Third Party Purchaser Agreements Don’t Destroy Sale Treatment: A Victory for the Unintended Consequences Resistance

by Dechert LLP

Every once in a while we get some good news around the capital markets hood and this is one of those times.  Admittedly, all we’re doing here is fixing a problem which was one of the unintended consequences of the Dodd-Frank regulatory regime and just gets us back to where we thought we were before the issue arose, but hey – a victory is a victory. 

Earlier this year, a concern was raised amongst the Big Four accounting firms that the restrictions on transfer, hedging and finance imposed by a sponsor through the new risk retention third party purchaser agreements were inconsistent with sale accounting.  That would be bad.  No sale, then no recognition of gain and no de-recognition of the mortgage loans and no relief from the attendant risk-based capital charges associated with those loans on the balance sheet.

I vividly remember when one of my accounting friends told me about the issue last spring.  First reaction, “No way!”  Second reaction, “Oh, hell,” (that’s not exactly what I said) because the accounting literature is surficially clear.  I could not see how the restrictions in a Third Party Purchaser Agreement could possibly be consistent with sale treatment.  On the other hand, doing something the government made us do in order to make securitization better and safer, which actually destroyed securitization, seemed like a pretty absurd outcome.  I’ll stick with the disease please.  See our commentary dated May 9, 2017.

So after a period of anxious hand wringing, a cross section of major banking institutions trundled off to the SEC to see if the SEC could square the circle and make this better.  In a man bites dog sort of way, the SEC has apparently come through and advised all of us laboring away in the capital market trenches that “the restrictions placed on the TPP [third party purchaser] resulting from the Rule do not cause the transferors to fail to meet the conditions in ASC 860-10-40-5(b).”  In slightly plainer language, that means that the third party purchaser agreements that we have come to live with, if not love, over the past year work just fine.

Before I tear up and start waxing poetic about the righteous hearts and doughty performance of our regulatory establishment, one caveat.  The SEC has not actually written anything.  The industry has written a letter to the SEC outlining what the SEC would say, if they had said something.  And that’s as much as we’re going to get.  A little weird, but the insiders tell me this is how the SEC rolls on issues like this.  Can anyone say plausible deniability?  One might remember the line used by Francis Urquhart in the House of Cards (the original British version, mind you), when confronted with a hard question, “You might say that Mattie, but I couldn’t possibly comment.”  Please note that Mattie was defenestrated from the roof of the House of Parliament soon after by the said Mr. Urquhart.

Putting aside for a moment my anxieties around regulatory defenestration, the purported response by the SEC is a delightful, practical and common sensical answer.  I wish I were shocked by the fact that I find practical and common sensical guidance from the Olympian Heights of our regulatory state shocking, but I do not.  For a brief shining moment our regulators took the “kick me” sign off the backside of the banking industry and did the right thing.  God bless.

This is important because it validates (or perhaps revalidates) one of the principal means of meeting the risk retention requirement in our CRE securitization sector.  Of course, the prudentially regulated banks could have held risk retention as a vertical strip, or found a non-bank co-sponsor with less sensitivity to GAAP and no sensitivity to risk-based capital charges, to become a sponsor and hold the vertical (or horizontal) strip but the reinvigoration of the TPP solution is good news indeed.

Hey, it’s the Holiday Season and all (I’d say Christmas if my editors would let me), and since the SEC staff seems to be in such a giving mood, maybe the time is propitious for delivering a more robust Santa’s list? After all, we’ve been good this year, right?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.