How does the LRA work?
When a member is approved by the Seattle Bank to sell loans into the MPP, the member becomes a participating financial institution (PFI). A PFI can apply for a Master Commitment Contract to sell eligible mortgages, as defined in the MPP Guide, to the Seattle Bank. When a PFI completes delivery of a Master Commitment Contract, the Seattle Bank establishes an LRA on behalf of the PFI and funds each account in one of two ways: (1) as a portion of purchase proceeds at the time of sale, defined as a fixed LRA, or (2) from the interest received on a monthly basis at time of remittance, defined as a spread LRA. The LRA is an asset owned by the PFI. MPP Master Commitments are assigned an LRA based on the expected losses on loans to be sold to the Seattle Bank. An independent valuation model is used to determine expected losses by evaluating data provided by the PFI on proposed mortgages to be sold to the Seattle Bank. The LRA for a Master Commitment is based on the expected losses calculated b
