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Key REMIC Provisions in Pooling and Servicing Agreements

Sep 10, 2008
A Commercial Mortgage Pooling and Servicing Agreement is an Agreement for the pooling and servicing of a large number of commercial mortgage-backed securities. A mortgage pooling and servicing agreement describes how pooled commercial loans will be serviced and dictates how proceeds and losses will be distributed to bondholders. Commercial Mortgage Backed Securities ("CMBS") is a collection of single mortgage loans gathered into one securitized pool. This pool is then transferred as a whole to a trust, which then issues a series of bonds that are sold to investors. The idea is that investing in pooled loans decreases risk by creating a diverse range of property types, creating a diverse range of property sizes, and creating a diverse range of property markets.

A Commercial Mortgage Pooling and Servicing Agreement will typically provide that the trustee of the trust shall elect to treat the Trust Fund as comprised of a certain number of Real Estate Mortgage Investment Conduits ("REMICs"), corporations set up specifically for the purpose of investing in a pool of mortgage-backed securities. The Trust Fund under a typical Pooling and Servicing Agreement in a mortgage-backed securitization contains, among other things, the pool of mortgage loans sold or transferred by the sellers into the trust, including those loans currently being serviced by the servicer.

In addition, a typical Pooling and Servicing Agreement will contain REMIC provisions that apply to the servicer of the pool of mortgage loans. A "servicer" means any person responsible for the management or collection of the pool assets or making allocations or distributions to holders of the asset backed securities. The term servicer does not include a trustee. The servicer is required to provide to the trustee upon request any information as the trustee may need with respect to the mortgage loans that the servicer is servicing.

The servicer may require the trustee to take certain actions or refrain from taking such actions as to the REMIC assets if the servicer furnishes the trustee an opinion of counsel stating that such actions or inactions may or may not result in an adverse REMIC event. The servicer is required to pay any taxes levied on the trust resulting from a Prohibited Transaction caused by a breach in the servicer's obligations under the applicable Pooling and Servicing Agreement or if the servicer, in its discretion, has determined to indemnify the Trust Fund against the imposing of such taxes.

The servicer is prohibited from accepting any contributions of assets to the REMIC, except with respect to substitutions for Defective Qualified Mortgages, unless the servicer receives an opinion of counsel from the party seeking to make such contributions stating that such contributions will not cause the REMIC to fail to qualify as a REMIC at any time that the Certificates are outstanding or subject the REMIC to any tax under federal, state or local laws.
About the Author
Mark Warner is a Pooling and Servicing Agreement Research Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents online drafted by the top law firms in the US that you can download, edit and print. Search For Free at http//www.RealDealDocs.com.
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