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Regulation AB Item 1123 for Servicers
Item 1123 is also a critical component of Regulation AB that must also be addressed by servicers. Listed below is the SEC's discussion and requirements as put forth in Regulation AB. Provide as an exhibit a statement of compliance from the servicer, signed by an authorized officer of such servicer, to the effect that:
a. A review of the servicer's activities during the reporting period and of its performance under the applicable servicing agreement has been made under such officer's supervision.
b. To the best of such officer's knowledge, based on such review, the servicer has fulfilled all of its obligations under the agreement in all material respects throughout the reporting period or, if there has been a failure to fulfill any such obligation in any material respect, specifying each such failure known to such officer and the nature and status thereof.
Furthermore, if multiple servicers are involved in servicing the pool assets, a separate servicer compliance statement is required from each servicer that meets the criteria in Item 1108(a)(2)(i) through (iii) of this Regulation AB. (1)
The 10% Rule
As noted above, included in the requirements of Regulation AB Item 1123 is a provision that states that "...a separate servicer compliance statement is required from each servicer that meets the criteria in Item 1108(a)(2)(i) through (iii) of this Regulation AB." Thus, each master servicer, affiliated servicer, and unaffiliated servicer that services 10% or more of the pool assets will have to prepare a servicer compliance statement.
Servicing Obligations
Item 1123 is directly related to the transaction agreements and any other related documentation. With that said, the number of Item 1123 servicer compliance statements is dictated by the number of loan transactions and their accompanying pooling and servicing agreements. For example, if a servicer services ten (10) mortgage transactions and five (5) student loan transactions, their would be a requirement for fifteen (15) Item 1123 servicer compliance statements. However, there would only be a requirement for two (2) Report on Assessments of Compliance with Servicing Criteria and two (2) Registered Public Accounting Firm Attestation Reports. Item 1122 is based on a platform approach; you are servicing two (2) types of asset-backed securities (mortgages and student loans), therefore, you need two (2) assessment reports and two (2) attestation reports. Item 1123 requirements, as you can see, are quite different.
(1) Securities and Exchange Commission 17 CFR Parts 210, 228, et al. Asset Backed Securities: Final Rule
The information contained herein is general in nature and is based on authorities that are subject to change. It is not intended, and should not be construed, as legal, accounting, or tax advice, or as an opinion provided (expressed or implied) by NDB LLP to the reader or any other person. This material may not be applicable to, or suitable for, the specific circumstances or needs, and may require consideration of legal, regulatory compliance, non-tax, or tax factors. Contact NDB LLP for engagement and a consultation prior to taking any action based upon this information or other marketing information. NDB LLP assumes no obligations to inform the reader of any changes in SEC legislation/regulations or tax laws or other factors that could affect the information contained herein.
Regulation AB Information Portal
View the Securities and Exchange Commission's (SEC) final ruling on Regulation AB; a comprehensive document that has brought about significant changes to the ABS Market.
A discussion and anlysis of all 24 regulation AB Items, ranging from Item 1100 to Item 1123.