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Preemption . . . party over?

FDIC Issues Final Safe Harbor Rule

By M.Soliman
Its official! The final rule amending 12 C.F.R. § 360.6 (the “Securitization Rule”) has made for a tough month for us and it
is still not over. We felt very strongly at the beginning of year that the FDIC would do the inevitable. Accounting and legal
professionals practicing securities law said they were going to do it—and now, some say, “They did it!.”

There now is a face behind MERS people. Only less than 30 days ago the Board of Directors of the Federal Deposit
Insurance Corporation (“FDIC”) resolved by a four-to-one vote to issue a final rule amending 12 C.F.R. § 360.6 (the
“Securitization Rule”) relating to The FDIC’s treatment, as conservator or receiver, of financial assets transferred by an
insured depository institution(“IDI”) in connection with a securitization or participation.

The FDIC’s role as conservator or receiver, of financial assets transferred in connection with a securitization or

Securitization Rule, adopted in 2000, was premised, that the FDIC capitalized on the opportunity to address at the same
time perceived structural failures inherent in the “originate to sell” securitization model widely believed to have contributed
to the recent financial meltdown.

Securitization is the fraud and not the Robo Hobo’s who are contract government agents are. . It’s just like any other sale
of assets by an originator, that should be questioned if implemented when an originator is on the brink of bankruptcy. The
potential for such suspect actions, however, is not unique to securitization transactions. The same issues would arise, for
example, if on the eve of bankruptcy an originator sold, or borrowed money by encumbering, a factory or equipment and
similarly sought to dissipate the sale or loan proceeds.

Such questionable uses of proceeds are more appropriately addressed by preference and fraudulent conveyance laws

If your a member bank NA and out for the count consider securitization to increases overall value by providing a new
source of financing, the capital markets, whose rates are systematically lower than the rates at which many companies
commonly borrow. So long as the added transaction costs are less than the interest saved by using securitization instead
of secured financing, there is a net gain.

Last year, changes in accounting rules for securitizations called into question the effectiveness of the Securitization Rule.
Modifications to GAAP through FAS 166 and 167 have made it significantly more difficult to achieve sale accounting
treatment for transfers of assets in securitizations.

Specifically, the change is for (FAS) 140 and will require that the underlying assets of some bank sponsored
securitizations be consolidated on the balance sheets of the sponsoring banks. In addition to raising questions about the
treatment of existing transactions that are required to be brought on selling institutions’ balance sheets, this development
has also raised questions about . . .

. . .under what circumstances, on-balance sheet securitizations should be covered by the legal isolation safe harbor,
considering that many such transactions require legal isolation certainty in order to obtain external ratings or to satisfy
investors’ due diligence concerns.

And so, in an effort to address many of the above concerns, November, 2009, the FDIC issued a transitional interim rule
protecting existing securitizations complying with the Securitization Rule until March 31, 2010 at which time a new rule
would be put in place

The current interim rule grandfathers all securitizations issued prior to March 31, 2010that otherwise comply with the old
safe harbor rule, so long as those securitizations meet the requirements for sale treatment under GAAP prior to the
effective date of the new Financial Accounting Statements 166 and 167 (January 1, 2010).

Finally, MERS has a face!

(who is M.Soliman...we told you so! "Now, do I have your attention?")