Repurchase Agreement Commercial Real Estate
December 15, 2020
The main difference between a term and an open repo is between the sale and repurchase of the securities. Once the actual interest rate is calculated, a comparison between the interest rate and other types of financing will show whether the pension contract is a good deal or not. In general, pension transactions offer better terms than money market cash loan agreements as a secure form of lending. From a renu possibly`s point of view, the agreement can also generate additional revenue from excess cash reserves. Margin mechanics and repurchase events are other characteristics of deposits that reduce risk to buyers by properly stabilizing and sizing the buyer`s exposure to credit. While the triggers for the margin payment request are the subject of contractual negotiations between the buyer and the seller, margins are usually generated when the market value of a loan decreases (which can be determined by the buyer based on the pension documentation, either at the buyer`s sole discretion or on the basis of factors such as valuations and cancellations). If a margin is triggered, the buyer can make a margin call to the seller, which requires the seller to repay the purchase price of the loan in order to restore the buyer`s advance rate with respect to the revised market value of the loan. Sellers often negotiate protection against marginal calls, including minimum margin thresholds, or under the requirement that a margin call may only take place after a number of credit events have emerged (for example. B a default of the borrower). Credit facilities are not the only side doors with which banks enter the real estate credit game.
They also regularly buy the top of a loan from a debt fund. In some cases, mortgage funds or RESPs are loaned to a property, split the loan into two debt securities and sell the former (the “A-note”) to a bank. Or they divide the credit into a senior part and a mezzanine part, sell the former and keep the latter. In general, the credit risk associated with pension transactions depends on many factors, including the terms of the transaction, the liquidity of the security, the specifics of the counterparties concerned and much more.