Today's Trends in Credit Regulation

HUD Provides Guidance to FDIC on Financing Arrangements
By Dana Frederick Clarke

On March 11, 2011, the United States Department of Housing and Urban Development (“HUD”) issued a letter to the FDIC to provide guidance on analyzing financing arrangements secured by repurchase agreements under the requirements and limitations imposed by the Real Estate Settlement Procedures Act (RESPA). In brief, HUD concluded that a financing arrangement with a warehouse lender that involves a repurchase agreement is not materially different from other forms of warehouse lending for purposes of analysis under RESPA. HUD explained that it would apply its regulations on table funding and secondary market transactions in the same manner for a repurchase agreement as it would for a traditional line of credit arrangement between a warehouse lender and a mortgage lender.

For the purposes of the letter, HUD defined a repurchase agreement “as a contractual arrangement among distinct, unaffiliated entities, under which the mortgage lender agrees to sell a mortgage loan to an investor but uses the repurchase agreement with a warehouse lender as a financing mechanism.” HUD noted that the repurchase agreement it considered “includes an absolute and unconditional obligation requiring the mortgage lender to repurchase the mortgage loan from the warehouse lender within a short period after the warehouse lender provides financing, whether or not a default occurs.”

HUD cautioned that it would review not only the terms of the repurchase agreement, but also “whether the parties actually comply with the repurchase obligation requirement in the agreement.”

HUD’s letter to the FDIC is part of its continuing effort to understand and provide guidance on how mortgage funding mechanisms have evolved in recent years and how warehouse lending currently operates within residential real estate mortgage transactions. In connection with those efforts, on November 16, 2010, HUD sought comments on mortgage financing arrangements from warehouse lenders, retail lenders, mortgage bankers, wholesale lenders, correspondent lenders, mortgage brokers, and others in the mortgage lending industry, as well as from federal, state, and local consumer protection and enforcement agencies; consumer groups; and other members of the public. See 5 Fed. Reg. 71724 (November 24, 2010).

HUD indicates that it received 25 comments from both industry and consumer groups in response to its request. Therefore, we should anticipate more guidance from HUD in the near term on RESPA’s impact on mortgage financing arrangements.

A copy of HUD’s March 11, 2011 letter may be found here.

Dana F. Clarke is a partner in the California office of Hudson Cook, LLP. Dana can be reached at (714) 263-0427 or by email at


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