2509001 Informal Interpretation

Dear PNO:

We are writing to confirm our thinking on the application of the ordinary course of business exemption to the transaction described below.

Background:

We represent a bank (Bank A) that is entering into a transaction to sell a portion of its mortgage servicing rights (MSRs) portfolio to Bank B. The premium paid by Bank B for the portion of the portfolio being sold to Bank B exceeds the current Size of Transaction threshold, and the ultimate parent entities of Bank A and Bank B satisfy the Size of Person test.

Bank A is engaged in several aspects of the mortgage loan and mortgage servicing business. Specifically, its mortgage servicing business includes the following: 

1. holding MSRs that are independent from the mortgage loans to which the servicing rights relate; 
   1. subservicing mortgage loans for other financial institutions; 
      1. holding MSRs related to another portfolio of mortgage loans for Freddie Mac;
         1. servicing mortgage loans it originates (where Bank A holds the mortgage); and 
         2. servicing second mortgages such as home equity lines of credit that it originates to borrowers.

Proposed Transaction:

Bank A proposes to sell to Bank B a portion of the independent MSRs identified in category (1) above, subject to receipt of applicable investor approvals. Following that sale, it will retain and continue to service a significant portion of those independent MSRs.

Following that transaction, Bank A will continue to engage in the mortgage servicing business detailed under categories (1)-(5), although it has agreed with Freddie Mac to terminate the servicing portfolio under category (3). It eventually hopes to sell its servicing and subservicing rights under categories (1), (2) and (4), although has taken no concrete steps to do so. Bank A intends to continue its mortgage servicing business as it relates to servicing home equity lines of credit under category (5) indefinitely.

Ordinary Course Exemption Application: 

We believe the proposed transaction is exempt from the requirements of the Hart-Scott-Rodino Act as an ordinary course of business transaction under Section 7A(c)(1), as Bank A will continue its mortgage servicing business following closing and has taken no concrete steps to sell its servicing and subservicing rights under several of the categories. Informal Interpretation 2302006 states that “The Premerger Office long has previously advised that sales of mortgage servicing rights are exempt as being in the ordinary course of business so long as the seller is not exiting the mortgage loan servicing business. See ABA Premerger Notification Practice Manual (5th ed. 2015), Interpretation Nos. 99, 106.” Available at https://www.ftc.gov/legal-library/browse/hsr-informal-interpretations/2303006; see also https://www.ftc.gov/legal-library/browse/hsr-informal-interpretations/9910007(“[S]imply ceasing to service certain types of mortgage loans will not, by itself, make a transaction ineligible for the ordinary course exemption where the institution will continue to service other types of mortgage loans”).