Alert September 26, 2011

OCC Issues Interpretive Letter Concluding That a National Bank’s Proposed Resecuritization Transaction is Permissible

The OCC issued an interpretive letter (“Letter #1133”) in which it concluded that a transaction involving a national bank’s (the “Bank”) resecuritization of certain residential mortgage-backed securities held by the Bank was permissible.  In Letter #1133, the Bank held a portfolio of non-agency residential mortgage-backed securities (“RMBS”) that were investment grade when issued and when acquired by the Bank.  The Bank proposed to transfer the RMBS to a limited purpose subsidiary of the Bank, which would form several trusts and transfer several RMBS to each trust.  Each trust would then issue new securities backed by the RMBS (the “Re-REMIC Securities”) to the limited purpose subsidiary.  Under the facts of Letter #1133, the Bank would be able to sell the Re-REMIC Securities if market conditions improved.  The Bank stated that it believes that the above-described resecuritization transaction would enhance the marketability of the underlying securities, would improve the Bank’s liquidity position and would “address regulatory concerns relating to the Bank’s exposure to non-investment grade securities.”  The Bank represented to the OCC, among other things, that the purpose of the resecuritization transaction would not be to obtain capital relief under the OCC’s capital rules.  The OCC concluded in Letter #1133 that under these facts (and subject to the conditions imposed by the OCC), the Bank may consummate, pursuant to 12 CFR Part 1 and 12 USC 24 (Seventh), the resecuritization transaction and hold the new securities issued to the Bank as part of the resecuritization transaction.