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Hello, everyone. We are about to begin. This is the Loan Purchase
Program webinar. We will begin.

Good afternoon. Thanks for joining us for a couple hours to talk about
these very important programs to help ensure that students and parents
have this. I will give a few introductory comments and then general
counsel will take us through. Moving on, just to make sure we are all on
the right slide, this program is on the loan participation. In case you
are halfway in with us, you have to log into the website as well as call
in the number. I want to repeat again if you want to download the
presentation you can do it directly from this site or you can also go to
the URL at the bottom of this page. A day or two following this we will
replace the one at the site with this including the audio. The
objectives for this, the target audience, once again, we welcome
everyone, lenders, holders, secondary markets that participate in the
program. We want to provide an overview of one of the components of the
loan purchase programs. This is specifically about the program and more
specifically to go through the master participation agreement, the
agreement that will be executed among parties for this program. We will
not be covering of the loan purchase commitment program, which is
scheduled for Thursday of this week at the same time using the same way
again. If you registered for this, you're registered for the other
automatically. You actually registered for the whole series. You will
get a reminder as we did today on Thursday morning to log into the
Thursday webinar and the same way. This will also not get into the
details of document flow, process flow. We will have subsequent sessions
on those topics. They have not been as visible as yet, but they will be
within the next couple of weeks. So to remind people what the problem
is, there is a serious lack of liquidity in the loan program, it\'s
generally not the fault or anything wrong with the program. Just a
general problem we have with liquidity. The goals of our programs are to
ensure that all students and parents who are otherwise eligible for a
federal student loan for 08-09 school years get one, that we continue to
support the public-private partnership and that the ensure there is no
additional cost. Legal authority is the active 2008 student loans, which
was enacted by Congress and signed by the president in May. We follow
that up with the Federal register notice which is required, on June
24th. We posted a draft. The official was published on the first of
July. We published just last week a correction notice to the July 1st.
In response to the liquidity problem and under the authority of the
legislation, the secretary has created two programs, this loan purchase
commitment program, which is the one we will discuss on Thursday, and
then the loan participation purchase program, the one we will discuss
today. We want to emphasize because be have been asked a number of
times. The law did not authorize the Secretary to advance funds or to
otherwise make loans. We have the authority to purchase loans or to
purchase participations, which is where we set up the two programs as we
did. What is the loan participation program level? We will get into
details. It is our ability to purchase participation and tresses and
gloves made if in the school year by having the lender place those lines
with a custodian in a participation facility. We will issue certificates
and buy the certificates. That would enable federal money to flow
through to the sponsor to ensure the quality for loans made. We
understand and acknowledge that under this program the lender we will
have to have some short-term financing but hopefully we will be able to
get them funds if they choose to participate and offered to sell US
participation interests. Those funds we provide will be where repaid by
the lender and a number of ways with interest back to the federal
taxpayer. That yield is the commercial paper rate as established thereat
the participation we will get into details about how these are redeemed
and we get into the presentation. Players are what are called the
sponsor and eligible lender. It includes secondary markets and
beneficial holders under eligible lender trustee relationships. The
custodian is an independent party that will hold title to the loan and
act as fiduciaries for both the accounting and actual cash flows between
and among the department and a sponsor. The participants which is the
department who will purchase the participation and pay the money and get
reimbursed. With that let me turn it over Dennis.

Thank you. Thank you for participating on the call. Hopefully we\'ll be
able to address some of the questions that you guys have submitted and
that we received and certainly I have heard from talking with members of
the community. One thing I did want to start out with, we are talking
about the master participation agreement, which is an acronym he will
see throughout the agreements. However, the state of the agreement is
that we are currently going through them and will be putting up a
revised version of the agreement. We have identified certain
inconsistencies were alleged inconsistencies, they said consolingly be
made more clear. And if more importantly and 55 of more broadly, but the
bigger issue, a couple of things that are typos or inaccuracies. For
example, early on we reference people to Section 21 of the agreement for
some definitional terms. So we are going to clean those things up. There
will be one substantive change related debt these things for
clarification, which will get into later on. So that is one thing that,
I think, folks will want to take a bet. When the final document is up,
and Lord knows, you will see it because we will make sure everyone knows
it is up. Of course in going through this in a power point setting it is
unnecessarily truncated. The document is some 60 some odd pages. We
tried to blow that down to the essential elements here. This is not
meant to replace the documents, but socially and hopefully will give
some additional insight and gloss on the documents and I\'ll the
department and interpret the document. So with that let\'s turn to some
of the key terms here. The first and a big one is the notice of intent
to participate. If you are on prior we tried to make the notice of
intent to participate and the purpose is painfully clear as possible. In
light of the change that we enacted just recently in the registry we
just want to every go over and restate what the deal is. The general
rule is that a lender sells of a buzz of intent to participate. Eligible
to participate in the program. They cannot utilize loans that they have
originated are required and put limits the facilities until they have
filed the notice of intent. Here is how it works. If on August 1st you
submit your notice of intent to the department had to take it and accept
it. On that date if you originated loan on that date or thereafter every
loan originated on that date and thereafter by the lender will be able
to be put into the participation program. However, loans that were
originated or acquired prior to August 1st would not be eligible.
Unfortunately it is a little complicated how it works because the notice
of intent a vest the loan itself, the paper itself with the ability to
be put into the facility as well as the best the individual filer, the
lender with the ability to push loans into the facility. We have gone
over that of the dust of four. Hopefully I think we as a did a lot of
questions on it. The key change here is, there was kind of a
grandfathering that we incorporated where if you filed your notice of
intent by July 15 or July 16 and that would mean all those funds that
were made or acquired by May 1 would be included and could be used. We
extended that to July 31. If you file your notice on July 31 any loan
originated between May 1 in July 31 can be put into the program as well
as loans made on or after July 31 as would normally be operated. I
encourage everyone to get in your notice of intent. The document does
not bind anyone to do anything. A couple of the key points. The
representation made is essentially that the originating lender or the
filer \-- what do you call it? He is intending the purchase originate
loans sometime in the future and that the department considers the
participation this year and this program to satisfy the requirement. So
hopefully this doesn\'t put the place \-- plus burden on anyone and that
you intend to participate as of the time that you file the documents and
that the participation that is contemplated is merely that you would be
making loans during this year rather that that would satisfy that
requirement or frankly that if you intended to do it Epsom letter point,
that too would satisfy the requirement. Of course the receipt date
determines loans and eligibility. So far we have to get the loan there.
Submission of the notice of intent does not commit the lenders to do
anything. There were some representations about the program. Sorry, I
went a little fast with the slide. The notice of intent says that if you
participate in the participation structure then he intend to put a
good-faith estimate of the \$50 million. Oh, there it is. And sorry. And
I don\'t see but \-- and the other \-- with regard there is a
representation there as well. With regard to the distant - - regard to
notice of intent of at least \$50 million. Let\'s break it down. If you
come in at 49 we aren't trying to come after you with federal marshals.
You have to have a good-faith estimate. Don\'t come to us and say, I
have never done more than 10 million dollars a year but agreed to do it
this year. That\'s not good faith. So we\'re going to rely on you guys
to do the right thing. We have implemented parts in here that says, you
guys can aggregate. There should be no reason why you guys said. In a
distant \$50 million is not a day average daily amount of the facility.
This is new money there at the facility. Let\'s return in September you
attend the Dallas and. And it\'s over you put them of the 10 million. He
takes 10 million out. You never had more than \$10 billion in at any one
time, but that\'s \$20 million in new money. This is over the course of
the life of the facility. So up until September 30, 2009. Hopefully this
will be a requirement. We\'ll kick into degradation issues later on. I
think that could mitigate anyone\'s perceived desire or need to of fudge
on deck good-faith estimate. The aggregation is simple. We had talked to
a number of lenders. I\'ll go over a quick example as to how this can
work. One created under has come up with this, which I think \-- we are
inclined to wait in on the merits, but I will weigh in on how it works
within the confines of this. We see no problems. Buying participation
interests in loans. So by July \-- by July 1, 2009 we received the
notices of intent to participate. The sponsor or custodian executes the
agreement through the adoption agreement. By August the sponsor decides
its option to sell participation interest through the participation
request. Let\'s break that down. Everyone rightfully is saying you have
to get this done now. I think there is good reason for that. But the way
it works is if you\'re kind of a latecomer or if you are okay now but
may want to use this facility that Ron, you can file your notice of
intent up until July 1. What that will cover is \-- and at that time you
also must file your agreement. You have to file the master participation
Agreement as well as the loan sale agreement. And what that would do is,
if you \-- this summer session. The arrears in getting loans bill solely
through the ability to put loans and. You could do so. He must give
loans and. Of the, I caution you, we are ending their facilities
September 30. This is a very short drive of time. But this is a certain
amount of flexibility that you have. Of course the sponsor may sell an
additional interest after July 1, 2009. I guess the key here is that
this sets forth the basic requirements. Let\'s say you are pushing the
envelope. You have a facility. You have loans for summer session. You
want the department to buy them. A couple of requirements. One is, the
loan has to be disbursed by July 1. That is first and foremost. If you
have a loan that is disbursed on July 15th is ineligible to be in the
facility. However, this is first disbursement by July 1, it can be put
in the facility. So you get in their raw July. But then you have to deal
with your final disbursement. The other half of the eligible loan
criteria is the first disbursement must be made by July 1. Final must be
made by September 30. We understand with regard to \-- certainly if you
are redeeming your interest \-- in Poughkeepsie this more specifically
later on. If you are redeeming your interest in the facility by buying a
loan back for value plus yields you can do so, and that\'s fine. You can
certify later on. You tell the department and the loan is eligible. The
issue, if you intend to redeem a loan in the facility through the use of
that option \-- and we won\'t go over the ups and in great detail, but
where it\'s relevant of talk about it. Remember, if you remember our
talk a couple weeks ago that option has to be exercised by August 14th
2009.So there is it a little bit of a disconnect. If he intends to
redeem bonds you must submit the paper work. But final disbursement
hasn\'t been made. Of course one of the key requirements is that we only
buy fully disbursed loans. Here we will take the certification that it
will be in this schedule that it will be finally disbursed to be
eligible for that. However, we will not consummate the sale if for some
reason it was not. So that is basically on the eligibility of loans.
Although I think this is pushing it to the limit. I think the more
normal course is going to be the stuff that happens prior to July 1. A
new way, the common man\'s to land, the lender must continue to intend
to make or required to sell bonds with funds for private sources when
they become reasonably available. This is a statutory requirement.
However, we have made its efficient. Hopefully we have given or
announced the lender concerns. The intent of is not to make lenders
enter this program costs to make loans in perpetuity or for any
perceived specific time in the future. What this was his to give lenders
flexibility. When the lenders get better they can satisfy this by making
loans or acquiring loans at some point in the future. As the notice of
intent sets forth this is an intense standard. We have heard an awful
lot of concern about this and hopefully this guidance will help lenders
understand what exactly we\'re looking for. We\'re not looking for a
business model to get stuck. Indeed, the making or requiring of one loan
would certainly suffice. With regard to definition we have talked about
those of borrower benefits. Of course the key is, of the borrower
benefit is going to of the dead \-- we have to assume that everybody is
the right to come to us through the push which is really the underlying
assumptions. Assets any loan that is in the facility cannot obligate the
department to do anything more than be set forth. What we so forth is
the reduction of interest rate of more than 1/4%. This mirrors what we
do. Certainly there are other borrower benefits that can be made. They
have to be front-end benefits. For example, if the lender wants to cover
or waive the fee for filing a loan application, that\'s fine. That\'s
not a problem. That doesn\'t of lead the department. We encourage folks
to make such concession that is the rule. If it impacts the Department
you can\'t do it. If it doesn\'t as something of and as an immediate
benefits. That\'s not going to be an issue. Of course moving on, the
eligible lender has to be an eligible lender as per HEA 435. Eligible
loans, let\'s go over this again. You have sell, so subsidized, and
unsubsidized. This is it. There are no other loans. Have there are
others in loans they don\'t go into the facility. In addition, the
payment has to begin on or after July 1. First disbursement is by May 1
and no later than July 1, 2009. We\'re talking about academic year
loans. One pointed of back-to-back, if you are putting \-- we have less
of bed of salt. You have to put this up in the facility and the ups at
\-- on sub. Likewise upon redemption there joined at the hip and both
have to be redeemed. The exception is the selling has a plus loan, a
plus loan is deemed separate. So it is seven of us on some of the are
joined at the head.

Let me interrupt. There is an error on this slide. I\'ll take blame. The
second bullet should say loan. That includes or begins. Just loan.

Right. And this is what we talked about before, the academic year. So
moving on, old Joe parts of the loan. The servicing agreement, it has to
be terminated or be able to \-- it must be terminable again, all the
loans in the facility, we have to assume. Although I can sit on behalf
of the entire department it is our intense desire to not have one of
these. We have to look at the worst-case scenario. One of the provisions
we have is while the loan is in the facility it is serviced as normal as
the marketplace would normally allow. So if they put a loan and the
facility that will continue to be serviced. There is no issue. The issue
is that in case the loan has to be put to us we need to take it free and
clear of any allegation with regard to servicing. That is why the
requirement is that the service agreements must be terminable upon 30
days notice. That\'s the key issue here. Again, he gets one crack at the
apple with the loans for each of the programs. There is only one because
we bought it. But with regard to the participation program lets pretend
the original lender has done everything and they made a loan. They then
sell the loan to the secondary market player who wants to \-- who has
also done everything they have required. They would like to put the loan
and a participation structure. That\'s absolutely fine. Let\'s also
pretend that he wanted to take a loan out. If they redeem the loan and
wanted sell it to another party. The bank takes the loan and wants to
put it in a participation structure. Can\'t do it. You get one chance.
And also one last requirement. Lender of last resort loans are not
eligible to be put into the facility. This is kind of an important issue
for folks. We wanted just highlight to consequences. This is date that
the custodian received as payment for the participation interests. Maybe
it makes sense to talk about the structure here. We are kind of going
point by point through the agreement, but the agreement may \-- the
agreement doesn\'t quite read like a story. So I think it\'s a good
breaking point to explain how life works. Originating lenders file the
notice of intent. They counted the department. I have the custodian. The
custodian is approved. Then they said the department, we want to do
this. They signed the agreement. Custodian sets up facility. They
disbursed the loan. Then upon disbursement they get the material to the
custodian and it gets transmitted to the lender. At that point the
custodian has to have title. They hold that title and Trust but have to
have it. This is the beneficial as well as legal interests. Because upon
purchase \-- rather upon transmission this gets divvied up into two
interests. The a and b. These are representative of the full and
complete beneficial interests and allow a. The legal title remains with
the custodian. Let\'s back up. You have a loan. The loan goes to the
custodian. The custodian retains the legal title. This is split into
Class A and Class B participation interests. Superior interests are the
one the department will buy. Class B is the one that the sponsor the
sponsor now passed. And the certificate basically says they have a right
to receive whatever is left over in the facility as well as the right to
put the bond to department as a method of redemption. The Class A and
tells the departments to receive the department\'s purchase price plus
the yield set forth here. So now let\'s go back to the purchase phase.
In the time line here originating lender would be sponsored desmids to
the custodian on Day one. Assuming all the documentation is ready and
available and is in good order the custodian and forecasts that to the
Department of Education. Let\'s pretend the Department of Education does
what it needs to do and at some point \-- we are saying here is roughly
seven business days, 10 calendar days. Although I can honestly say we
are working \-- couldn\'t be working any harder to cut that time down to
as few days as possible. Let\'s go with the worst-case scenario. So
seven business days later the department says okay. We\'re going to buy
this participation interest. Here is the money. They wire the money to
the custodian. On that day, the day where the money, that\'s the
purchase date. First, with regard to 799, that is the date of the sale.
What we have prepared from some folks is that they need have some sort
of advance notice as to when the sale is going to occur because there
are a lot of computer platforms. We can back to your purchase did
you\'re still date. You're going to work on that to give you that
adequate notice. The key thing is, the purchase date is the data for
your 799. Additionally \-- and the other concern is your SAP or the
subsidized Stafford repayments. Of course, the general rule is the
minute the loan is in a facility subsidized Stafford payments go into
the facility to pay down the debt. However, during that time in which
the loan is still unknown to by the sponsor and the department has not
completed the transaction thus triggering the purchase state subsidized
Stafford for the quarter for those days would go to the sponsor. And it
is only the remainder of the days in the quarter that they would go into
the facility itself. Let\'s take an extreme example. Let\'s say on the
first day of the quarter the index has risen it alone and done all the
documents in and the custodian being diligent has sent all the documents
to the department. So one day has transpired. Let\'s pretend that
department takes five days to review and process payments. And so let\'s
say that was Monday. On the following Monday that\'s the date payment is
made. So for the full week each of those days below was still being held
in trust but still was the sponsor's loan. It is only the rear of
remaining days from the second Monday, the Monday that is the purchase
date and thereafter they will go into the facility. We will insist
taking the other extreme example. Let\'s say. ...\[Indiscernible\] is a
loan and then holds it, just sits on the loan for 85 days or so and then
submits everything to the custodian. The custodian submitted to the
department. And then only on the 89th day is the purchase date. So the
first 88 days of that quarter the subsidized effort goes to the sponsor.
The 90th day that goes to the facility. Hopefully I\'ve made myself
clear. I know that was a concern for a lot of lenders. Hopefully we
addressed it. If you have further questions, please let us know. We
talked about the redemption payment again. Redemption payment. If there
is a hundred dollars loan that goes into the facility the department
will pay \$100. They aren\'t paying accrued interest. They originate and
send paperwork and. On dissects the department gets around they paying
beloved. We send the money to the custodian. So presumably there is a
good five or six days of accumulated interest and desirable. You can
think of that has increased \-- what did you call it, equity. So it is
\$5,100 loan. We are paying \$100. Then when you try and redeem that you
are talking about \$100. He paid us back our purchase price. And as well
as participate yields which is the commercial rate plus 50 basis points,
that of course multiplied by the purchase price. So you have the
purchase price plus participants field. Of course we will subtract
anything but it\'s paid previously. The \$10 will certainly come off
what is the road with regard to the specific fund. The department is
accounting for this on an aggregate basis. We will look to how much is
being paid with regard to that specific loan. To sell the participation
interests as set forth more fully in the agreement you have to put forth
to the participation Purchase request has executed by the sponsor. This
is also lists all the loans and with the offer participation. Let\'s
stop here. On day one of the facility the sponsor throws to put and \$50
million worth of loans. It but this is one of their of all the loans
that will be sold to the department. It is on that that the custodian is
use the Class A and B certificates. The following week and has discussed
with her aunt that department is purchasing loans on a weekly basis. The
following week there is another \$10 million of loans that the lender
was to put in. They would put in the request form. The sponsor and
custodian would amend the schedule. That would amend their certification
\-- the certificate that the department holds. We aren\'t talking about
a new certificate said it issued. We are really talking and amendments
to the first certificate sending forth all loans...(Indiscernible) the
return the copy. Any request is irrevocable and binds the sponsor to
transfer of the listed loan. So it keeps the but the suspicion and just
once we get it moving you can\'t take it out. Of course, you can take it
out, but that is dealt with as a redemption. Again, we talked about it
earlier. The sponsor transfers interests. The sponsor transfer of loan
documents to the custodian. Now, the custodian has to certify everything
is there. But knowing how the market works and that\'s typically a
sponsor or service there would be the one that holds the document, we
have allowed the custodian to delegate the obligation to make the
certification. They can delegate to the sponsor representative to the
service as the case maybe war for a place to another eligible under if
there is some reason why the custodian thinks that is the better course.
They can certify that the stuff is here and the custodian can rely
reasonably of the certification and making it certifications and in fact
all the documents or rather what to be. And again, we are purchasing
participation interests more than weekly throughout the facility. The
purchased it, the transfer of the long title, the additional
responsibility for payment and receipt of staff and your subsidies and
fee remission news from a sponsor to custodian. That to form submissions
will need to be submitted, one for the sponsor and run for the
custodian. If a purchase loan is the only loan evidenced by a promissory
note that that is held and the day of the custodian. If it\'s one of
several the custodian records that the custodian is the legal owner and
the sponsor of those other loans in which the interest has not been
sold. I think this is pretty self-explanatory. If there are questions
let me know. Essentially we are trying to work around both options where
you have one thing. The kid's a junior in college. We are looking for a
transfer here. Of course if the kid's a freshman then the note is held
by the custodian. Of course it doesn\'t change the obligation. The
council has detected any future loans, as they exist with the
originating lender. Certifications and schedules. The custodian delivers
to the department, the Class A. In this concert is to Class B. That is
exhibit to be. I think they are pretty straightforward documents.
Hopefully there aren\'t too many questions. I think they are as I
described. This is the superior certificate. Tickets paid first. The
certificate gets paid as outlined. Repayment of what we are owed plus
yield. Class B is the residual as well does the \[indiscernible \]. I
know the system and provides these participations a defeated this does
will that lists each loan involved as well as the certification of the
loan received as set forth in the agreement. And again, these are
requirements \-- these are eligible loans. Will probably talk about this
letter. There are two concepts with regard to redemption. There is the
voluntary redemption when the lender does it and then there is an in the
voluntary reduction when the sponsor says take this thing out. And as
set forth in Section 10B of the agreement which will get to there are a
number of representations to be made about the loan that the sponsor has
to make. And if we find it is an eligible for some reason the partner
will direct it to study in and say, it\'s time to buy this. You redeemed
the loan. Certifications and sizzles, funds received are in mid and
held. On prior calls we talked about this. The money goes in and does
not come out and so we kind of break it. That is true. So subsidy
payments. For example, all the money goes to the facility. A borrower
pays the servicer. They have an obligation within two days of receipt to
transfer that money to pay down the debt of what is owed. Any
cancellation, the cancellation payment would come into the facility to
pay down what\'s up. Of course any redemption payments that the sponsor
makes. Certainly there is no obligation that the sponsor has to make
redemption payments well the facility at any time prior to the close.
But certainly if the sponsor would like to, they are more than book and
to help pay down their debt. If they want to get a loan out that is also
covered. Those go in as well. The one exception is the initial payment
from head to the custodian for the purchase of the participation
interest in the first instance. This is amended whether it occurs at the
front end or after the second disbursement as the participation interest
level is up to maintain the 100% interest. Let\'s go through it. You put
\$100 loans said. They pay that. The custodian pays up the money as
directed by sponsors. Then that hundred dollars will leave the facility
and be directed out. Then in January there is a second disbursement.
Another underdog payment made. The department is notified of that by the
custodian and sponsor. We help our participation interests to maintain
the level. We send another hundred bucks. The custody and then pays that
or is directed to the warehousing. That is the money that leaves. No
other money leaves this facility and tell the facility \-- RSD change
that, the money leaves and that it comes to the Department. This way we
are able to pay down the debt. Ten dollars bills and. At the end of the
month that \$10 his sent to the department and we go pay treasury. But
the sponsors should not expect any money from the facility. Okay. The
custodian is going to use the funds on a monthly basis. First is paid to
the department and then the department. It\'s credited. And then in the
aggregate and then what is owed on the participation of interest. The
principal. If the full amount of the producer is zero the remainder is
allocated to reduce aggregate participation interest. Any remainder
which is really unlikely until we are talking closer to the end of the
facility is to be paid by the sponsor. Let\'s work this through. One
hundred dollar payment to is made. That goes to pay down the yield and
the facility as a whole. The extent that that is paid, whatever is left
over gets applied to the amount of the department\'s principal in there.
Let\'s say you have a \$100 loan. Will say that\'s \$3. You owe in total
\$103. If you get a \$2 payment it cuts down. We\'re talking about the
total value. Two dollars goes and. You have a \$5 payment. You take down
the field and there is an additional \$2. We are talking aggregate. My
example was for a one-loan facility. We are working on aggregate. If
there is anything else left the rest is paid to the sponsor. The sponsor
grants to the custodian the first priority. Of course, a key feature but
this is what say you take a loan out of the facility. If you are
redeeming it through \-- what do you call it? A private transaction. You
were able to sell the loan for a rate greater than what is owed to the
department. So what has to go into the facility is part plus pp plus 75.
To get a loan out you have to pay because that\'s what\'s owed. But if
you get any more money it has to go to the facility and is used to pay
down the debt load. Again, part of it is that it is superior interests
that must get paid first. A condition of letting a loan go out of the
facility is that we get all the proceeds. At no point that will be let
alone out of the facility but upon receipt of payment \< \[
indiscernible \]-in the amounts paid with regard. Said. Okay.
Disbursements. There has to be another \$30 million in payments made for
a second disbursement. Once we get notification of that the second
disbursement has been made we will send that money alone to remain in
the 100% interest holder. Again, the custodian for raises the subsequent
disbursement, but of course of the sponsor provides the funds needed to
make the subsequent disbursement. Again, in looking at the obligation of
custodian the custodian is only obligated to make the payment in so far
as it receives the money from the sponsor. They are supposed to transfer
payment, although they can certainly delegate responsibility. If the
custodian has a range for the subsequent disbursements and the
custodian, to the extent that they are on the cut at all, which they
really aren\'t. I suppose you get a crazy example. The custodian said,
we need \$30 million. Then the custodian went to the root of. We would
look for the custodian to say, where is the \$30 million. But if the
sponsor only gave \$20 million the custodian dutifully transmitted that
schools the custodian isn\'t liable for the short for. That is the
sponsors obligation to provide. Rather, they need to arrange for the
subsequent disbursement. They aren\'t a guarantor. Early on we talked
about \-- on the earlier session you file your notice of intent. The
next thing you want to do with regard to participation is submitted a
rolling good-faith forecast. Again, it\'s good faith. We aren\'t looking
for you to tell us \-- we are printed come after you if you\'re wrong.
Try and give a good estimate. This will help us plan and frankly be that
much more responsive and that much quicker in getting money to you guys.
The better we know and the more accurate information we have the better
we can serve. And we look for the estimates to be updated monthly as
better information becomes available. It\'s to the extent you can the
amount the sponsor expects to redeem each month. So let\'s say we are in
March. You see that you may engage in a sale. That is what your business
plan is calling for. He tried to move that. It would be nice. We would
like \-- it would be nice. We want to know that. The where we have a
sense of what will happen in the facility so we can prepare. Okay. So
each month \-- this is some of the due diligence stuff. Each month, the
Department sponsors will provide a listing of the principal and interest
payments received subjects to participation. That can probably come from
the service. Information and for each service or audit or annual
compliance operation related to the servicing and other information,
there has been some unease about some of this language. You want to make
it clear. We aren\'t looking to put onerous obligations on folks using
the facility. This is a reflection of, we really haven\'t been working
hard and expended a lot of time on this. We haven\'t had all the time
and the world to do this. Generally you would have had this for a long
time. So we just kind of left as open. But hopefully this won\'t cause
undue worry that we will be opposing group requirements on sponsors and
other participants in the facility with this other information. This is
one of those things that we may need. Okay. Within 60 days of execution
of the agreements the sponsor has to provide a statement of compliance
with the agreements. Also, later on throughout the facility there are a
couple of auditing points, including 90 days after determination and
also one at the six-month point. One thing, we are going to provide
additional guidance as to the type of audit we are looking for.
Certainly there is a heck of a lot of difference from guys coming and
checking math to guys reviewing every single document and picking up
every stone. Preparing to give you some guidance on that although it
will be somewhere in the middle of those two things suggested. One piece
of guidance we can offer and will provide later on is that this same
auditor does the agreed upon procedure letter and test the six months of
its can also choose the year-end audit. The same firm can do in each of
those functions and hopefully that will provide some efficiency.
Certainly what we didn\'t want is somebody to do the sixth month of it
and then someone come in at the end here has never seen this thing
before and is brand new. That didn\'t make much sense. So again, same
auditor can perform these functions and provide the agreed upon
procedures letter in the six month and year-end on it. Okay. On or prior
to the initial purchase the sponsor has to deliver \-- and this is not
\-- unfortunately the agreement doesn\'t read much like a story.
There\'s a lot of shopping around. Say you file your notice of intent.
You sent in your good faith twelve-month estimate. Now your next step is
to come to us and file your adoption agreement, your Officer
certificates and get the opinion of counsel which is on exhibit F. And
then certified copies of agreements to aggregate, transferred such as
existed. In Bill gets to that. Of course, with the adoption agreement
one of the signatures must be the custodian. As well as if the sponsor
is a beneficial holder their ELT that they operate under would also have
to sign this agreement. Sorry, I just want to clarify something. I\'m
trying to see what it was. I\'ll try and come back to it. All right. On
or prior to the initial purchase the sponsor \-- we talked about that.
Also delivers the reports of searches for tax and liens and judgments
and certified copies of service agreements, participation agreements,
other documents as requested. At other document as requested, that is
not supposed to cause any great heartache. This is as we see how the
thing works there maybe some other documents we find we may need. We
don\'t think so. We think we are pretty inclusive in this list of what
we would need. But that is what this means. And also these are documents
that are filed at the outset. I don\'t think these are going \-- for
those that are worried I don\'t think that come February this type of
person is bowing to apply. This is really at the other end. Especially
if we need additional documents you will be contacted. Now I remember
what it was. With regard to the custodian of course the agreement kind
of caught in place this sponsor interested in coming to the Department.
One of the things we heard from the community and we are very receptive
to and will be doing but be providing an approved custodian lists. What
will that do, if you look at section 10 of your agreement, which will
get to in a moment; it is all a matter of requirements for a custodian.
Some of those are representations\' that can be made by the custodian
because they are representations as to the custodian itself. There are
also some related to relationships that the custodian has with the
sponsor. What we are trying to do is have custodians file with the
Department certification package, preferably in advance, although we can
certainly do it at the same time. They can file their certification
package in advance with regard to those items that they can certify to.
We will review those materials and will maintain a list of approved
custodians, at least with regard to those representations. If a
custodian came and they wanted to be a custodian for \[indiscernible\],
that is a obviously not going to work. That relates to another
requirement. We will maintain a list of approved custodians and we will
see to populate the list with all due haste. So I cannot tell you when
other than to say sent because right now we are working with the
custodians to make sure they get the package and can get it to us as an
is they can. Obviously we have to wait for the custodian to make the
submission before we can pass judgment. We will be making an approved
custodian list. Now back to conditions precedent. On or prior to
purchase date the sponsor delivers to the Department of the Purchase
request. The Security release certification, this really has to do with
warehousing. We may talk about this of little later in the program, but
the Weyerhaeuser has a very important remedy. We\'ll talk about it in
Section 15. They have an important remedy here whereas they can upon the
presentation of the power of attorney to the custodian can say, look, my
guy hasn\'t paid. They are in default. I want my money. They can
automatically put a loan. They can do that notwithstanding the security
interests they would have while the loan is being held in trust. This is
something we will seek to clarify. There is a requirement for the loan
to be transferred to the custodian free of any liens. However, is a
veggie fully contemplates that someone, mainly the Weyerhaeuser is going
to have a security entrance and we will have to release that upon
payments. So we were making that verification, but the Security released
clarification is something that would get transferred to us in but the
original package. What that really says is that once the money goes to
the custodian we then have the obligation to transfer and on. Once the
department has paid the Weyerhaeuser release its security interest.
There is lack boxing and servicing instructions. In addition, the
sponsor also has to deliver other documents as requested. Again, this
does not present ownership but an exercise of undue caution we wanted to
make sure that we have the opportunity to make sure we have the agenda
to ask for the existing case we will very soon be coming to the extent
that we can flush it out, will be flushing it out. All cuffs no matter
what we have here and the package is describing in the agreement it will
be fairly efficient. Again, the sponsor will have to address for
documents related to their authority. \[indiscernible\]. And they have
to do the transfer the custodian. The DLC would have to sign the
adoption agreement. It\'s one quick thing. I know this stuff is
technical and complex. We try to make it as simple as possible. We did
try. But there is a certain amount of common sense. The adoption
agreement which is exhibit A has a space for the custodian, the sponsor,
and the department. If you do not have one you do not need to find one.
If you are an invisible under you just sign it. That isn\'t going to be
a defect in any kind of adoption agreement. If you don\'t have that,
don\'t worry about it because it just doesn\'t apply. Again, the sponsor
delivers the loan documents. The custodian receives them and certifies
they are there. The custodian then delivers the above schedule and
certification and the exception report. That is basically how the
transaction occurs. Now, there are a lot of warrantees. One person has
suggested that this is more akin to of real estate transaction than it
is to financing. That is a criticism I\'m willing to deal with. As we
were responsive to the concerns of their from the oversight and taxpayer
and frankly myself, I wanted to make sure that in light of the high
dollars that will be moving through the departments in a very short
amount of time that we wanted to make sure what we were buying is what
we thought we were buying. To the extent they were expensive \[
indiscernible \]. They\'re very standard. I think people typically leave
smiling. There isn\'t a lot here. It certainly would not be hard. You
should check the document fully with regard to all of the warranties.
That is in Section 10. You have sponsors. That was one that we thought
we just wanted to fight for you. Here is the one thing that I
foreshadowed earlier. The agreement says that\'s this has to be
followed. The law, regulation and standards set forth have to be
followed with regard to each signature. And we kind of thought we
understood what we were doing. We got some feedback and realize that was
a bit a more ambiguous than we thought. That will be one of the changes.
The signature standard, if you recall that was \-- that the Department
promulgated, there was a standard that had a number of discussion
points. And it had a bottle. And when we were talking about the standard
we are talking about the full document. Of course that contemplates the
applicability. If you follow our model and some judge somewhere says
your signature is not compliant and subsequently your loan is no good,
if that happened and you Pavlodar rules or rather our model the
department would back you up. If the other half of that is if you
didn\'t follow our model and a judge said that the loan was bad for some
reason the department wouldn\'t back it. What this is meant to suggest
here is that\'s that is what applies. Let\'s say you get a loan that
gets into the facility. You don\'t use a signature platform. That is
fine. It\'s completely except about. We are concerned. Let\'s say you
purchased the loan back. Now you have the loan and the four years from
now a judge says, your signature platform is not compliant. The rule
still applies. If you didn\'t use our model we are not backing you up.
And putting you in this facility Rex their representation as to the
appropriateness of your e signature platform in that regard. So let\'s
be clear. It is business as usual. If you have a platform, that\'s what
you use. If you think it\'s compliant, that\'s wonderful. We are not
requiring that you use the model that Ed sets forth. This standard is
the \[ indiscernible \] of documents talks about \[ indiscernible \].
The participation interests \-- that was a mistake. Sorry about that.
The custodian warns that in the representation is the first five are the
key ones. Has to be an eligible under those are the laws of the state.
Then you have \-- he have to have a long-term debt rating of at least
investment grade. The idea here is the result we were looking at the
guilty as being the only service custodians. The problem was that there
were too few of them. So what we wanted to do is expand the market and
basically did what we thought were established banks thought to know
what this is about and have worked on loans before and are going to be
able to effectively administer this program. So in expanding we did want
to put limitations of our requirements to make sure that we were getting
banks that could stand behind what they were saying. And that is what
this requirement is going through about the debt rating. Certainly
having to combine \-- combined capital and surplus is another key
requirement. How sound the bank is, of course it\'s not affiliated with
the sponsoring EMC. We just wanted to back up and address the minister
did capable one separately. You know, the custodian has to make a
representation and the department has to make a finding that the
custodians are would be custodian is administratively capable of
performing functions. What we are looking for is for certification is
based on your trust practice live. How much are you managing? How many
different facilities are you managing for? What is your staffing? 2D
typically put on these? Who are you going to put on this? We want to
make sure if you have adequate staff and leadership that are focused on
this facility to make sure that it is going to be running appropriately.
In addition, we certainly want to talk with the custodian and get a
sense of, this is the procedure and this is how things work with the
custodian so that we feel comfortable they are going to be an effective
custodian. And again, as I\'ve often said, serving as the first line of
defense with regard to the facility and managing and controlling all of
the substantial sums of money that will be going through it. Don\'t
think it is an onerous requirement, but it is something we want to
check. There are a number of other representations with regard to
sponsors, loans, custodians. I refer you to the agreement, but they are
awful standards stuff. You\'re in good standing. You\'re not subject to
criminal trials or anything like that. Nothing surprising. Next is
distribution. He had to set up a collection account that everything goes
into. The sponsor is going to \-- again, the sponsor has to cause the
services to deposit any moneys it receives. There is also an oversight
function of the servicer in that they have \-- they have to have some
sort of relationship to make sure that they are getting the money. So
the department is protecting itself by making sure that the sponsor and
to study and will get paid. And again, as I have said a number of times,
the department has its first priority security interest in the
collection accounts throughout the term of the facility. Again, at least
once a month. And again, at termination the custodian will does to
refunds on deposits and taking the easy example. There are 35 there is
\$50 million. Let\'s pretend there were 30,000 that came in that
particular month. The custodian will look to apply that \$30,000 in the
aggregate first to the participants. That is the \-- CP plus 50. Then to
reduce the principal balance. That \$30,000, however it ultimately gets
divvied up will then get sent to the department at the end of the month.
And then it could happen at any time, but it\'s sure as heck most likely
at the end if there is any money left over then that would be sent to
the sponsor. More likely the residual here is going to be loans for
which there is equity enough to cover the entire payment. For example,
if you have enough money that pays for another loan then that would get
released to you without having to make the future payment upon the end
of the facility. But of course if there is any money that would also go.

Okay. The purchase loans have to be serviced by an eligible servicer at
the direction of the custodian. That is kind of what I talked about
before. The key thing is to make sure the custodian gets paid. Now, we
don\'t anticipate a lot of money getting paid, but certainly there will
be some. And also we don\'t think this is particularly onerous and that
the custodians and sponsors in appointing the servicer reasonably and
maintaining a reasonable maintain airpark, I think it\'s going to
satisfy the custodians of legation periods again, it is not over side of
everything that\'s going on. The key function is making sure the
Department gets its money. Of course we are responsible for the payment.
Again, some of the things we talked about before, if you have to exhaust
the departments is the third-party beneficiary of the service agreement.
Provide that everything but deposits within two business days. And also
if the sponsor plus a loan through the department\'s you can terminate
that agreement. That gets back to what I talked about before. The
servicing agreement must be terminable on 30 days notice. The
department, we will not pay the conversion charge. We will talk about
this more fully on Thursday. We have worked the conversion charge into
the price that we pay upon the put. So we aren\'t going to be stuck.
That is really the only time I think it would come into play. Certainly
if a sponsor buys the loans and redeems them voluntarily without use of
them be dealt \-- other than what we would normally care, we don\'t
particularly care because then the operation works as The Wall. Now, as
the custodian has to ensure that the sponsor to take steps to enforce
terms and agreements of servicing, agreements and fitting prompt
payment. That is what I tried to be gone before. Key role, make sure
that the custodian is doing his job been paying assets and paying the
facility what is owed. The custodian has to notify the Department of the
service fails to perform its obligations. And the custodian cannot
consent. It is all pretty standard stuff. A lot of this is fairly
standard. On March 30th 2009 and then again September the custodian has
to plan the certification. A review will be conducted and the best
reviews so that the servicer had fulfilled its obligations and if it is
defaulted it describes the nature and stature. So this is something that
the sponsor has to give to the custodian and the to study and then
transfers to the department. I\'m going to try to cruise along so there
is time for questions. We have a number of slides. Liabilities and
indemnities, I think these are pretty typical of which you would have
expected in any deal with regard to the sponsor. The sponsor will
indemnify its own bad acts. A breach of representations\' or other
plans. This posture also indemnifies the custodian against liabilities
arising under the agreement with regard to loans. This has been a
hot-button topic that we want to go through. Hopefully we have covered
some issues. Here is how it works. The custodian is liable to the extent
of his duties under the agreement including the duties delegated to
others. So is the custodian responsible. The liability is cast. It is
cast as the amount of the fees paid. However, there is an exception. The
exception act in itself in bad faith or willful conduct, willful
malfeasance or negligence then it doesn\'t apply. So for example, if the
servicer is out burning paper, burning a loan, that would be a breeze.
That would be a problem. The custodian they have delegated certain
responsibilities and is watching over the servicer in that case. The
custodian to know what was going on. That\'s fine. We are talking about
a mere breach. It\'s also subject to damage is. That is another layer of
complexity, I suppose. This is if the servicer just one of the deep end.
If the custodian was there with the servicer burning the data is as well
then we are going to hold the custodian liable to the fullest extent we
can. And of course the custodian isn\'t liable for the punitive damages.
This is the last real important one. It\'s believed
the\[indiscernible\]. This is the redemption. The simple volunteer
redemption. Upon receipt of redemption payment of the loan. You have a
lot left in your facility. It is able hundred dollars a ton. You owe
\$100 plus the 50 basis points. Let\'s just pretend that it is now \$9.
So you owe \$109. You remit the payments to the custodian. You give the
custodian \$109. The custodian together with the Department is in charge
of telling how much you owe. So you asked. if want to take \$10 million
out, let\'s figure out what I need to do. If there are specific laws
that need to come out we can deal with that as well. The custodian then
remits payments to the department\'s and the transfer of legal title and
release interest. This is basically very intuitive how it works. You
come to the custodian and give the money. The Department releases
interest and life is good. You get your gun to do with what you will.
Now, when we talk about the simple redemption this is where you are
using money from another source or your own money. He won the lottery.
Or you get money from the market. The other way \-- the other way
redemption works is through the book. And what happens here is, if you
have loans and a facility you want to exercise. First to have to make
sure that the interests \-- I think we have given Feldstein to put in
the master loans sale agreement. If you are in the facility you have
until July 1st 2009 to get that and before you lose the right. And
again, the way it works is the notice of intent secure is your right and
defiling the master sale agreement maintains that right. However,
considering the similarities between their requirements and the
participation interest agreement I think it makes good sense to submit
both very soon in time. But that\'s just \-- there is a 45-day notice
present with regard to exercising. You have to put that in by the 210th
day. So let\'s be clear. If you\'re going I\'ll write you can wait. But
if he wants to put the loan to the department have to do it by the 210th
date. If you get to the 211 today we assume you are buying the loan and
had better buy it by the 255th day. When we talked earlier about the sub
and unsub loan being joined at the hip, they are. So you put her son of
an unsolved into a facility. Then he wanted to take her loan out. You
cannot just take that out. You have to take both. However, as an
acknowledgement with how this works, if you are going to put those to
the Department the department will consider those two separate loans. We
want you to take them out. It\'s odd for her to have to deal with two
people for the same year, but we are considering them to loans for the
purpose of the \$75 fee will be paying. Determination of the date of the
agreement, this is if you\'re putting the gun to be the department owns
full ownership of the loan and will make any determination. The
custodian of remits any excess redemption payment. Section 16, upon its
default the department can take remedy. These are spelled out in the
agreements. I don\'t think there are particularly noteworthy. If you
have questions, let us know. The department\'s work the sponsor may
remove the custodian and the department can terminate. Again, those with
the events of defaults and controversial. This just provides in case
there is some sort of real problem. You never know. Delegation of duty.
The custodian can delegate to another eligible lender, sponsor, or
servicer as provided. You know, the custodian can also change the entity
is delegated to. We heard a lot of comments about this, what happens if
it\'s stuck. The ability isn\'t doing his job. Well, that is an
agreement. That is fine. However, the custodian doesn't \-- designate
the following. They don\'t have to have physical title. They have to \--
they have to hold title to the loan. They are the ones that issue and
authenticate the participation certificates and participation interests.
They create and deliver the loan schedule and they hold and disburse all
collections, collect any money and that settled the amounts due. Of
course the department will consult with the custodian when it comes to
redemption. The custodian cannot resign without approval. What it says
is a custodian cannot resign. This is where the interplay of documents
works out. Would we view this as an amendment? If the custodian comes to
us and says, we want out, and the sponsor in or the sponsor says yes,
we\'ll take a look get it. If we have an adequate plan to transfer these
things then will allow it as an amendment. But we don\'t look for people
to be resigning and are the fault is that we don\'t want you to resign.
Some merger is used, nothing particularly exciting year. The
participation is nontransferable. Without the prior written consent of
all parties to the agreement. Fees and expenses, thus sponsor will pay
the cost and expenses incurred for execution of the agreement. Basically
everyone will cover their own fees, including the departments who will
cover their own fees. Perhaps that covers my salary. With regard to tax
matters the key thing is this is a partnership. The custodian has to do
the \[indiscernible\] and issue that\'s to the partners. Of course the
custodian does not have to fill out the tax return. They just need to
issue that. The department has the right is that a lot, appropriate, or
apply funds. So if you\'re in the facility please make sure you don\'t
owe us other money or we will use this as a means to make sure that you
are paid with everything that you owe us. If you \-- if the judge comes
in and says there is one provision that\'s bad, that doesn\'t mean the
rest of them are bad. Does it certainly looks to survive the
consummation of the acquisition of such judgments or the participation
itself. For example, if you warranted that as an at look at \-- eligible
loan and we later put the loan and find them somewhere that wasn\'t a
proper representation, then we\'ll go back to you and say, why is this
not an eligible loan? We will look to you to buy the loan backed. So
please, when you\'re doing this, make sure you don\'t take these things
lightly, particularly if you\'re the sponsor. It\'s the sponsor's
representations\' that are most key. Amendments, we talked about this.
Everyone must be on board. This is actually what I am probably talking
to earlier. Governing law, federal law, plus New York, this is part of
the agreement. Certainly if we publish in the to effective guidance we
will know that will be a part of the agreement as well. These are
nothing special. The terms not defined, have the meeting has assigned
and will be generally accepted. Then add a couple other basic issues
here. Then the exhibits. That was alive. I\'m sorry it took so long.
That\'s the way life works. I\'m happy to open it up. The assembly also
has something here.

Thanks. Take a rest. Take a breath. Take a drink of water. Then we\'re
going to take questions. I believe is a little to have to go about doing
that. She will repeat that. We\'ll go beyond the termination time if
there are questions, at least a reasonable amount of time. I\'m not sure
how what we can commit to stay here. Let\'s jump into it.

Okay. Just a reminder. If you do have questions, look to the top of your
browser window and look for that question and answer menu item. Click on
that and you\'ll get a box. Type in your question and then click on ask.
I\'ll start with the first question. What is the anticipated timing for
the documents to be completed and the program functionality to actually
purchase participation interest? Peak disbursements will be starting in
August. Is it reasonable to expect the department will be ready to
protect purchase participation in just-in-time?

Let me take a shot at that. We are working hard on a couple of things
here, not only getting the agreement in shape, but we will be issuing
three instructions on how to estimate the first set of instructions. We
are gearing up in terms of the systems and so on. We have had conference
calls with some of your representatives to make sure we are setting
these up properly. As I mentioned we will be scheduling a session
probably for next week to talk about the operation. We are \-- we
appreciate that loans will be serving very quickly. We are hoping that
we will be able to accept the documents within the next several days,
get them reviewed and approved properly and to inform people of what the
next steps are and be able to begin buying participation.

I don\'t have too much to add to that. I just want to reiterate that we
kind of got this authority late. We have been working around the clock
to try and get this done in a market acceptable fashion. We received a
lot of good comments from participants on this call and others. We want
to be responsive to those well of course dealing with our timeliness
issues. It is a balancing act. When I say very soon I mean very Soon.
But I think have led \[indiscernible\].

Okay. Next question. Will the custodian\'s was sponsored need a new
lender ID? If so, at what point does the US should need to transfer?

I will turn that over, but I want to clarify something. It is not a
custodian / sponsor. They are completely separate entities at all times.
So I don\'t know \-- I just wanted to get that out there and make that
clear. The custodian cannot be related to sponsor.

The short answer is yes. The sponsor will continue to use its lender ID.
That is the one that will be used \-- that it will use to have ownership
and therefore do guarantees and reporting. We will assign an ID to the
custodian of which will be a different id than the custodian has itself
as an eligible lender. Remember one of the slide said a custodian must
be eligible. We will assign a special ID. That is a 1-1 relationship.
That is the ID that the loans that does talked-about upon purchase date,
when we provide money that is when for this discussion titled changes.
That is the date that vendor ID will change from the sponsors to the new
one reassigned to the custodian. That will allow among other things of
reporting to be swept because I don\'t think these things can occur on
the first of every quarter. They occur throughout the quarter. Just like
any transfer of a loan in the middle their art to 799. One is at the
beginning and one is at the end. When we hit the operational section we
will spend more time on that.

Okay. And the one bite of the Apple view and the subsequent holder, why
can\'t they go to the facility, sells the of the put program for that
same law and assuming all of the documents were in place as required.

Let me see if I understand and if the questioner would like
clarification I\'m happy to do that. Here is how that works. With regard
to this program lets say lender X does everything he is supposed to do.
Then it takes it out of the facility and since it\'s a lender wide.
Under a white tent but that loan back in. That is done. That Apple has
been bitten. However, the lender can put the loan to the department.
There is nothing wrong with that. They can take that long. As some point
they will say pleased by this. They can do that any time up until August
14^th^, which is the last day. So I don\'t know. Perhaps I was unclear.
It is one by about putting it into a participation infrastructure. But
it is one overarching program and each element is separate. So if you
have a loan and a participation facility that gets taken out and that
loan is transferred the loan can be put to the department. It just
can\'t be placed in custody of facility. Hopefully I answered the
question. I don\'t know if there is any follow-up.

Okay. What happens to the payments after participation interests has
been sold? Are they used to reduce the possible balance of the loan in
the trust?

Let me take a shot. There are two or three slides where we pointed out
that any payments that come in on behalf of the loan have to be put into
the collection account established by the custodian. These would be
payments made by a borrower. They could be payments that come from the
federal government in terms of subsidies. All of that money goes into
the collection accounts and was all month it will be swept upward and
will apply toward what is owed to the department under the custody as a.
That will be our accrued but yet unpaid yields. Is that is fully paid
then you get into the participation of got and principal loan. Only then
would any of it killed back through the extent to the sponsor. We
understand there is a time value of money but we also understand that
the federal interest is best served by if there is \-- as there is cash
available that it be used to pay down federal debt. So all no matter
where they come from go into the collection account. Multi we take them
off to pay our yields. It reduces for later on. If possible it might
reduce some of the interest.

That\'s right.

There are a couple things I just want to get out there. Of this topic,
but I do want to save them while I have a run here. First with regard to
the bridge lender. The only requirement is that it is an eligible loan
and that they have a power of attorney which is, as I said, applies with
the applicable state requirements and that they come to be requirements
and say, we want our money. The way it works is we take the easy
example. Kuala Lumpur and devolves while they wait for the department\'s
\"to make its payments for example. That is the case. It\'s tough to do
in terms of time. That would be the most likely place of this comes up.
Upon default because the data comes to the department and says the
warehouse lenders says, here is my power of attorney. They make the
notice of a loan. At the point we pay it out for terms of the pledge
because there again the department hasn\'t paid anything. And the loan
is closed. It is a single this personal loan. There is no obligation on
behalf of the \[indiscernible\] to make the second disbursement.
Admittedly it is it a little bit inconvenient, but we thought that was
the most clean way to do it. This way you guys get your body can\'t
provide the incentive for protection. Again, as put forth in the
agreement the department intends to waive the requirement. The only one
you\'re keeping is the eligible loan. We can\'t buy ineligible loans.
Other than that there is no need to file a notice of intent. So
hopefully this provides sufficient comfort for the warehouse lenders. I
also wanted to talk about the aggregate year. We didn\'t get to talk
about that. We had a number of people come to us with regard to that.
There is one Model I thought was interesting and wanted to share. The
department has been in on the commercial aspects. Fine certainly insofar
as this is an example of one that would be the needs of the department
per the \[indiscernible\] unspent I want to highlight that. What
happened was you had a servicer in this case that was going to purchase
\[ indiscernible \]. The servicer would purchase the loan from smaller
banks in its home state. They would use as a means for a purchase price
in part and assignments of the amount the Department is going to pay.
You have the transfer of title going to be aggregated. The aggregate or
who now has a title transfer. They do what they need to do. The
custodian pays the servicer and the servicer direct payment to go
through the originating lender as part of the payment. This is an
example of one that works well because we have the aggregate that had no
relation to the loan in the first instance to has done a total and has
the ability to transfer title. Treasurers that total to custodian and
then the custodian is used the certificate in the name of the sponsor.
That is the way this is supposed to work. We think it\'s a pretty \-- we
were kind of happy. We thought it\'s a pretty the system. We hope folks
are trying to use it that way. The area has to have total completely and
without reservation says that the custodian can issue the certificates
in the name of the aggregate who is now the sponsor. The sponsor's
arrangements with the underlying vendor is the assignment of the payment
made by the departments. That is certainly not an issue under the
agreement and mirrors a warehouse line. It is kind of the lean that
would be based on those. I wanted to place that. We thought that was a
fair model or a fair example of how things would work. We do hope you
guys will look at the Edgar getting things for smaller lenders. So we
hope you will look at that.

Let me add one thing. The examples in his cave, the ever getting into T.
was not a opposable lender. Eligible lenders can also be eligible under
that is already going to participate for 50 million just will pitch up
\-- pick up some of the smaller guys to go along with it. It could be
one of the smaller ones that by itself does not have 50 million, but
finds friends and together they do. The important point is the 50
million can be met a number of ways by the small lenders working
together to make sure they have legal agreements that they keep their
rights to funding and ultimately rested decisions or whether laws should
be redeemed are put to department.

Let\'s take the next question.

Okay. On page 26 you state that the sponsor must own all loans other
than the loan participated through the department. How will this work if
where some of the loans had previously been securitized, for instance,
loan A has been securitized and is owned by the bank. Loan B is owned by
the sponsor and Loan C is the loan that was to be participated.

Can you repeat that?

Okay. Loan A has been securitized and is owned by the bank. Loan B is
owned by the sponsor. Loans C is the one that the sponsor wants to
participate to the department. How will this work where some of the
loans have been previously securitized was the original question.

I don\'t think that were experienced it can just play. We will shoot for
the beginning.

These are laws for this school year. There are about to be made work \--
if his boss or a lender is participating five other to the participation
interest for the purchase I don\'t know why they would securitized it
rescinded the. Beyond that depending upon the terms of the \[
indiscernible \] loan may not be eligible to participate or pitches is
similar to the short-term financing mentioned depending upon the legal
agreements. Perhaps it can all be released.

We are trying to understand the example. One interpretation of the
question is with regard to an MPN and that will say their freshman year
loan is in a secure place. The sophomore year loan is kind of bond by
the Bank and being held. The new loan is the new loan. It\'s kind of its
own separate thing. Obviously the custodian has to have they electronic
copy because it has to be the information certainly. We\'re talking
about the loans made pursuant. So in the first example of the loan, we
are talking about their freshman year alone. Unless their freshman year
is this year it isn't working. It doesn\'t come in. Similarly the
Sophomore Year, it doesn\'t come in. It doesn\'t even matter. So what we
are talking about, a real short window. If people were originating loans
in June and quickly securitized them and now want to put them in the
facility, the way to do that would be, you have to first file the notice
of intent. Then you have to file that by July 31. You take advantage of
that issue. But before it comes into the facility it has to be free and
clear of any obligations. I guess you have to pay off the investor in
that case. This way the loan is now free to be able to put in the
participation vehicle. So I hope I answered the question. It\'s kind of
complex. Perhaps it was a suggestion that maybe this relates to the MPN
and the various loans and how that will work. That works as normal. The
loan that is made this year fine, if it\'s the third loan made pursuant
it\'s fine. That comes in. There is no issue. It\'s not a loan-based
document. There are multiple loans pursuant. So we are talking about the
loan made this year. An earlier loan is securitized. That would have no
bearing on the loan made this year that is unsecuritized.

Next question.

On page 25 of the presentation are you saying form 799 \[indiscernible\]
is required for both the quarter for the disbursement date is made?

Let me try to respond differently. Let\'s say the loan is made at the
beginning of September. It\'s put into the participation and goes
through all the stuff. We pay for it on the tenth of September. That is
the effective date of change. The sponsor thing as a lender and sending
at the end of the quarter will include the loan for the 10 days in which
it held it. That is in terms of interest subsidy. And of course the
fees. The fees were the lenders when they made it. So this would be
filed in early October using the sponsor lenders. At the same time a
separate 799 will be prepared with the custodian for vendor ID for the
remaining 20 days of the quarter. That would cover sap and any interest
subsidy for the remaining 20 days. Then at the end there would not be
any fees on that because they were handled by the vendors. In
conversations we\'ve had with operational folks in the community it is
not required, but likely that for both the servicer of the sponsor and
the servicer of the custodian will be preparing them. We don\'t care who
prepares them as long as they're prepared properly and the correct edits
are included. This occurs in January. I\'m sorry, we have another
quarter, October through December. Let\'s say nothing happens on this
loan. Early in January we get one. If I were in a classroom I\'d ask you
what number would be on it. You would all say the custodian. They have
the loan for the entire quarter. Then we go into the second
disbursement, which occurred on the 25th of January. It\'s file that the
end of March for that quarter. Again, they would only be one. It would
be issued under the custodian. It would include the first disbursement
for the entire quarter, the second disbursement in dollars from the
\[indiscernible\] through March 30th can\'t pick would include the
second disbursement fee because it was under the custodians legal
ownership that those fees were taken from the students and have to be
remitted back. Again we understand that in many cases these, even the
ones that are single that are going to have the custodian could be and
we are fine with, in no way that we might prefer to be prepared by the
sponsors servicers so that there is consistency \-- consistency and did
not overlap. We have some documents as we talk a little bit about our
runners of people have next week on operations. We have sized the will
take people through this.

Will updated documents be required to be sent to the custodian when
lines are sold?

Not sure. What do you mean? I don\'t know what you mean by updated
documents. The documents that are required in the agreement are kind of
spelled out.

You know, maybe we should just answer it this way. Documents like
promissory notes and other documents or documentation of promissory
notes will be provided when the loan is placed in participation. If
their redemption method is selling maybe the question is will the same
documents be the ones they get transferred from the custodian to the
Department. I suspect the answer is yes. I don\'t think we need to put
the documents. There might be additional things, but if that\'s the
question then I think the documentation we receive \-- that the
custodian receives to support their activities would suffice \-- will do
another review to make sure they are acceptable, but I expect those same
documents will work.

If necessary will the Department exempt the custodian from the primary
consumer credit function will under which no more than 50 percent of an
institution\'s consumer loans can be student loans?

Yes. We have talked about that. It is my understanding that it doesn\'t
apply in this circumstance. The custodian is holding it in trust. It is
not theirs. The 50% rule isn\'t indicated by this feature.

It is not so much a waiver.

Right.

I think in future guidance \-- we will have future interpretive guidance
and a questions guide. We will put this on so that it\'s clear. But our
legal read is that it doesn\'t apply.

Will the sponsored need a complete new guaranteed agreements and/or
servicing agreements for the new L ID that is assigned?

They won\'t have to do agreements. We have had some conversations. We
need more. Our position will be that the custodian is an eligible
lender. Presumably they have agreements with one or more guarantee
agencies. Since they are fairly large bags we suspect agreements with
multiple guarantee agencies. We will issue guidance that states and
better terms than this that the new lender ID that is specific for this
custodial relationship is for administration purposes only and any
agreements that the eligible under now acting as custodian has with the
agency, those with coverage new ID. There will be, of course \--
agencies will have to make sure that their systems can now accept data
with a vendor I.D. that they weren\'t expecting to get it is an
administrative process. We will clarify the legal part that the existing
agreements cover this new administratively needed the vendor ID.

Can you repeat how the record interest works? What happens the facility?

Let\'s say you have a simple unsubsidized loan. It\'s in the facilities.
It\'s a \$100 loan. So while there interest accrues as it would
normally. What happens is if the department \-- if the redemption method
used is to put the loan to the Department of the department will pay for
the accumulated interest. If the facility is redeemed without use of
that then obviously there is no need to redeem. You just pay for the
interest.

And what will happen in both those cases is the current holder of the
loan, whether it be the sponsor or somebody they sell it to, will now
have a loan for the value of which will be the principal still owed and
all that accrued interest that they will collect. If the ultimate holder
is the department that is why we paid for the outstanding principal
balance and the air crew aboard interest because that is the value of
that loan. We will collect from the borrower the principal and accrued
interest and of course the additional accrued interest. The only
tourists, if the borrower makes a payment at any time while in the
facility then of course the bar of the credit for that in terms of the
loan with interest and principal, but that gets thrown into this account
for us to begin paying down the custodianship or the facilities that.

I think earlier I\'d talk about the accrued interest, which represents
equity. If we are paying for put redemption, which we would be, that is
an increase in price. That is an increase in the amount of money of log
bill and said the facility to redeem that particular loan. So that is
kind of where it goes with increased equity.

When does that 255^th^ day and put back to the sponsor and Does this
survive termination of the loan participation agreement? Does it
continue?

No. Come September 30th 2009 if you have a loan, it's your loan. Could
buy. Both programs end forever on September 30th 2009. We will not be
receiving any loans nor will there be any participation facilities that
you can use after September 30th 2009. So the short answer and the
correct answer is no.

So that loan that creeps toward unfortunately default, at that time
which is why we set 255 days, it will either belong back to the sponsor
and we will hopefully not default, but if it does, normal rules. Or if
we did notice 45 days before it comes to us and we will do everything we
can to prevent the default. But there is no guarantee.

After a loan has been put into participation if there is a negative sap
at the end of the quarter and not enough money to pay its is the sponsor
their own responsible for payment?

Hold on. The money in the facility does not get used at any time to pay.
It stays and is used to pay down what is owed on the facility itself.
SAP \-- the lender has to come up separate, independent, and apart from
anything that\'s in the facility. That is the first clarification. The
answer to the question is that they have to come up with that, but that
seems to be a little bit more. If we talk about cases where they\'re
being filed with the custodian ID because they have held it for the
entire corporate listed part. As a result if that\'s negative and
frankly it\'s likely to be because these loans are almost always going
to have a negative sap. Unless they are offset by some significant
amount of subsidized portion let\'s assume there is a negative
\[indiscernible\]. It will show money owed and we expect payment just as
we do with any 799, but that money, the custodian is just acting. Says
the money has to come from the sponsor. If we did not have this program
the sponsor\'s lender would have to come up with the same money. There
is no extra money. It is it a little bit about timing and flow.

And this was kind of a hard and fast requirement. We didn\'t see any way
around this. We had to have cash on hand to pay the SAP. There have been
some very novel and interesting thoughts on how it\'s a deal with this,
but also believe we aren\'t going to be able to go with that. We are
going to have to require that they be paid in cash and not through
assignments of other rights, for a stable, which was one interesting
example of accumulated interest and unsubsidized which is another very
creative example, but it did not look like we will be able to go that
way. You have to pay it in cash. Next question.

Will they provide a form of custodial agreement?

No.

Has a decision been made on who will be servicing the loans under the
put option?

That is a wonderful question. We have our answer down on that one. The
department has not made a decision as to who will be servicing loans. We
require that the servicing agreements be terminable and that the
department will make his determination in a manner that it sees fit and
can address the needs of the department at that time.

What is the process by which a custodian can request a custodial ID?

Well, as Dennis mentioned, we have been talking with entities that are
interested in being custodians and working that out and will work with
them to provide us with the regimentation that we can give our approval.
We will publish a list. The actual ID that we talked about will be
assigned upon submission by the custodian \-- let me do it in better
order. By the lender, sponsor and the eligible trustee of debt adoption
agreement and those related documents. And we receive those documents as
we move them along and we will get back to the entity that submitted it
and give them information including the vendor I.D. that the custodian
will views upon approval of the agreement. We\'re getting the go ahead
of ourselves. This is part of the package that helps to get out. Not too
many more ways on how to submit these documents. We\'ll follow up with
next steps including assigning this. We know this is important. If the
custodian hasn\'t been approved yet we can guarantee agencies to say if
the Fed\'s approval is my number will be ABCD. Let\'s get our systems to
work. Will there be to offer legal opinions that differ from the legal
opinions a task as exhibit F?

Well, from what I understand the required representation to be made by
counsel. That isn\'t changing. Nor is the wording changing. I don\'t
know what other possible changes. The form of that is listed or
submitted as exhibit F is the attorney\'s letter, the council letter
that has to be signed. I think there are couple of filling the gaps
bases. That is the form.

If they want that at \-- thanks, you are doing a great job, we would be
okay.

Will a UCC financing statement be filed upon each purchase?

I think it\'s on the entire pool. It\'s not on each one. I think that\'s
how it is. \-- that is a good issue. It\'s on the pool itself and not
each individual one. The way the certificate works, it gets amended each
time to include all the loans. So it would be on all of them. It
wouldn\'t have to be each one.

We will include the.

How is the lender supposed to collect accrued interest on unsubsidized
loans placed in the participation facility?

We already answered that. Most of the time it won\'t be collected
because these kids are still in school. It will assist the crew were
come to us. If there are payments made we discussed that they get swept
up to pay their debt to the government.

Section 21 requires that the Department of Education consent transfers,
assignments, such as in the event that the sponsor assigns the
participation be certificate to a third-party lender to a warehouse or
other arrangements how does the sponsor and third-party lender go about
getting the Department\'s consent?

The default position is that these are nontransferable. I suppose we
will have some sort of guidance and quickly as questions as to how to
deal with this. The initial courses, we have listed contact people in
the register and in the agreement itself. The process is set forth on
page 34 of the notice requirement. I guess it would be there that it
would first \-- that they should first turn where it gets routed in
here, that is kind of what we have to deal with.

We do not expect this to happen. We will look very carefully upon such a
request.

Sponsors can not be their owns a custodian, which can there be custodial
and sponsor relationships?

Can you repeat that?

Can there be reciprocal sponsor and custodial relationships and then
give an example.

Sure. Bank of X is the sponsor for the custodian for Bank of Y. Bank of
Y says, hey, you be my sponsor. As long as they are separate, that is
fine. We are all friends. Maybe not. I don\'t know. One thing I want to
talk about. The \$50 billion with regard to this facility, it\'s a
good-faith estimate. The department thought long and hard. One of the
reasons why because we knew it would serve as an issue for some of the
smaller guys. We include the whole aggregating concept as something we
think is good. But the \$50 million in the facility was an important
administrative concern that we had said come to grips with because of
the administrative requirements and the cost associated with them. So it
wasn\'t something we did willy-nilly, but the \$50 million requirement
does cover the \-- I think it is summer in the neighborhood of 75% of
the total dollar value of originations. Is for the entire market. And
also \$50 million was a natural breaking point. It wasn\'t something
that \-- the next guy on the list was a 49. We thought this was a
natural spot. It wasn\'t something that we took lightly when we made. I
just wanted to make sure I got that out there. We aren\'t changing it,
but hopefully the aggregation is going to work. Next question.

What type of notification would the borrower receive with regard to
participation? Is a seamless or would there be some form of notification
of the Department of Education interest in the long while in the
facility?

Student Borrowers in my mind would not even know, no knowledge
whatsoever. They\'re relationship is solely with the servicer as far as
payment and such. There would be no need for them to know. The answer is
none.

It would change, of course, if the threat alone was but call placed to
the department. Ownership changes in the rules about notifying the
students if the service said Chase and all of that would apply. But the
time it\'s in the participation facility, another way of saying it is
the certificates that the sponsor holes which gives the sponsor certain
rights, it also keeps them with certain obligations.

Next question.

Is there a specific address work contact person \[indiscernible\]

For the certification, everything we need will have a specific addresses
whether e-mail or postal addresses. It\'s three business
\[indiscernible\].

Read. Don\'t get me wrong. I suspect that I may be one of the votes. You
may be talking to people looking at this. We will get that up into
haste, perhaps by the end of the week. I have spoken to a number of
folks who wanted to be custodians. By the way, if you would like to be a
custodian I am happy to talk with folks. It is in the department\'s
interests to make sure we have custodians that know what they\'re doing.
Happy to talk and give guidance. As well as the overall requirements.
However, note no later than the end of the week we will get something up
that says if you are a custodian and you would like to be approved prior
to coming to the Department please send it here.

By the way, let me make a point. The addresses you have, we usually give
both an address to send some of are in and this is Postal Service and
one if you send one by a career or express mail. We strongly encourage
you to use the carrier and express mail. Not that we don\'t love the
Postal Service, but because of security reasons our mail goes through a
couple of processes. It generally as a few days delay.

Who will receive any sap accrued for the amount between a second
disbursement and the purchase date?

If you follow the logic in if you go back see the example I mentioned
earlier the second distress call was made on January 25th. The sponsor
decides \-- doesn\'t decide until May 1st to put the loan to us. From
January 20 through April on the 799 that is filed on the Net a special
allowance and he\'s a would all be included in the would just simply and
the date repaid and purchased the loan.

Does the sponsor have to pay the monthly amount of record interest
payable to the Department of education that is not available on the
collection accounts? Does the count continue as interest payable until
such time as it becomes available in the collection of the account in
subsequent months?

It is the latter part. We aren\'t going to require anybody other than
requiring payments of Stafford loan fees or lending fee or origination
fee. The question uses interest, we\'d like to use the word yield. We
aren\'t contiguous any cash floating around, but we are going to require
cash payments beyond what normally comes in under the loan. We will get
it all at the end.

We will the sponsors / custodian needs a complete new agreement were
servicing agreements for the new allied deicide?

No, we answer that. We will put of the sponsors and lenders and
guarantee agencies and custodial entities that we see this as simply an
administrative assignments.

We are going to do two more questions and then cut it at that point.

We have the other session on Thursday. We\'ll give you details after
that.

On page 53 you stated the custodian must transfer a legal title and
cancel the participation interests in the loan on the request. However
the custodian will not receive funds for at least 45 days. What right do
the sponsor and custodian have in the loan during that time or does the
sponsor and to study and have no right other than a perfected right to
receive payment from the Department?

Actually, I\'m looking at it. I don\'t think that\'s the best
interpretation of the words on there. The 45 days notice is simply that.
It\'s a notice that 45 days \-- at least 45 days from today \-- whenever
that is, sometimes in September I\'m going to sell a loan, and various
loans. That allows us to do some sizzling with the Department of
Treasury and allows us to keep that timeframe for us to give you money.
Nothing happens until we purchased a loan 45 days from today. We will
take a look at the screen. None of that transfers until we actually pay
for it. A state the last question and will do a that\'s will wrap up.

For new borrowers can we have \[indiscernible\] lender\'s eyes
sponsor\'s name? If not then we can\'t use the participation option on
loans which we already received a promissory notes.

I think there is a misunderstanding. Not only do not need to do that,
you can\'t do that. The loan must be made. For the first disbursement
must be made by in originating lender. The process to know whether it be
an existing MPN between the barber or a brand new one, there is no empty
and that that the discussion should have his name or number on.

I noted it wants. It has halted its with a number of questions.
Remember, the sponsor and to study and hard to separate things. We have
to keep that in mind. Fifth they go with the loan or the pool of loans
to the custodian. So it is important to keep these concepts and players
very separate.

And that, I think, there is a lot of material. We want to take you
through the entire participation agreements we have important legal
stuff to cover and make sure that federal taxpayer and students but
separate \-- protected. It has to be included. I know we have more
questions and we\'ll try in a number of venues to get them answered
either in subsequent webinars or in other postings we put. Remember,
[www.federalstudentaid.gov/ffelp](http://www.federalstudentaid.gov/ffelp).
When this is done we get a chance to double-check a few things. We will
get this posted to the site. You will have an opportunity to go to that
site and go to this as you could for the earlier one. If you have the
need to listen to it again or at least portions of it, we will have one
at 2:00 Eastern time on Thursday dealing with the purchase program. If
you already registered as you did for this one you don\'t have to again.
The vote was likely log on and get a reminder as you did today. Other
folks that did not register, you can encourage them to get to the web
site and register. We thank you all for those of you who hung on with us
for putting in two-and-a-half hours. We thank you for your support of
these programs.

Thank you. That concludes this session. Thank you for your
participation.