A-1) New Century originated high-risk mortgage loans, which they sold to investors with repurchase agreements....
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A-1) New Century originated high-risk mortgage loans, which they sold to investors with repurchase agreements. Let us assume the following series of transactions: #1) Originated $80 million in loans drawing on credit, with a 1.25% origination fee. #2) Sold the loans to investors for $82 million in cash, paying off the line drawn on to originate the loans. #3) Repurchased 40% of the origination from investors, drawing on credit, and now held for investment. NC paid investors a 2.5% premium on the repurchase. #4) 20% of the repurchased origination was in severe default and required an immediate writeoff. At the beginning of the year, NC had set-up an allowance for held for investment write-offs. What are the debits and credits for this series of typical transactions for NC?
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