A mortgage loan repurchase facility (more casually referred to as a "repo") is a financing structure commonly utilized to finance mortgage loans. These facilities are utilized by both residential and commercial mortgage loan originators and aggregators to finance mortgage loans that they originate or acquire. The structure is favored by liquidity providers in the mortgage loan finance arena due to its preferential "safe harbor" treatment under the United States Bankruptcy Code (the "Bankruptcy Code"), as further described below.

The US Supreme Court has unanimously held that a debtor cannot void a wholly underwater second mortgage in Chapter 7 bankruptcy proceedings. The decision comes in the consolidated cases of Bank of America, N.A. v. Caulkett, No. 13-1421, and Bank of America, N.A. v. Toledo-Cardona, No. 14-163.

Section 506(a) of the Bankruptcy Code provides that a creditor’s claim is a “secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property”—that is, it is a secured claim for an amount equal to the present value of the collateral—and is an “unsecured claim” for the remainder. Section 506(d) provides that, “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”