easy · Asset-Backed Securities regulatory
A bank transfers mortgage loans to a securitization SPE. A qualified true-sale opinion concludes, under its stated facts, assumptions, limitations, and governing law, that the transfer should be treated as a sale rather than a secured borrowing.
Which risk is that opinion principally intended to reduce?
- Risk that a rating agency later changes its methodology and lowers the bond ratings after issuance.
- Risk that market interest rates rise and reduce the secondary-market value of the issued bonds.
- Risk that a bankruptcy court recharacterizes the transfer and treats the assets as part of the seller's estate.
- Risk that borrowers default on scheduled payments and create collateral losses inside the securitized pool.
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