NY TIRSA Swap Agreement Endorsement Guideline 1995

Explanation:

Purpose Of Endorsement:
This endorsement provides assurances to the swap “lender” (the counterparty bank) that the provision calling for additional interest (often called breakage, this is usually a liquidated damages clause in the event of default by the borrower counterparty) is valid, and shares the same priority as the principal of the loan secured by the mortgage. The amount of the additional interest is not insured, although the amount of additional coverage purchased provides a ceiling for what the Company can be held to cover.

Underwriting Requirements:

Requirements For Issuance:
(a) Underwriter approval is required prior to issuance in every case (this is a requirement of the New York State Insurance Department);
(b) Company Counsel must review the loan documents and the instruments setting up the swap arrangement;
(c) The loan transaction must involve a swap arrangement. Swap arrangements are used by many major financial institutions as a form of hedging. Swaps usually deal with interest rates and/or currency fluctuations. For example, a company with a large variable rate loan might seek to swap its commitment for a fixed rate, if it anticipates that interest rates are rising. Conversely, a bank with a loan commitment for a variable rate may wish to switch that for a fixed rate if it anticipates its variable rate interest rates will decline;
Swap transactions are custom drafted, although many terms have been standardized.
(d) The terms of the additional interest must not create a usury problem.
Issued With The Following Policies:
Mortgage policies only where an interest rate or currency swap is secured by a mortgage.
Premium:
Regular rate per thousand of insurance for coverage over the face amount of the loan.