The MortgageLoans comprisir.g this pool generate monthly debt service of$6,801.87. Under the terms of the Note between the Partici-pating Association and Premier, the Participating Associa-tion is required to make payment of principal and interesttotaling $6,801.87 in each month for. 15 years. The factthat monthly payments under the Mortgage Loans are segre-gated until the Note payment is l1lildeupports the inferenceof direct cash lIpaid-through.lI Of the $6,801.87 receivedmonthly by Premier and assigned to the Trustee, $323.90 isdeposited by the Trustee into the reserve account to fundany deficiencies with respect to the Bonds and $288.27 is

stanley B. Judd, Esq.March 2, 1982Page 6 ( J A R 11982


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. . . . _. . . . . ~

...uLey B. Ju dd, E sq ..h 1 r ch2, 1982P age 7

depo sit ea by t he T r u st ee int o t he expense acco u nt t o fu ndal l expenses r el at ing t o t he adm inist r at io n o f t he Bo nds.T he r em aining $6,189.70 is appl ied by t he T r u st ee t o t hem o nt hl y r edu ct io n o f Bo nds as r equ ir ed by t he indent u r e andt he sem i- annu al pay m ent o f int er est . T he al l o cat io n o f ~ achm o nt hl y pay m ent bet ween pr incipal and int er est is do ne o n aninst al l m ent t y pe basis, r esu lt .ing in l evel m o nt hl y debtser vice r equ ir em ent s u nt il t he m at u r it y o f t he Bo nds.A cco r dingl y , al t ho u gh schedu l ed m o nt hl y pay m ent s o n t heM o r t gage L o ans do no t t echnical l y pass- t hr o u gh t he N o t e, t heeco no mic r eal it y is identical.M o nt hl y pay m ent s o n t he N o t es ar e fixed t o shiftt he r isk o f t im el iness o f pay m ent s fr o m t he bo ndho l der s t ot he P ar t icipat ing A sso ciat io n. I f a pay m ent o n a M o r t gageL o an in a P ar t icipat ing A sso ciat io n' s po o l is de~ inqu ent o ra par t icu l ar M o r t gage L o an in it s po o l go es int o defau l t ,t he P ar t icipat ing A sso ciat io n st il l is o bl igat ed t o m akefu l l pay m ent o n t he N o t e. T his co ncept o f m aking advancesis sim il ar t .o -.he -s-it uat?ion-in"AmericanH o m ewh er e..he ...o r iginat o r o f t he M o r t gage L o ans passed t hr o u gh t he pay m ent so f pr incipal and int er est and, at t he sam e t im e, m adeadvances o f pr incipal and int er est t o G ~ ~ fo r t ho se M o r t gageL o ans which wer e del inqu ent in pay m ent o r in defau l t . T or eim bu r se a P ar t icipat ing I ~ sso ciat io n fo r advances m ade as ar esu l t o f defau l t s o n par t icu l ar M o r t gage L o ans, t o pr o vide

assu r ance o f pay m ent t o bo ndho l der s and t o o bt ain a cer t ainr at ing o n t he Bo nds fr o m cer t ain r at ing a g e n c i e s , P remierwil l pr o vide po l icies o f po o l and special hazar d insu r ancet o each P ar t icipat ing A sso ciat io n co ver ing each po o l o fM o r t gage L o ans. E ach po l icy o f insu r ance wil l nam e t heT r u st ee as l o ss- pay ee. I n t he event t hat a par t icipat ingA sso ciat io n is u nabl e t o pay t he am o u nt du e o n t he N o t e, andt he po l icies o f insu r ance ar e insu fficient t o m ake pay m ent so n t he Bo nds, t he T r u st ee wil l m ake su ch pay m ent , t o t heext ent t hat fu nds ar e avail abl e t her efo r , fr o m t he r eser veacco u nt and o t her A cco u nt s. Bey o nd t he insu r ance pay m ent sand t he fu nds in t he A cco u nt s, t he bo ndho l der bear s t he r isko f l o ss.We al so bel ieve t hat t he nat u r e o f t he secu r it yint er est in t he M o r t gage L o ans pr o vides P r em ier wit h ~int er es~ in r eal est at e wit hin t he m eaning o f S ect io n3(c)(S )(C ) o f t he A ct .


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../'S t anl ey 8. Ju dd, E sq.M ar ch 2, 1 982P age 8

T her e do es no t seem t o be a do u bt fo r pu r po ses o ft he A ct t hat a pu r chase o f "m o r t gages" fit s wit hin t hest at u t o r y pr escr ipt io ns u nder S ect io n 3(c)(5)(C ). S eeU .S . H o m e F inance. I n addit io n, it seem s cl ear t hat t hepu r chase o f a pass- t hr o u gh int er est secu r ed by M o r t gageL o ans l ike t hat in A m er ican H O r .Jefal l s wit hin t he definit io no f a pu r chase o f an int er est in r eal est at e wit hin t hem eaning o f S ect io n- 3(c)(5)(C ). H o wever , based u po n r ecentt el epho ne co nver sat io ns wit h t he st aff o f t he Divisio n,t her e appear s t o be so m e do u bt as t o whet her a pu r chase o fpr om isso ry no tes secu red by M o r t gage L o ans is a pu r chase o racqu isit io n o f an int er est in r eal est at e.

U nder C al ifo r nia l aw, a m o r t gage is defined as aco nt r act by which specific pr o per t y , r eal o r per so nal , ishy po t hecat ed fo r t he per fo r m ance o f an act wit ho u t t henecessit y o f a change in po ssessio n. S ee C al ifo r nia civilC o d e 2920. A deed o f t r u st , l ike a iii' O r t gage,s a r ealp r o p er t y _ _secura t y -device given - to secu re pay ment 0f anindebt edness. A cco r dingl y , t he m o r t gage and deed o f t r u star e no t hing m o r e t han r eal pr o per t y secu r it y devices secu r -ing t he pay m ent o f a debt .A m o r t gage o r deed o f t r u st u nder C al ifo r nia l awcanno t be assigned o r so l d apar t fr o m t he debt t hat secu r esit . S ee Kel l ey v. U pshaw, 39 C al . 2d 1 79, 1 92, 246 P .2d 23(1 953) and Do mar acl v. F isher & Bu r ke, I nc., 270 C dl . A pp. 2d543, 554, 76 C al . R pt r . 529 (1 963). A cco r dingl y , t he "pu r -chase" o f a m o r t ge.ge is in act u al i t y a pu r chase o f a debtsecu r ed by a r eal pr o per t y secu r it y device, t he m o r t gage o rdeed o f t r est . I f su ch debt is paid in fu l l , t he cr edit o r /assignee has no cl aim against t he u nder l y ing r eal pr o per t y .N o t wit hst anding, t he 1 ebt which passes wit h t he m o r t gage o rdeed o f t r u st is char act er ized as being an int er est in r ealpr o per t y . S u ch was t he sit u at io n pr esent ed t o t he Divisio nin U . s . H o me F inance.wit h r espect t o t he N o t es, t he anal y sis m u st

pr o ceed o ne st ep fu r t her . P r em ier ~ s pu r chasing pr o r njsso r y:l .o tessecu red by M o r tgage L o ans, in o ther wo r dS , secu red byo t her debt s Which, in t u r n, ar e secu r ed by r eal pr o per t ysecu r it y int er est s, m o r t gages and deeds o f t r u st . A l beit ast ep r em o ved and r epr esent ing a m o r e indir ect int er est , we


11/34

~ ; ~ ~Ad ." , "'f~' i' ,"'r'!" "'''''~ft " N., ,,".,' ","" I"t:' " i ,,',1"\.1 ,.,':,(. I, ..!f~,\ ',t\ I . ' ~',' .. ,,, . 1 . ;,1 . ,.',~,'J,~.rl ,(,.).'... '. -. I ,"\ I '" I 'I ~ ",. , " . ' " _f I ' ~::l~;.:J..! ~ 'f '" ,."L ...1:.I.~_I ".I_t.."_ ' ...... __ " _ . ....... _ . L O " , _ _ . _ ~ , . _ . ~ _ . . . ,_,.~".';"'.J.; ; : ) O O f l O

S t anl ey B. Ju dd, E sq.M ar ch 2, 1 982P age 9

bel ieve t hat t he N o t es pu r chased by P r em ier evidence no l essan int er est in r eal pr o per t y t han t he o u t r ight pu r chase o ft he M o r t gdC j~ :o ans in V . S . H o m e F inance and no l ess o f anint er est in r eal est at e t han t he G N M A C er t ificat es inA m er ican H o rne.A co m par iso n o f t he r em edies o f a bo ndho l deragainst (i) an issu er who o wnG t he M o r t gage L o ans as inV .S . H o m e and (ii) P r em ier who o wns pr o m isso r y no t es secu r edby M o r t gage L o ans is u sefu l in il l u st r at ing t he fact t hat abo ndho l der 's int er est in t he M o r tgage L o ans is su bst ant ial l yt he sam e in a t y pical m o r t gage- backed bo nd o ffer ing as it isin an o ffer ing o f Bo nds.U po n an event o f defau l t u nder an inde ~ u r e u ndera ser ies o f Bo nds, t he T r u st ee, act ing o n behal f o f t hebo ndho l der s, m ay pr o ceed against P r em ier and t he N o t espl edged as co l l at er al fo r t he ser ies o f Bo nds and m ay exer -cise any r em edy avail abl e t o a secu r ed par t y , ~ ncl u dingt ho s e r e me die s:pzov i.dedunde r...he,Ca l i,fo r nia corun.e r cie I ,.'C o de. T he M o r t gage L o ans, t he u l t im at e co l l at er al fo r aN o t e, wil l be in t he po ssess~ o n o f t he T r u st ee u nt il t hatser ies o f Bo nds has been fu l l y paid o r cl aim s m ade against

su ch M o r t gage L o ans by P r em ier o r t he bo ndho l der s have beensat isfied t o t he ext ent al l o wabl e. A cco r dingl y , t he u l t i-m at e so u r ce o f t ne bo ndho l der ' s co l l at er al fo r a ser ies isnever in jeo par dy . E ven t ho u gh t he N o t es pr o vide fo rl im it ed r eco u r se against t he co l l at er al , t he val u e o f t heM o r t gage L o ans wil l equ al at l east 105% o f t he pr incipalam o u nt o f each ser ies o f Bo nds.I n a m or tgfl ge- backed bo nd o ffer ing, a bo n1 ho lder 'sr em edies ar e (i) wit h t he co nsent o f t he debt o r , t o r et aint he M o r t gage L o ans in sat isfact io n o f t he debt o wed o r(ii) t o sel l t he M o r t gage L o ans and r et ain t he pr o ceeds t ot he ext ent r equ ir ed t o ext ingu ish t he debt o wed. I n an

o ffer ing o f Bo ~ ds, t he bo ndho l d~ r ' s r em edies ar e (i) witht he co nsent o f P r em ier , t o r et ain t he N o t es, if no t indefdu lt t hem sel ves, in sat isfact io n o f t he indebt edness,(ii) t o sel l t he N o t es o r (iii) if any N o t e al so is indefau l t , t o st ep int o t he sho es o f P r em ier and, wit h t heco nsent o f t he P ar t icipat ing A sso ciat io n, r et ain t he M o r t-g~ ge L o ans i~ sat isfact io n o f t he debt o wed o r sel l t he


12/34

O O O O ~ lS tan le y B. Judd, E~q.M ar ch 2, 1 982P age 1 0M o r t gage L cans and r et ain t he p ro ce cd s which ar e s u f ficien t;t o ex t .L nquish t he debt o wed. I n bo t h CCl!Je~, t he bo nd-ho l der ' s u l t im at e r em edy is t he sam e. Becau se t he T r u st eeho l ds t he M o r t gage L o ans in it s po ssessio n at al l t im esu nt il t he bo nds have been paid in fu l l , t he bo ndho l der s ar eas secu r e as if t he M o r t gage L o ans wer e pu r chased by P r em ier .

A cco rdingl y , we bel ieve t hat t he N o tes r epr esentan int er est in ~ eal est at e (i.e., t he M o r t gage L o ans act ingas secu r it y fo r t he Bo nds). A C o nc::l u sio n t hat t he N o t es dono t evidence an int er est in r eal est at e wo u l d ~ l evat e fo r mo ver su bst ance wit h r espect t o t he Divisio n' s pr io r"no - act io n" l et t er s and wo u l d appeaz t o t ake t he po sit io nt hat o nl y cer t ain t y pe~ o f inves~ l ent s in m o r t gages ando t her l iens o n and int er est s in r eal est at e ar e ent it l ed t ot he S ect io n 3(c)(S ) exem pt io n, a r eading co nt r ar y t o t heexem pt io n' s pl ain l angu age. I t appear s t hat neit her t hepublic Lnt.e r ect no r t he int er est o f t .he invest ing pu bl icwo u l d be u er ved by r equ ir ing P r em ier t o r egist er as anl.::,,astmen- co m pany - under t he -Act; -oz- t o - r e ca st : t h e N o - t e s.aa+-: '.'pass- t hr o u gh inst r u m ent s. A s st at ed abo ve, t he str u c tu ve o ft he N o t es is dir e~ t l y in r espo nse t o t he needs o f par t icu l arsavings and l o an asso ciat io ns du e t o t he financial acco unt ingco nsider at io ns which t hey face if a sal e is deem ed t o haveocc u r r ed.T he C o m pany S ho u l d N o t be D~ em edan I nvest m ent C o m pany U nder t he A ct

A s t he l egisl at ive hist o r y o f sect io n 3(c)(S ) o ft he A ct dem o nst r at es, it was C o ngr esE .' int ent io n t o exem ptt ho se co mpanies "which do no t co me wit h.in t he gener al l yu r .der st o o d co ncept o f a co nvent .:io nalinvest m ent co m panyinvest ing in st o cks a~ d bo nds o f co r po r at e issu er s" event ho u gh su ch co m panies "have po r t fo l io s o f secu r it ies in t hefo r m o f no t es, co m m er cial paper o r m o r t gages and o t her l ienso n and int er est s in r eal est at e." [I nvest m ent C o m panyA m endm ent s A ct o f 1 970, S enat e F t epo rt (Banking and C u rr encyC o m m it t ee) N o . 91 - 1 84, M ay 21 , 1 979, 3 U .S . C o de C o ng.A dm in.N ews, 91 st C o ng., 2nd S ess., at 4932 (1 970)].We ar e o f t he o pinio n t hat P r em ier ' s act ivit iesdiffer m ar kedl y fr o m t he t hr ee t y pes o f invest m ent co m paniesas defined in S ect io n 4 u nder t he A ct . P r em ier do es no t


13/34

'. . ';'~ . . . J'~.---

Stanley B. Judd, Esl,l.March 2, 19::32Page 11

fall within the definition of a "face-amount certific.Jteconipany " because it never was nor is it presen tly enqa qed inthe business of issuing nor will it issue face-amount certi-ficates, as that term is define~ under section 2(a)(15)unde r the Act. Moreover, Premier does not fall w':'thinthedefinition of a "unit investment trust" because it is acorporation validly incorporated u~der the laws of the Stateof California, has a board of directors


14/34

()OOO:;:~st~nley 8. Judd, E~y.March 2, 1982Page 12

Lnve s tmen t of funds depooited in the Accoun ts are only to bemade in Eligible securities, whicllalso are fully discLosedto bondholders. Accordingly, on the basis of our review ofthe legislative history under the Act, we do not believethat Congress intended to include a corpoiation wi th r.hestructure and characteristics of Premier into the scheme ofregulation under the Act.Bonds Not Redeemable Securities

Section 2(a)(32) of the Act defines d "redeemablesecurity" asany security, oth~r than short-termpaper, under the terms of which theholder, upon its presentatio~ to theissuer or to a person d~signated by theissuer, is entitled (whether absolutelyor only out of surplus) to receiveapproximately his-pr~portion~t~ share ofth~ issuer's current net assets, or thecash equivalent interest.The B~nds are subject to monthly mandatory redemp-tion by Premier. The amount of scheduled monthly redemp-tions by Premier is fixed by the amount required to amortizethe Bonds on a level monthly debt service basis by maturity.The amount of such scheduled redemptions iz directly relatedto the adjusted payments made each month on the MortgageLoans. Mandatory redemptions also are made to the extent ofprepayments made on the Mortgage Loans which ser-veas col-lateral for the Notes. The mandatory redemption provisionshave no relationship to any bondholder's proportionate shareof Premier's current net assets. In addition to the manda-tory redemption provisions of the Bonds, the Bonds areredeemable at the option of Premier, in whole but not inpart, at any time after the aggregate principa~ amount of

the Bonds for the series is reduced to 10% O~: Less of itsoriginal principal amount.We believe that the mandatory and optional redemp-tion features of the Bonds do not come within the terms ofthe definition of redeemable security under the Act. A


15/34

tHHH ) fj'lSlanley B. Judd, Esq.Milrch 2, 1982Page 13

bondholder for any s e r ie s c cnrio t, C()1I1p':1 l'C.lnl'.l" t.o n~d.(111his bonds. In fac t, pursuan t; to tll~ mandatory r cdcmptior:feature of the Bonds, the TnlstCL! se Lec t;u th'JGC boridho Lde rato be redeemed on a zandom basis .General

On the basis of tile foregoing, we r c : . . ; p e c t f u l L yrequest that tne Division t uke a "rio-eac ti.on " position '....threspect to Premier's status c1S an Lnve s tment c omp-in y and th~proposed issuance of Bonds in series. If the Division con-cludes that it is unab Le to do so, we respectfully requestthat the Division r'ecommend to the Commission that t-renu e r beexempt from the provisions of the Act pursuant to Section 6(c)thereof.Because Premier wouLd like to p rocced w itl' theoffering of its series A 8uIlds


16/34

~I""II'

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1/\. I i J ' , " " I I " '.. 1: I/ 1 1 '1 " , . ' , , ' I, II.,.' I,If' ...... ' .. , " '1 .. ,.,' . , .

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I)" , "''''j,''OJ " 0"II" IIa f 'I I 0 , r I'.,,,.'l ~I." , , " f " J ' , . . , _ . " r .. r .. t ",l' .. .,,...,,,, " . II .:" . , . " . . . ," ,, , .. .,....... If" " I '11, p . " '1 .. ' 'I " "0' ","11 , r \ , ':')1.1 , II r. " I) 01"", fll 4 ' " - ' 0 " ' . . . . . . . . . . . " ' c. ; t)l"H~""' ,} ."(1"'* ",., .... If . , I i i ' ' ' r:H..., ..... ""r\..f) ....("(I" ...

. 'f)W~ r" " . . " t ' 1\}'.",'1

r nve s t.ment company A ct 0f 1910sec tLons 3(a), 3(c)(5)(C ) and6(c)

st anl ey B. Ju dd, E sq.Depu ty C hief C o u nsel0ffice o f C hi~ f C O u nselD iv :; ' si o no f I n ve st m en t M a na ge me nt~ ecu rit ies and E xchange C Ol lu nissio n500 N o r t h C apit al S t r ~ et , N .W.Washingtoll, D . C . 20S49. R e: P r em ier M or t.g


17/34

O O O O f l G

S t anl ey B. Ju dd, E sq.A pr il 21 , 1 982P age 2

F ir st , in discu ssing t he co ncept s o f "adve.nces"and "insu r ance" in co nnect io n w it .h m o nt hl y pay m ent s o n t heN o t es in t he fir st co m pl et e par agr aph o n page seven o f t heM ~ r ch 2 L et t er , we st at e t hat "[bjey o nd t he insu r ance pay -m ent s and t he fu nds in t he A cco u nt s, t he bo ndho l der bear st he r i s k o f l o ss." Yo u r equ est cl ar ificat io n o f t his sent ence. T he st at em ent did no t int end t o im pl y t hat in t heevent o f d~ fau l t , t he bo ndho l der s, t hr o u gh t he T r u st ee,wo u l d no t have dir ect r eco u r se t o t ho se M o r t ga~ e L o anssecu r ing a N o t e which was in defau l t , r at her , it at t em pt edt o expl ain t hat t he "advances," "insu rance" and "acco unt s"r efer r ed t o ar e designed t o aver t a defau l t in t he N o t es andt he Bo nds, r espect ivel y . O nce an event o f defau l t in t heBo nds o ccu r s, t he t er m s o f t he I ndent u r e specifical l y pr o -vide t hat t he T r u st ee has t he .r ight t o pu r su e any avail a"l er em edy at l aw o r in equ it y , incl u ding r et aining t he N O J..t gageL o ans in sat isfact io n o f t he debt o wed o r sel l ing t n~ M o r t -gage L o ans fo r t he benefit o f t he bo ndho l der s t o ' :sat isfy "t:'~e"am o u nt du e t o t he bo ndho l der s u nder t he t ~ r m s o f t he I nden-t u r e. I n addit io n, as we expl ained t o y o u in a t el e~ ho neco nver sat io n o n A pr il 20, 1 982, t he T r u st ee wo u l d havepo ssessio n o f and u se o f t he cash as t o t he who l e o f t hel o ans t o sat isfy t he o bl igat io ns.t o t he bo ndho l der s. T hisam ou nt exc~ et 1s su bst ant ial ly t he am ou nt ne(,;essar yt o co vert he bo ndho l deL ~ ' o bl igat io ns since t he t er m o f t he M o r t gageL o ans exceeds t he t e~ ~ o f t he E o nds and t ~ e cu r r ent cashfl o w o f t he M o r t gage L o ans al so exceeds (by t bo u t 5%) t hecu rr ent o bl igat io ns o n t he Bo nds.

S eco nd, in discu ss~ ng an event o f defau l t u ndert he I ndent u r e u nder a ser ies o f Bo nds in t he seco nd co m pl et epar agr aph o n page 9 o f t he M ar ch 2 L ect .er , we st at ed in t hel ast sent ence t hat "[e)ven t ho u gh t he N o t es pr o vide fo rl im it ed r eco ur se (em phasis added) against t he co ll at er &l ,t he val u e o f t he M o r t gage L o ans wil l equ al at l east 1 05% o ft he pr incipal am o u nt o f each ser ies o f Bo nu s." Yo u r equ estcl ar ificat io n r egar ding t he t :er m "l im it ed r eco u r se." T he N o tes t hem sel ves ar e descr ibed as l im it ed r eco ur se o bl iga-t io ns t o descr ibe t he fact t hat r eco u r se is l im it ed o nl y t oco l l at er al , incl u ding t he M o r t gage L o ans, pl edged by t heP ar ticipat ing A sso ciat io n t o P r em ier (and, in t u rn, assignedt o t he T r u st ee) and no t t o t he P ar t icipat ing A sso ciat io n' s


18/34

000057st anl ey B. Ju dd, E sq.April 21, 1982P age 3

gener al fu nds o r o t her asset s. wit h r espect t o t he M o r t gageL o ans, u po n an event o f defau l t u nder t he I ndent u r e, t heT r u st ee, u nder t he t er m s o f t he I ndent u r e, has fu l l r eco u r seagainst t he M o r t gage L o ans secu r ing a defau l t ed N o t e.F inal l y , in t he seco nd sent ence o f t he final par a-gr aph o n page nine o f t he M ar ch 2 L et t er , we st at e t hat"[i]n an o ffer ing o f Bo nds, t he bo ndho l der ' s r em edies ar e(i) wit h t he co nsent o f P r em ier (em phasis added), t o r et ain

t he N o t es, 1 f no t in defau l t t hem sel ves, in sat isfact io n o ft he indebt edness, (ii) t o sel l t he N o t es o r (iii) if anyN o t e al so is in defau l t , . . . wit h t he co nsent o f t he P ar t i-cipat ing A sso ciat io n (em phasis added), r ~t ain t he M o rt gageL o ans in sat isfact io n o f t he debt o wed o r sel l t he M o r t gageI ~ ans and r et ain t he pr o ceeds which ar e su fficient t o ext in-gu ish t he debt o wed." Yo u r equ est cl ar ificat io n o f t hephr ases "wit h t he co nsent o f P r em ier ll and "wit h t he co nsento f t he P ar t icipat ing A sso ciat io ns." T he st at em ent o f r em e-dies avail abl e t o a bo ndho lder t hr ou gh t he T r ust ee o n' pagenine is a st at em ent o f t wo o f t he r em edies avail abl e t o abo ndho l der u nder Divisio n 9 o f t he C al ifo r nia co m m er cialC o de (t he "C al ifo r nia C o de"). sect io n 9505(2) o f t heC al ifo ~ nia C o de pr o vides t hat " . . . a secu r ed par t y inpo ssessio n m ay , aft e~ defau l t , pr o po se t o r et ain t he co l l at -~ r al in sat isfact io n o f t he o bl igat io n. Wr it t en no t ice o fsu ch a pr o po sal shal l be sent t o t he debt o r . : .. " S ec-ti on 9505(2) fu r t her st at es t hat "(il f t he secu r ed par t yr eceives o bject io n in wr it ing fr o m a per so n ent it l ed t or eceive no t ificat io n . . . t he secu r ed par t y m u st dispo se o ft he co l l at er al u nder S ect io n 9504. I n t he absence o f su chwr it t en o bject io n, t he secu r ed par t y m ay r et ain t he co l -l at er al in sat isfact io n o f t he debt o r ' s o bl igat io n.1ISection 9504(1) o f t he C al ifo r nia C o de, r efer r ed t o inSection 9505(2) st at es, in par t , t hat "ea] secu r ed par t yaft er defau l t m ay sel l , l ease o r o t her wise dispo se o f any o ral l o f t he co l l at er al ... " A cco r dingl y , t he phr ases "wit ht he co nsent o f P r em ier " and "wit h t he co nsent ,- ..,fhe P ar ti-ci pat ing A sso c iat io nll m er el y inco rpo r at e t he- t er m s o f S ect io n9505 o f t he C al ifo r nia C o de t o which al l secu r ed cr dit o r sin any t r ansact io n which is su bject t o t he C al ifo r nia C o dear e bo u nd. T hese sect io ns o f t he C al ifo r nia C o de do no tdim inish eit her t he dir ect cl aim by P r em ier against t he


19/34

., , . , " O O O O : l H

st anl ey B. Ju dd, E sq.April 21, 1982Page 4

M o r t gage L o ans in t he event o f defau l t o f ~ N o t e o r t hedir ect cl aim by a bo ndho l der act ing t hr o u gh t he T r u st eeagainst t he N o t es in t he event o f a defau l t u nder t he I nden-t u re and against t he M o rt gage L o ans t hem sel ves i f a N o t ealso is in default.We ho pe t hat we have been r espo nsive t o y o u r co n-cer ns. I f fu r t her c l a r i f i c a t i o n o f t he m at t er s set fo r t h int his l et t .er is r equ ir ed, pl ease cal l t he u nder signed, o r inhis absence, E r nest L eff o f t his fir m , co l l ect at

(213) 4.85-9001.V er y t r u l y y o u r s,

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21/34

1" '. -,- , , . , ~ ; . ~ . . u ;: ~'" . ,1" ',,1 ;" " " " .i, I'" ...l -"1" , ,1"11 ', '~ ,'" , f t . v r \ ,' .1 '" . " '' '' '1 '1 ( : ' ,: '1 ,. 11 '' ': ' , ,~ ~~.'\t',,,-~""Li~ t :" ~"?!~~v'lt,H',';('rL,, .,::,~4.1." ~"j,',-"" , " ' . . : . . . . l l \ l ~ ' . T " f ' . i . . : . ' . " , "Ym'f'""b7A1~ ~",;. .... " _ '.. ~ ........ " ..~ '""- ..I.... . .u._,.... . . . . . . .~ w t . , ._ . .. _J.... ........ \ . . - , A . . . ._J_, tIJ~~ . ..nOOD6n

sidney L . C in~et , E sq.S t anl ey B. Ju dd, Esq.August 20, 1982P age 2

Insu rA nce C or po rat io n ("F SL IC") r eceiver ship pr oceedingagainst Qne o r m o r e o f t he Par t icipating Asso ciatio ns,(ii) clar ificatio n r egar diI"g the st r u ct u r p. o f t he No t es andBo nds wi t h spec ; ~ic at.ca.r tio n paid i,o t .he m andat o ry r edem p-t io n pr o vi~ io ns o f t he Indent u r .e.dS t hey r el at e t o t hepo t ent ial fo r P r emier t o m ake a pr o fit, and (iii) info r I l l at io nco nce.r r unq t he de t .e m.ina+Lon o f t .he d.isco u nt ; r a t.e and t heco u po n r et e o n t he Bo nds.As discu Rsed in pr io r t el ephu ne co nver satio ns and

meetings wi th y o u and y o u r st aff, P l' em ier and the u nder -wr it er s believe that to su ccessfu l l y m ar ket the Bo nds, a A Ao r AA A r at ing fr o m S t andar d & P o o r ' s is r equ ir ed. Becau seo f t he o r iginal issu e disco u nt feat u r e o f t he N o t es and theB0~ ~s, ho wever , St andar d & P o o r ' s has expr essed co ncer nr egar ding (i) ~ct io ns which the F S L I C m ay t ake in the evento f a F S L I C r eceiver ship pr o ceeding co ncer ning one o r m o r e o ft he Par t icipating Asso ciatio ns and (ii) the claim o f P r em ier(and, i n t he case o f P .r em ier ' s defau l t u nder t l l e Bo nds, theBo ndho l der ' s) in co nnectio n with su ch a pr o ceeding.On Mar ch 10, 1982, t hr o u gh t il e effo r t s o f t hisfir m , a m eeting with t he F H L S S and F S L I C was ar r anged fo r

r epr esent at ives o f S tandar d & P o o r ' s, Dr exel Bu r nham L am ber tI nco rpo rat ed ("Dr exel "), u ndezwr it er fo r P r em ier and P r em ierin Washingt o n, D.C. A t that m eet ing, o n behalf o f P r em ie':,this fir m r equ ested an inter pr et at ive let t er fr o m t he F S L I Cest ablishing the secu r ed cr edit o r stat u s o f P r em ier and theBo ndho l der s. In co nnectio n with su ch r equ est, t his fir m , o nbehalf o f P r em ier , su bm itt ed a let t er dat ed Mar ch l l , 1982,t o t he FH L BB which set fo r t h o u r o pinio n t hat t he fo ll ?wingthr ee al t er nat ives wer e available t o t he F H LS S in t he eventa r eceiver is appo inted:(i~ P ay - O ff Bas~d O n F ace A mo nnt . P r em ~ er ~as a secu r ed cr ed~ t o r , wo u l d be ent ~ t l ed t o t he fu l l pr ~ nc~ -

pal amo u nt o u t ~t andin9 at t he t im e o f t he r eceivershippr o ceeding based u po n t he face am o u nt o f t he N o t e. Webelieve that su ch a r esu l t is co nsistent with t he natio nalbank r eceiver ship cases which ar e discu ssed in detail in asu bm issio n del iver ed by t his fir m t o t he F H LBS and fo r war dedt o y o u r ecent l y . T hese cases fix the r ights o f t he par t ies


22/34

~'I ,~ I. . . . . . . . . . . , .. ~.... " .. J

000061Sidney L . C im m et , Esq.Stanley S. Ju dd, Esq.August 20, 1982Page 3

at the m o ment o f inso l vency and per m it r et ent io n o f theco l l at er al (t he M o r tgage L o ans) t o insu r e that the co nt r ac-t u al debt is dis~ har ged, ir r espective o f an appar ent wind-fal l. S ~ ~ C o r bin v. F eder al R eser ve Bank o f N ew Yo r k,629 F.2a-233, 236 (2d C ~ r . 1980);(ii) Pay - O ff Baaed O n I nitial O ffer in9 P r iceP l u s A m o r t ized Dizco u nt ~ P r em ier , as a secu r ed cr ed~ t o r ,wo u ld be ent ~ t l ed t o the fu l l pr incipal am o u nt o u tstandingat t he t im e o f t t .e r ecei.ver ship bas ed u po n t}1,e initialo ffer ing pr ice pl u s that po r t io n o f t he o r iginal issu edisco u nt am o r t ized; and

(iii) N o -Defau l t Upo n R eceiver ship. A m end theIndent u r e, t he Bo ~ ds, the L o an and secu r it y Agr eement s, theAsso ciatio n N o t es and the R egist r ati~n S t at em ent t o pr o videaL J r efl ect that a F S L I C r eceiver ship wil l no t co nstit u te an"event o f defau l t " u nder any Asso ciatio n N o t e o r t he Bo nd.S u ch an amendm ent wo u id he m ade o nl y if t he F S L I Cagr eedt hat t he r eceiver r etain and co nt inu e t o ar r ange fo r t heser vicing o f t he P l edged M o r tgages secu r ing the par ticu l arA sso ciat io n N o te held by t il e r eceiver and co nt inu e t o m akepay m ent s o n the A sso ciat io n N o t ~.Under pr esent pl ans, P r em ier wil l go fo r war d wit hthe issu ance o f the Bo nds only if (i) t he FHLBS o r t he F S L I Cmakes a det er minat io n wit h r espect t o t he ~ecu r ed cr edit o rstat u s o f P r em ier ancl the Bo ndho lder s and (ii) o n the ba s i so f su ch co ncl u sio ns and o ther fact o r s, S t andar j &P o o r ' sagr ees t o r ate the Bo nds eit her A A o r A A A . We u nder standt hat the F H L s e o r the F S L I C will issu e a l et ter du r ing t hefir st week in sept ember which wil l addr ess the abo ve st at ejco ncer ns and r espo nd t o o u r su bm issio n.Yo u alao r equ est cl ar ificatio n r egar ding th~st r u ct u r e o f the o ffer ing wit h specific at t entio n dir ect edat t he m andat o r y r edem pt io n pr o visio ns o f t he I ndent u r e,specifical l y wit h r espect t o P r emier ' s abil it y t o m ake aprofit.


23/34

O O O U ( i 2

S idney L. C im m et , E sq.St~nley B. Ju dd, E sq.Au gu st 20, 1982P age 4

Pr emier wil l issu e pu r su ant t o t he I ndentu r e theBo nds t o pu bl ic investcr s. After t he r eceipt o f cash,Pr emier then wil l l o an su bstantial ly al l o f t he pr o ceeds t ot he P ar t icipating Asso ciatio ns. Each Par t icipating Asso cia-tio n in r et u r n fo r t he ~ lo u nt s lent t o it wil l execu t e anAsso ciatio n N o te in favo r o f P r em ier secu r ed pr im ar ily byPl edged M o r t gages. The co u po n r ate and the effective inter -est r ate to P r emier o n t he Asso ciatio n No t e wil l be higher~ han the co u po n r at e and the effective inter est r at e t oP r em ier o n t he Bo nds. The essential co ncept o f t he Asso cia-tio n N o t e is that t he aggr egate cash flo w which is pr o du cedfr o m t he pr incipal and inter est amo r tizatio n pay m ent s o n t heP ledged Mo r tgages secu r ing the Asso ciatio n No t es will besu fficient to pay in fu ll the hi-y ear l y inter est pay m ent sand mo nthl y r edempt io n pay m ent s du e o n t he Bonds based o n ano r m al am o r t izatio n schedu l e o n t he Bo nds. The r ange betweenthe co u po n r at es and tbe effective inter est r at e o n t heAsso ciatio n No t es and the Bo nds pr o vides fu nds to P r em ier tobe dir ected t o - t he T r u st ee t o fu nd trie: E xpense Acco u nt t o :co ver the co st s o f administr atio n .(incl u ding Tr ust ee'sfees) .P r epay m ent s o n P l edged M o r t gages are dir ect l ypassed- thr o u gh t he Asso ciatio n N o tes t o the Bo nds with ther esu l tant decrease in the pr incipal am o u nt t o be paid o n theAsso ciatio n No t e which is secu r ed by t he P l edged M o r t gagewhich is pr epaid and a dir ect pr o r at a r edu ctio n o f pr incipalo wed o n the Bo nds which is c.chieved by mandat o r y r edempt io no f pr incipal o n the Bo nds.Initiall y , Pr emier m akes a pr o fit fr o m t he u se o ft he fl o at which o ccu r s becau se the Par ticipating Asso ciatio nsr em it pay m ent mo nthl y o n the A sso ciatio n N o t es while theinter est pay ments to t he Bo ndho l der s ar e m ade semi-annu all y .T he mandat o r y zedemp cio n pr o visio ns o f t he rnde .t u r e ar e descr ibed on page 3 o f the Regist r at io n st atem entfiled by P r em ier with t he C o m m ission o n F o r m 5- 1 1 (R egistr a-tio n N u mber 2- 75630) (the "Re~ ist r at io n stat em ent") and inAr t icl e T hr ee, pages 19 t hr o u gh 21 incl u sive of t he Indent u r e.T h~ f~nds used fo r su ch r edempt io ns flo w fr o m t he N o tes int othe Redemptio n A cco u nt and the P r epa~nent A cco u nt which ar e


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,t t". . . . . . . . .-----OOOOB3

Sidney L. Cimrnet, E3q.stanley B. Judd, Esq.August 20, 1982Page 5

described in detail o n pages 9 and 10 o f t he Registr atio nstatement and section 6, pages 3 through 9, incl usive, ofthe Ser ies A S u pplement to t he Indentu re. pr emier 's oppo r -tu nity to m ake a pr ofit is created by its optio n to satisfymandat or y r edemptio n r equ ir ements by pu rchasing Bo nds ino pen mar ket o r privatel y -nego tiated t ransactions and su r ren-der ing such Bonds fo r cancel latio n rather than by cal lingthe Do nds fo r r edemptio n.

If Pr emier elects t o cal l a Bond, the Bond m ust ber edeemed at 100% o f the principal am o unt pl us accr ued inter -~st t o the date of the last pay ment on a N o te, o r in the caseof a mandat o r y r edemption which ar o se o u t o f a pr epay ment ona No t e, the date o f that pr epay ment t o Pr emier, which, int u rn, is made t o the Tr u stee. On the o ther hand, if Pr emierelects to satisfy the mandato r y r edemption pr ovision by su r -r endering fo r cancellation Bo nds which it pu rchased in openmar ket o r pr ~.vately -nego tiated transactions fo r less thanthe face .amaunt.o-#the.Bonds,-it..:..willa ke .a . .r o fi t. si nce . t he .. ,am o r tization schedu le on the bo nd disco unt assu med that theseBonds wo u ld b~ r etired at 100% o f face value. This conceptcan be ill ust rated by the fo ll owing example.Assu me that P remier issues its Bond in the faceam o u nt o f $100,000,000 with a 10% co u po n r ate.The Bo nds ar e ratably am o r t ized o ver 'a l O-y earperio d, and, at the date o f issuance, the Bo ndshave an effective interest rate of 16.5%. Thediffer ence bet ween the co upo n rate and the effec-tive inter est rate creates an o r iginal issuedisco u nt o f $22,556,892.After the r eceipt o f cash. Premier r .hen l oans casht o ~he Par ticipating Associations. The aggr egateprincipal am o u nt on the Associatio n N o tes equals$100,000,000 with a 10-1/2% co u pon rate and, att he date of issuance, an effective interest rateo f 17.15%, which creates an o r igin~ l issue disco unto f $ 22 ,783, 72 5.


25/34

UOOOH4S idney L. Cinu net, Esq.S tanley B. Ju dd, Esq.August 20, 1962P age 6

End (.)fYear 1I n the fir st y ear o f o per atio n, P r emier wil lr eceive aggr egate pa~nents o n the Asso ciatio n N o t eswhich t ot al s $16,192,200. T he cash r eceived wil lbe applied as fo l l o ws:Redu ctio n o f pr incipal o n the N o tesInter est Inco me o n the N o tes $ 5,974,286$10,217,914

$16,192,200

I n additio n, P r emier am o r t ized $2,781,418 o f theo r iginal issu e disco u nt t o o btain an effectiveinter est y ield o f 17.15% o n the Asso ciati~n N o tes.In the same fil:st y ear , P r emier wil l make aggr egatepay m ent .s o f pr incipal , and. Lnt.exes t, based o n no r m al~ m o r t izatio n t o t he Bo ndho lder s o f $15,856,088co nsisting o f $9,723,904 inter est and $6,134,184principal. The differ ence between the t o tal ag':1 r e-gate am o u nt r eceived by P r emier o n the N o tes andthe t o tal am o u nt r equ ir ed t o am o r t ize the Bo ndswil l he depo sited int o the Expense Acco u nt.$2,810,273 o f the disco u nt o n the bo nds wil l beam o r t ized t o br ing the effective y ield t o 16.5%.P u r su ant t o t he mandat o r y r edemptio n pr o visio ns o fthe Indent u r e, Pr emier m u st r edeem Bo nu s m o nthl y .Assu me that the face am o u nt o f $6,134,184 wasr etir ed in the fir st y ear by pu r chasing Bo nds inthe o pen mar ket at 60% o f face val u e (net cashpay ment o f $4,901,347.20) fr o m Bo ndho lder s whobo u ght their Bo nds o n the date o f issu ance at 70%o f face valu e. Since the am o r t izatio n schedu le o nthe Bo nd disco u nt assu med that tho se Bo nds wo u l.dbe r etir ed at par , the differ ence betw~en faceval u e, and the am o u nt paid by P r em ier r epr esent eda gain t o P r emier o f $ 1 , 2 2 6 , 8 3 6 . 8 0 .


26/34

. ,~'04. .....

00 ~ )O f)5

Sidney L. C imm et , E sq.St anl ey B. Ju dd, Esq.Auqus t; 20, 1982P age 7

P r epay ment s ar e handled essential ly in the samem anner . A ssu me t hat the No t e V al u e o f 2. prepay-m ent o n an Asso ciatio n N o t ei::i $1,000,UOO and thatthe face am o u nt o f Sl/OOe,Ooo was retir ed withinninet een day s aft er r eceipc o f t !l e pr epaYn1 f:..ntnthe Asso ciatio n N o t e by pu r chasing the Bo nd in theo pen mar ket at 80% o f the face valu e (net cashpay m ent o f $800,000) fr o m Bo ndho lder s who bo u ghtBo nds at t he date o f issuance at 70% o f face val u e.L ike a mandato r y schedu led r edempt io n, since theamo r t izatio n schedu l~ o n the Bo nd disco u nt assu medt ..~atthese Bo nds wo u l d be r et ir ed at face valu e,t he amo u nt paid by Pr em ~er r epr esented a gain of$200,000.I t sho u l d be no t ed t hat u nt il t he R eser ve Acco u ntis fu l l y fu nded, as pr o vided on page 9 o f t he Registr at io nst at em ent and Sectio n 6, page 4 o f the Ser ies A S u pplementt o t he ~ ndent u r e' ;' _;.P r .em ierwillnot-1:e-entitledt .o- any am o u nto f pr o fit r ealized in co nnectio n with the o per at io n o f themand~ to r y r edemptio n pr o visio ns o f t he Indentu r e. In addi-tio n, a po r tio n o f any pr o fit r eal ized by P r emier is dividedanl ong t ll e P ar ticipat ing A sso ciat io ns (S ee "P ay ment 's byP r em ier To The A sso ciatio n," Ar ticle Seven, page 1 6 o f theL o an and Secu r it y Agr eement) and Drexel (See "Underwr iting"page 39 of t he Regist r atio n St at ement").Final ly , y o u have asked ho w the disco u nt r ate andthe co u po n r ate o n the Bo nds ar e t o be deter mined. Acco r dingt o info r m at io n su pplied t o u s by Dr exel, t he disco u nt r at e,the co u po n r at e and the yield t o eve r aqe Ii fe on t he Bo ndsare all r el ated entr ies in their pr icing equatio n. Mar ketco ndi tio ns at t he t im e o f pr icing ,,;illdictate the desiredy ield t o aver age life t o pr o vide Pr em ier with a mar ketablesecu r it y . The disco u nt r at e will be deter m ined by Dr exelpr incipal ly o n t he basis o f deter m inin


27/34

.,.' ~. ,~. ., ' .11 . "

O O O O f H l

S idney L . C im m et , E sq.S t anl ey B. Ju dd, E sq.A u gu st 20, 1 982P age 8

We ho pe t hat we have been r espcnsive t o y o u r~ o ncer ns. I f fu r t her cl ar ificat io n o f t he m at t er s set fo r t hin t his l et t er is r equ ir ed, pl ease cal l t he u nder signed o rE r nest L eff o f t his fir m , co l l ect at (21 3) 485- 9001 .V er y t r u l y y o u r s,~ r.\) ~ ti*----Jo hn F . Del l a G r o t t a

JFDG:db


28/34

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Decem ber 22, 1 982OU04riL: ""u"~ut:n

04856E l izabet h T sai, E sq.O ffice o f C hief C o u nselS ecu rit ies and E xchange C om m issio n450 F ift h S t r eet , N .W.Ju di~ iar y P lazaWashinqt cn, D.C . 2054~

R e: P r em ier M o r t gage C o r po r at io nDear M s. T sai:

T his has r ef~ r ence t o y o u r t el epho ne co m m u nicat io nwit h m e o n N o vem ber 2~ , 1 982 r espect ing - t he pendin3r egist r at io n o f M o r t gage S t r eam Bo nds by P r em ic r M or tgageC o r po r at io n. I n t hat co m m u nicat io n, y o u r equ est ed fu r t herinfo r m at io n as t o t he pr o o sed l et t er t o be fssu ed by t heF eder ar H o m e L o an Bank Bo r d ("F H L S B"), a m at t er which has beenpending since at l east M ar ch 1 0, 1 982, anc y o u al so so u ghto t her info r m at io n. ~ s t o t he l at t er po int , as I info r m ed y o ut o day by t el epho ne, we canno t l o cat e any l et t er fr o m t heS e~ u r it ies and E xchange C o m m issio n seeking info rm at io n whichhas no t been answer ed and Jo hn F . Del l a G r o t t a, E Qq., whofo r m er l y was assigned t o t his m at t er , canno t r ecal l anyu nanswer ed r equ est fo r info r m at io n. Yo u wil l r ecal l t hatu nder dat e o f A u gu st 20, 1 982, we r espo nded t o a nu m ber o finqu ir ies o f t he S E C in a det ail ed m anner . We, o f co u r se,st and r eady t ~ r espo nd t o o t her issu es which m ay ar ise.

I n r espect t o t he F H L BB l et t er , t his sagaco nt inu ~ s. T o r efr esh y o u r r eco l l ect in, t he F H L DB l et t er is apr edicat e t o t he r at ing o f t he Bo nd5 by S t andar d and P o o r s("S &P "). A s a co nsequ ence, no e o nl y has P r em ier M o r t gageC o r po r at io n been in co nt inu o u s co m m u nicat io n wit h t he F H L S S ,bu t S &P , t hr o u gh it s co u nsel N eal Bar o n, E sq., (212)682-0903,is al so in fr equ ent co m m u nict io n wit h t he F H L BS as t o t hism at t er . T his ;ssu ~ co ncer ns what act io n t he F H L S B wo u l d t akewit h r espect t o t he no t es issu ed by t he co ncer ned asso ciat io n,which, wit h t he u nder l y ing m o r t gages, wil l su ppo r t t heM o r t gage S t r eam Bo nds in t he event t he asso ciat io n is in


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EliZ.lh0th '1'5.:1i, Esq.December 22, 1982P age two

r eceiver ship. The u nce r ta t nty o f F 'BLlJB u c tI o n , no t t he fo r r nthe actio n wil l t ake, is t he deepest co ncer n to S&? F o rP er m ier ' s par t, we ar e co nfident that u nder avplicable law thebo ndho lder s wo u l d co nt r o l t he m o r t y agcs in that 5it u ~ t io n.O u r m o nit o r ing o f the POLUS has pr o du ced thefo l l o wing info r m atio n which we believe t o be factual:The member s o f the legal staff assigned t o t he pr o ject haver eco m m ended t o t he F H L S B the issu an::e o f a fo r m o f l o ?t t er t heco ~ t ents o f which wo u l d satisfy S&P. T he Bo ~ r d member s o f theF A L S B met in September o n the staff r eco m m endatio n and decidedthat the member s o f the FH L BS needed m o r e info r m ~ t io n. Thelegal staff has, since September , wo r ked with S &P and o therm ember s o f the financial co m m u nit y t o 3chieve a satisEac~ o r yso l u tio n ~nd co u nsel fo r S &P info r m ed me this week that hebelieves this 30l u t io n has been r eached. The co mpr o m ise wheneffected, we believe, wo u l d r equ ire o nl y a mino r change in theindent u re do cu m en t which has been su b.,it t ed in connec t i o n w ;_ tilt he r egist r at io n.We a:"' eal so info xm cd that with nny r:l)fllp(IJIIII:jt, 1.},tJF H L BS wil l issu e the let ter so u ght in a short period of time.

S incer el y y ou rs,L E F F & S T E P H E N S O N('I ,,--'_'A J I / ' / '

By Cg/~t . .L. . ; / r > . . / "Er nest Leff \../0EL:bacc: Sidney L. Cim mct, Esq., Chief C o u nselS t anley B. Ju dd, Esq. Depu t y C hief C o u nsel


30/34

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04856S t anl ey B. Ju dd, E sq.Depu ty G ener al C o unselO f f ice of t h ~ ~ C h ie f C o un3e 1Divisio n o f I nvest ment M anagem entS ecu rit ies and E xchange C 0m missio n500 N o rt h C apit o l S t r eet , N.W.Washingt on, D.C . 20549

R e: P r em i~ r M o r t gage C o r po r at io nRe9ist rat ~ on Number 2-75630Dear M r . Ju dd:

We ar e su ccesso r co u nsel t o P r em ier M o r t gageC o r po r at ~ o n ("P r em ier ") wit h r espect t o t he co nt inu ing r equ estt hat t he Divisio n t ake ~ "no - act io n" po sit io n wit h r espect t ot he insu r ance o f it s ~ o r t gage S t r eam TM Bo nds ("Bo nds") ort hat P r em ier be hel d t o be exem pt fr o m t he pr o visjo ns o f t heI nvest m ent C o m pany ~ ct o f 1940 ("A ct ") pu r su ~nt t o S ect io n 6(c) thereof.

I n a r ecent t el epho ne co mm u nicat io n you have askedt wo qu est io ns wit h r esp~ ct t o t he r el at io nship bet ween P r em ieLand t he savings and l o an asso ciat io ns which o r iginat e t hem o r t gage l o ans ("t he A sso ciat io ns") secu r ing t he no t es issu edby t he A sso ciat io ns t o P r em ier and su bs~ qu ent l v ,h~ Bonds("N o t es"). We u nder st ~ nd t hese qu est io ns ,in su bst ance,t o b~as fo ll ows: F ir st : Do es P r em ier have any o wner ship o f t hemortgages? S eco nd: I n t he event o f a defau l t by o ne o r m o r eo f t he A sso ciat io ns do es P r .em ier have co nt r o l ~ ver t hem o r t gages and t he pr o ceeds o f t he m o r t gag~ s?

\,


31/34

'1 . .11 . f . 1,. U . i t

000070S t anley B. Ju dd, E sq.Janu ar y 24, 1983P age 2

Bo t h qu est io ns can be answer ed in t he affir m at ive.We al so r enew o u r r equ est fo r equ al co nsider atio n o f t he issu ewit h pr evio u s det er m inat io ns.Owner ship o f. M o r tgages. P r em ier can be co nsider ed t obe t h~ beneficial o wner o f t he m0r t gages while t heA sso ciat io ns r et ain I t~ gal . tit le.T he pr incipal go ver ning inst r u ment bet ween P r em ierand t he A sso ciatio n is the Lean and S ecu r it y A gr eement .P u r su ant t o t his agr eem ent, the A sso ciatio ns, t o secu r epayment ~f t he N o t es iss~ ed by the A sso ciat io ns t o P r em ier ,no t o nl y pl edge bu t assign t o P r em ier (1) th e m or tgages and,

separ atel y , (ii) t he pay m ents t o be m ade u nder t he m o r t gages(see sect io n 2.02). As m o r e fu l l y descr ibed bel o w, t hem o r t gages ar e del iver ed t o P ~ emier by t he A sso ciat io ns and ar eno t left in po sse3sio n o f t he A sso ciat io ns at any t im e. T heA sso ciat io ns have l im ited access t o ~he m o r t gages as r equ ir edfo r ser vicing t he m o r t gages. A s t he F ~ der al C o u r t o f Appeal sst at ed in F eder al Depo sit I nsu r ance C o r p. v. r 1adem o isel l e, 379F.2d 660, 665 (9t h C ir . 1967), par t icu l ar l y wit h r ~ spect t o anass ignment- of ..aymen.ts..to .",be-r.ece-i~E1"'inthefu~ure:"'.,A n assignm ent o f pay m ent s t o be m ade j~ f u t u r o ,u su al l y in t he fo r m o f acco u nts r eceivabl e, is hel dt o pass l egal t it l e in t t e pr o ceeds t o t h~assignee. ~ am sey v. M ar lin F ir ear m s C o r p., 14 F.2d31 4 CD.Conn. 1925). T he assigno r beco m es aco l l ect io n agent fo r t he assignee so t ~ at u po n t heinso l vency o f t he assigno r , t he pr o ceeds o f t heacco u nt s in t he hands o f t he r eceiver ar e t hepr o per t y o f the assignee. E st es v. E.B. E st es &S o ns, 24 F .2d 756 CU.Mass. 1927).We bel ieve t hat t he assignm ent o f t he m o r t gages, t hesepar ate assignm ent o f t he pr o ceeds o f t he m o r t gages ana t hedel iver y o f po ssessio n ~f t he n~ r t gages by t he A sso ciat io ns t oP r emier equ at es wit h beneficial o wner ship o f t he m o r t gages inPremier.P r em ier ' s R ight s Upo n Defau l t. In t he event o f adefau l t by o ne o r m o r e o f t he Asso ciat io ns, P r em ier has anu m ber o f co nt r act u al r ight s t o excl ~ de t he defau l t ingasso ciat io ns fr o m an int er est in t he m o r t gages.


32/34

S t anl ey 8. Ju dd, E sq.Janu ar y 24, 1903P age 3 000071

A s a pr edicate t o t he discu ssio n o f a deE au l t by o neo r m o r e o f t he Asso ciatio ns, it is u sefu l t o discu ss thephy sical l o cat io n o f t he m o r t gages at t he t jm e o f defau l t andho w t he m o r t gages go t t her e. A su m m ar y o f t he m o r esignificant el em e!,ts o f t his sit u at io n fo ll o ws:(a) Pending pay m ent fo r t he N o t es and befo r et he cl o sing o f t he t r ansactio n, the A sso ciatio ns deli~ er t hem o r t gages t o an escr o who l der . U po n pay m ent , t he escr o who l derdeliver s t o P r em ier phy sical po ssessio n o f t he m o r t gages.[See S ect io n 2.03 (c).J(b) P r em ier t hen deliver s t he m o r t gages t o t he

A gent - T r u st ee fo r t he m u t u al benefit o f P r em ier and thebo ndho l der s. [See Sectio n 2.03 (c).J(c) The Agent ho l ds t he N o t es and the m o r t gagesas agent fo r P r em ier and then as T r u st ee fo r t he benefit o ft he bo ndho l der s. [See Sectio n 9.01.J

T hu s, at t he t im e o f a defau l t , t he m o r t gages wil l bep hy s ic a l l y - l o ea t e d".on ';.:,.th~p.em dsas:.b,t :he.:I !' r u see:..:nd - cannc tbe r eached by any defau l t ing "asso ciatio n. .A su m m ar y o f P r em ier ' s r ights in the event o f adefau lt incl ude:

(a) P r em ier has t he r ight t o pr event t hedefau l t ing asso ciatio ns fr o m ser vicing the m o r t gages i.e., them o r t gagees wil l pay t heir m o r t gages pay m ent s t o so m e o t herser vicer (see Sectio n 6.05 (b)];(b) P r em ier has the r ight t o nam e t he su ccesso rser vicer [see S ect io n 6.05 (b)1i(c) The defau l t ing Asso ciatio ns may bepr evented by P r em ier fr o m execu ~ ing assu m pt io n agr eements [seeSect io n 6.02]; fr o m t em po r ar y po ssessio n o f t he m o r t gages fo rser vicing pu rpo ses (see Sectio n 6.03] and fo r r el easin9

m o r t gages u po n fu l l pay m ent o f t he m o r t gage debt r se~ S ect io n6.04]. In su m , t he Asso ciatio ns have no r ights t o t hem o rt 9agp.~ fo r any pu rpo se.


33/34

S t anl ey B. Ju dd, Esq.January 24, 1983Paqe 4 O{)0072

(d) ~ r em ier (and Agent) may (i) no tify t hem o r tgagees t o m ake pay m ent s to t he T r u st ee o r t o a su ccesso rser vicer , o r (ii) sell the m o r t gages. [See Sectio n 8.02.]T hu s, P r emier m ay assu me co nt r o l o ver t he mo r t gages andexer cise o wnership rights with r espect t o t hem as against theA sso ciatio ns su bject t o the r equ ir em ent t hat mo nthl y m o r t gagepay m ent s be paid t o an al t er nate ~er vicer o r the Tr u st ee. Inr ealit y , t hr o u gh o t her co ntr act u al ar r angements, P r em ieru nder t akes t o pr eser ve the m o r tgages fo r t he benefit o f thebo ndho l der s, ho wever , t his subject is bey o nd t he scope o f thequ est io ns pr esent ed.Requ est fo r E gu al C o nsider at io n. I n a lett er wr itt enby co u nsel fo r P r emier t o y o u dated Mar ch 2, 1982 we po int ed

t o nu m er o u s issces of m o r t gaged-back secu r it i~ s which had bee~r egister ed with t he Secu r it ies and Exchange Co m M i~ sio n andwhich were no t made su bject t o the A ct. Tr u e, each of t heseissu es wer e o f "pass-t hr ou gh" mo rtgaged-backed secu r itieswhile Pr emier seeks t o issu e "pay -t hr o u gh" m o r t gaged-backedsecu r ities. H o wever , no gener ic differ ence e:cists between a"pass-t hr ou gh" bo nd .and a "pay - t hr ou gh" bo nd. The differ encesin st ru ct ur e. ar e m inim a.l . ...Lt- wouJ.dbe. diff.icult ..to _ unds.rstandhow a "pass- t hr o u gh" bo nd wo u l d b E l ! exempt fr o m t he Act , bu t a"pay - t h r o u gh" 'bo ne wo u l d no t be exempt. We are r:Jf~.,tit t Lnqpages 4-5 o f t he Mar ch 2?, 1982 let t er as an at t achment t othis let ter . I n par t icu l ar , we again wish to em phasize asstat ed in the excer pt , t hat t he ~ m er ican H o m e, U . S . H o m eF inance and Mer r ill L y nch issues are in st r u ct u r e ~ nd eff~ctvir t u al l y identical t o t he P r em ier issue. Neither issue washeld t o be su bject t o t he A ct. We respectfu l l y r equ estapplicatio n o f t hese pr ecederit s to P r emier 'S bo nd issu e.

ConclusionIt is appar ent that t he qu estio ns r ecent ly dir ectedat P r em ier co nt inu e t o r el at e t o whether t he inter est whichP r em ier has in the No t es and the m o r t gages secu r ing the N o tesco nstit u es "inter est in r ea~ estate" as the ter m is emplo y edin the Act. We su bm it , that Pr em ier has the same "inter est inr eal estate" as the issues had in the Am er ican H o me, U .S . Ho m e

F inance, the Mer r il l L y nch and the o t her issu es r efer r ed to int he att ached ext r act . We believe this sho u l d b~ despo sitiveo f t he issu e.


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st anley B. Ju ~ d, E sq.January 24, 1983P age 5 000073

T o the ext ent o wner ship int er est i n t he m o r t gages byP r emier o r t he r ight o f P r emier t o co nt r o l the m o r tgagepay ments in the event o f a defau l t is necessar y t o r einfo r ce a"no actio n" po s:it io n o r an exem ptio n fr o m t he Act we havesu pplied this info rmat io n abo ve.

We ar ~ anxio u s t o have o u r r egist r at io n beco m eeffective as so o n as po ssible. S ho u ld fu r ther info r m at io n ~edesir ed, l ease do no t hesitat e t o cal l t he u nder si~ned,collect, at (213) 859-1200.

S~:jit .T!:rnestLefEEL/bdcc: S idney L . Cimm et, E sq.C hief C ou nsel

premier mortgage no action letter

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