# Presentation: 546038

## MASTER LOAN SALES  AGREEMENT

JULY 24, 2008

**JULY 24, 2008**

**FFEL Loan  ****Purchase Commitment Program**

## Presenters

- Jeff Baker
- Federal Student Aid
- U.S. Department of Education
- Dennis Cariello
- 	 Office of the General Counsel
-      U.S. Department of Education

## Loan Purchase Commitment Program 

- Introduction
- Jeff Baker
- Federal Student Aid
- U.S. Department of Education

## Logistics

- Title: Loan Purchase Commitment Program
- Master Loan Sales Agreement
- Date:  July 24, 2008
- To Participate You Must –
- Logon at URL provided in registration confirmation e-mail; and
- Dial in to 1-888-324-6476 Confirmation number:  MGERHARD
- Additional information on the Loan Purchase Programs at www.federalstudentaid.ed.gov/ffelp

## Webinar Objectives 

- Target Audience:  FFEL lenders/holders, secondary markets, servicers, and guaranty agencies.
- Purpose: To provide an overview of the terms and conditions of the Master Loan Sales Agreement for the Loan Purchase Commitment Program.
- Limitations:  Will not cover the Loan Participation Purchase Program and will not include details on process flows, data elements, cash flows, reconciliations, and compliance.  This information will be provided in subsequent webinars.

## Problem & Goals

- Problem:
- Lack of liquidity in financial markets impacting ability of FFEL Program lenders and secondary markets to find cost effective financing.
- Goals:
- Ensure that eligible students and parents receive federal student loans for the 2008-2009 academic year.
- Support the FFEL Program as a successful private/public partnership.
- Ensure no net cost to the government.

## Legal Authorities

- Ensuring Continuing Access to Student Loans Act of 2008 (P.L. 110-227)
- H.R. 5715
- Signed by the President on May 7, 2008
- Federal Register Notices
- Required by statute
- Draft Posted to IFAP on June 24, 2008
- Official Publication July 1, 2008
- Corrections Notice Published July 17, 2008

**Notes:**
The original notice gave lenders 15 days to submit letter of intent for loans made between May 1 and date of notice to be put to the Department.  That date has been extended through the correction notice published on July 17.  That notice also contained a corrected Notice of Intent to be used.

## Response

- Two Loan Purchase Programs –
- Loan Purchase Commitment Program (the “Put” Program); and
- Loan Participation Purchase Program.
- The law does not authorize the Department to make advances or to otherwise “lend” money to FFEL lenders.

## Loan Purchase Commitment Program 

- Master Loan Sales Agreement
- (Posted July 10, 2008)
- Dennis Cariello
- 	Office of the General Counsel
- 	U.S. Department of Education

## Section 1: Terms

- Notice of Intent to Participate
- Lender may not sell a loan to the Department that was first disbursed before the date ED received the lender’s ‘Notice of Intent to Participate’ (NOI), except –

-  If ED receives the NOI by July 31, 2008,
-   interests in loans first disbursed on or after
-   May 1, 2008 may be included.
-    ED will respond to submission within two 	business days.  If no response, call
- 	(202) 377-4401.

## Section 1: Terms

- Notice of Intent to Participate
- Originating lender’s NOI ED receipt date determines a loan’s eligibility, not a subsequent holder’s NOI ED receipt date.
- Submission of NOI does not commit lender/holder to sell loans.  It only establishes the option to to sell and the eligibility of loans.
- No minimum purchase amount required to participate in the “Put” Program.

## Section 1: Terms

- Establishes the terms under which a lender may sell eligible loans to the Department.
- Bill of Sale and Loan Schedule required (Exhibit B).
- Lender must notify the Department of intent to sell by August 14, 2009 and sale must be complete by September 30, 2009.

## Section 2:  Commitment to Lend

- Lender (Seller) represents to the Department that it:
- Will continue to participate in FFELP.
- Will make or acquire FFELP loans with funds from private sources when they become reasonably available.

**Notes:**
This is a simple representation that describes the lenders intent at the time the notice and agreement are signed.  No legal action could be taken by the Department to enforce this statement of intent unless there was evidence that the lender knowingly made a false statement when signing the representation.  For example, the lender is the only entity in the position to know whether “funds from private sources become reasonably available”.

## Section 3: Definitions

- Eligible Borrower Benefits –
- An unconditional upfront borrower fee reduction(s) that is accrued and paid or made prior to the date on which a Participation Interest is sold to ED;  and
- Reductions in interest rates of not more than 0.25 percent, contingent on the borrower’s use of automatic payment process.
- Eligible Lender – an entity that meets requirements of HEA §435(d), including an ELT.

## Section 3: Definitions

- Eligible Loan –
- Only FFEL subsidized and unsubsidized Stafford Loans and Federal PLUS Loans (parent and grad/student). Sub and unsub must be included together.
- For loan period that includes or begins on or after July 1, 2008.
- First disbursement on or after May 1, 2008 and no later than July 1, 2009.
- Will be fully disbursed no later than September 30, 2009.

## Section 3: Definitions

- Eligible Loan –
- Servicing agreement must be able to be terminated with no more than 30 days notice.
- Loan may be sold even if in, or previously in, the Participation Program.
- Loan not eligible if Lender of Last Resort Loan
- Seller –
- An Eligible Lender or the holder of beneficial interests in Eligible Loans.

## Section 3: Definitions 

- Purchase Price
- For each loan sold ED will pay an amount equal to the sum of –
- The outstanding principal balance of the loan, as of the Purchase Date;
- The accrued and unpaid interest due from the borrower, as of the Purchase Date;
- Reimbursement of the one percent loan fee paid by the lender pursuant to HEA section 438(d); and
- $75.00.

## Section 4:  Sale/Purchase

- Seller must provide ED with at least 45 days notice of intent to sell loan.
- Sale will be consummated when:
- Seller satisfies closing conditions;
- ED receives Bill of Sale - with loan detail schedule (Exhibit B);
- ED receives Notes and other required documents.
- ED makes payment to lender.

## Section 4:  Sale/Purchase

- Each seller can sell loans no more frequently than weekly.
- Servicing rights must be released upon sale.
- Servicing transferred at the direction of ED.
- Any holder (not just originating lender) can sell loans.
- Subsidy and SAP through purchase date – using normal 799 Form process.
- Guaranty ends upon sale.

## Section 5: Conditions Precedent

- Initial Document Delivery
- At least ten business days prior to first purchase the Seller must submit to ED:
- Adoption Agreement (Exhibit A);
- Officer’s Certification (Exhibit C);
- Opinion of Counsel (Exhibit D).

## Seller must also:
Provide a security release certification if loans have been pledged.
Notify borrowers of the sale, as required.
Provide an irrevocable power of attorney to ED.
Provide an Agreed Upon Procedures report from an independent public accountant.

- Provide a security release certification if loans have been pledged.
- Notify borrowers of the sale, as required.
- Provide an irrevocable power of attorney to ED.
- Provide an Agreed Upon Procedures report from an independent public accountant.

- Section 5: Conditions Precedent

## Section 6:  Reps and Warranties 

- As to the Seller:
- Is duly organized and in good standing in its State;
- Is an eligible lender or beneficial holder;
- Operates program in compliance with applicable laws and regulations;
- Has full power to hold and sell loans;
- Has executed and is not in violation of the Master Loan Sales Agreement.

## Section 6:  Reps and Warranties

- As to the Seller (continued):
- Transfer of loan shall be treated as a sale on the books and records of the Seller;
- Is solvent and will not be rendered insolvent as a result of the sale; and
- Has appropriate internal controls that verify the existence and accuracy of its legal documents, credit documents, and underwriting decisions.

## Section 6:  Reps and Warranties

- Loan Level Representations:
- Seller has good and marketable title to the eligible loans being sold;
- Seller is authorized to sell, assign, transfer or reacquire loans;
- No consents or approvals required prior to sale;
- Loans were made and serviced in accordance with applicable laws and regulations;
- Not in violation of agreement.

## Section 6:  Reps and Warranties 

- Loan Level Representations (continued):
- Provides for the repayment of the loans through a schedule that fully amortizes the principal balance at maturity;
- Borrower payments have been allocated to reduce principal and interest on the loan;
- Due diligence and reasonable care has been exercised in making, administering, servicing and collecting on the loans;
- Borrowers were eligible to receive the loans.

## Section 6:  Reps and Warranties

- Loan Level Representations (continued):
- All loan fees were paid to Secretary;
- Beneficial interest will not remain with the Seller that would result in the loans being included in the Seller’s estate in the event of bankruptcy;
- An electronically signed note must have been signed in compliance with applicable law and regulations; and
- Loans have not been pledged or otherwise conveyed.

**Notes:**
Need to address the issue of e-sign standards here.
Also need to address how it is possible to have a single prom note that evidences each loan in the context of MPN.

## Section 7:  Rescission of Purchase	

- The Department may rescind its purchase of a loan if:
- Any representation or warranty made or furnished by the Seller proves to have been materially incorrect; or
- Any circumstance or event that occurred prior to the purchase date that a borrower asserts with respect to the borrower’s obligation to repay all or part of the loan that the Department, in good faith, believes raises doubt as to the legal enforceability of the loan; or
- The loan is not, in fact, an eligible loan.

## Sections 8 and 9

- Section 8: Obligation to Remit Payments and Communication
- Sec. 9: Continuing Obligation of the Seller

- Any payment received by the Seller after the  sale must be forwarded to ED’s designated servicer within 2 business days;
- Any written communication must be forwarded to ED’s designated servicer within 2 business days.

- The Seller must provide assistance to ED to resolve account problems raised by the borrower.

## Section10: Liabilities and Indemnities

- Seller shall indemnify the Department against:
- Any taxes that may be asserted as a result of the transaction; and
- Any liability for any and all costs, expenses, losses, claims, damages and liabilities arising from the Seller’s willful malfeasance, bad faith or negligence.

## Section 11:  Transfer of Servicing

- The Seller agrees that loans are being purchased on a servicing-release basis.
- Servicing arrangements must be terminable upon 30 calendar days notice.
- The Department shall obtain all rights to service and at its sole discretion require the deconversion of the loan for servicing directly or through a third party.

## Section 12:  Merger or Consolidation

- Upon the merger, consolidation, or other assumption, the new entity must –
- Assume all of the original Seller’s obligations, and
- Submit to ED –

-  The Officer’s Certificate (Exhibit C)
-  The Opinion of Counsel (Exhibit (D)

## Section 13: Expenses

- ED is responsible for its own legal fees and expenses.
- Seller is responsible for all other costs and expenses associated with the preparation, execution, and delivery of the sale, including any deconversion costs.  The $75 per loan fee that is included in the purchase price can cover these costs.

## Sections 14 and 15

- Section 14:  Survival of Covenants
- Section15: Communications and Notice Requirements

- Terms of the agreement survive the acquisition of loans provided on the bill of sale.
- All communications, notices and approvals shall be in writing and mailed or delivered to the address designated.

## Sections 16 and 17

- Section 16: Form of Instruments
- Section 17:  Amendments; Waivers

- All instruments shall be in the form set forth in the attachments to the agreement.
- Any documents may be amended with written consent of all parties.
- No waiver or modification can be made unless it is consistent with the requirements of the HEA and is in writing and signed by the party against whom the waiver or modification is sought.

## Sections 18 and 19

- Section 18:  Audits
- Section 19:  Severability Clause

- The Seller must give access to transaction  materials, documents, & knowledgeable seller personnel as necessary to permit government audit.
- Remainder of Agreement is valid.
- Re-negotiation to develop a structure that achieves the same economic effect.

## Sections 20 and 21

- Section 20: Governing Law
-  Construed in accordance with Federal law,
-    or if no applicable Federal law, the internal
-    laws of New York.
- Section 21: Exhibits
-  Integral part of the agreement.

## Sections 22 and 23  

- Section 22:  Interpretive Principles
- Section 23:  Reproduction of Documents

-  Terms defined in the Agreement have the
-    meaning assigned in the Agreement.
-  Accounting terms not defined in the Agreement
-    have the meaning assigned under generally
-    accepted accounting principles.
-  Reproductions of Agreement or any related
-    document are admissible in evidence as the
-    original itself of such document.

## Sections 24 and 25

- Section 24:  Further Agreements
- Section 25:  Other Department Programs

- Seller agrees to execute and deliver additional documents, instruments or agreements necessary to effectuate the purposes of the agreement.
- Seller may, but is not required to, participate in ED’s Loan Participation Purchase Program.

## Section 26:  Adoption

- The Master Loan Sales Agreement is effective with respect to a Seller as of the latest of the dates on which the Seller, its ELT, as applicable, and ED each execute the Adoption Agreement (Exhibit A).

## Exhibits

- A – Adoption Agreement
- B – Bill of Sale with Loan Schedule
- C – Seller’s Officer’s Certificate
- D – Opinion of Counsel of the Seller
- E – Security Release Certification with Loan Schedule
- F – Notice of Intent to Participate

## Slide 41