April 15, 2015 Newsletter
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April 15, 2015
 

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
REMINDER TO REGISTER FOR SFIG’S SPRING SYMPOSIUM

SFIG will hold its Spring Symposium, followed by a cocktail reception, on Wednesday, May 20th. The event will be hosted by Wells Fargo at their Charlotte, NC office. The symposium will focus on High Quality Securitization and Derivatives, with an emphasis on the impending rulemaking regarding margin requirements for uncleared swaps. The full agenda and details will be forthcoming.

The event is open to both members and non-members, and is complimentary to attend. Please note, this event is closed to the press. Please click here to register.

 
 
LESS THAN A MONTH TO SUBMIT YOUR BOARD OF DIRECTORS NOMINATIONS!

SFIG is accepting nominations for its Board of Directors. The nominating process will remain open until close of business on Thursday, April 30, 2015.

Eligibility for these positions is limited to individuals associated with SFIG’s primary members. Members may nominate themselves or another qualified industry participant. Board of Director terms are for two years.

SFIG’s Nominating Committee will review nomination submissions, consult with members, and make recommendations to the current Board of Directors. The Nominating Committee is dedicated to selecting a balanced Board of Directors reflective of the membership and the industry at large, and that is committed to working hard and advancing the principles of SFIG.

If you have any questions or require any clarification around the nominating process, please email committees@sfindustry.org.

Click here to submit your nominations. Please note that the nomination form is open to registered members only. Members who have not yet registered can do so here.

 
 
SFIG CALENDAR
RMBS 3.0 ROLE OF TRANSACTION PARTIES & BONDHOLDER COMMUNICATION WORKING GROUP IN-PERSON MEETING
THURSDAY, April 16, 2015
9:00 a.m. – 5:00 p.m. (ET)
Seward & Kissel LLP
One Battery Park Plaza
New York, NY
 
 
BIWEEKLY CREDIT CARD ISSUER COMMITTEE CALL
THURSDAY, April 16, 2015
10:00 a.m. – 11:00 a.m. (ET)
 
 
BIWEEKLY NRSRO DUE DILIGENCE INDUSTRY GUIDE CALL
THURSDAY, April 16, 2015
3:00 p.m. – 4:00 p.m. (ET)
 
 
CMBS COMMITTEE CALL
FRIDAY, April 17, 2015
3:00 p.m. – 4:00 p.m. (ET)
 
 
RESIDENTIAL MORTGAGE COMMITTEE CALL
MONDAY, April 20, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
SFIG MEETING WITH THE CFTC AND PRUDENTIAL REGULATORS ON PROPOSED MARGIN RULES
TUESDAY, April 21, 2015
2:00 p.m. – 3:00 p.m. (ET)
Please note: This is a closed meeting.
 
 
IMN’s INVESTORS CONFERENCE ON CLOs AND LEVERAGED LOANS

TUESDAY, April 21, 2015 – WEDNESDAY, April 22, 2015
Registration available here.

Sairah Burki will be speaking on the “Risk Retention Overview Continued: The Investor Perspective” panel.

 
 
IMN’s SUNSHINE BACKED BONDS CONFERENCE

THURSDAY, April 30, 2015 – FRIDAY, May 1, 2015
Registration available here.

Sairah Burki will be speaking on the “Pre-Conference Workshop I: A Securitization Market Primer” panel.

 
 
2015 SFIG SPRING SYMPOSIUM
WEDNESDAY, May 20, 2015
5:00 p.m. – 8:00 p.m. (ET)
Wells Fargo
301 South College Street
Charlotte, NC 28202

The full agenda and details will be forthcoming.
To register, please click here. Please note, this event is closed to the press.
 
 
ADVOCACY OUTLOOK

If you would like to participate in the work SFIG is undertaking through our committees as highlighted below, please e-mail Committees@sfindustry.org. For specific inquiries on any of SFIG’s advocacy efforts, please contact the staff member listed for the related project.

The RMBS 3.0 Task Force released its Second Edition RMBS 3.0 Green Paper in November. Following the successful SFIG/IMN Private Label RMBS Symposium, the Task Force will continue its efforts to address key issues specific to private label mortgage securities through work streams relating to (1) Representations, Warranties, and Repurchase Enforcement; (2) Due Diligence, Data, and Loan-Level Disclosure; and (3) Role of Transaction Parties and Bondholder Communications. Presently, the Task Force is working on (1) developing a comprehensive compilation of representations and warranties for release in the spring of 2015 and (2) a grid summarizing roles of transaction parties. We encourage members to participate in any or all of the working groups to contribute towards the mission of RMBS 3.0. For additional information on RMBS 3.0, or to join the Task Force, please contact Mary.Robinson@sfindustry.org.

The GSE Reform Task Force recently met to discuss the Carney-Delaney-Himes GSE Reform bill and has updated its briefing book on the legislation to support its advocacy efforts. With the release of the bill, SFIG staff also updated its GSE Reform Legislative Comparison, which analyzes key provisions in the five most recent housing finance reform bills including the Johnson-Crapo bill and the PATH Act. SFIG staff previously summarized members’ recommendations on the former in a briefing book, and plan to produce a similar book on the latter in the upcoming months. Additionally, the task force has been actively engaging the Federal Housing Finance Agency (“FHFA”) on several fronts, with comments submitted on its single security proposal, guarantee fee pricing and Strategic Plan for 2015-2019. To join SFIG’s GSE Reform Task Force and learn more, please contact Amanda.Bateman@sfindustry.org.

The Mortgage Loan-Level Disclosure Task Force is studying the recent Regulation AB II release of Schedule AL and comparing it to SFIG’s Schedule L submission to the Securities and Exchange Commission in February of 2014. SFIG also continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. We will also be conducting an analysis of the data elements included in SFIG’s Schedule L submission in order to determine any privacy concerns. Please contact Alyssa.Acevedo@sfindustry.org for additional information on SFIG’s work on this topic.

The Volcker Task Force has been working with SFIG’s various asset class and legal counsel committees to identify areas within the Volcker Rule in need of clarification, particularly questions regarding covered funds and the loan securitization exemption. Please contact Amanda.Bateman@sfindustry.org to participate on the Task Force.

The Risk Retention Industry Guide Work stream is creating best practices and developing consensus positions around several areas within the Credit Risk Retention final rule. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG’s Chinese Market Committee continues to hold regular calls focusing on a high-level description of SFIG’s partnership with the Chinese Securitization Forum, potential upcoming educational discussions and sharing recent market developments in China. An SFIG delegation, including one of the committee’s co-chairs, Catherine McCarihan, attended the recent Chinese Securitization Forum conference. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Alyssa.Acevedo@sfindustry.org

SFIG’s Shadow Banking Task Force has established the following agenda:

  • Leverage the predictive powers of the G20’s shadow banking initiative to determine future SFIG advocacy initiatives;
  • Assess the level of regulation to which our members are already subject;
  • Measure the full impact of those regulations on lending decisions and business models; and
  • Provide input into IOSCO, BCBS and IAIS on the revitalization of securitization markets.

The Task Force will have its first full meeting in the coming weeks, and members from across asset classes are encouraged to participate. To register your interest in SFIG’s Shadow Banking Initiative, please contact Amanda.Bateman@sfindustry.org.

The Regulation AB II Task Force will focus on the disclosure and offering process requirements within the final rule. Two work streams have been formed to develop a comment letter on the proposed rules that remain outstanding and to produce an industry guide for critical elements of the final rule. SFIG members who are interested in joining this task force or asset specific committees should contact Alyssa.Acevedo@sfindustry.org.

The Regulatory Capital and Liquidity Committee is addressing industry concerns related to the Federal Reserve Board’s Final Rule on the Liquidity Coverage Ratio (“LCR”). This committee will also develop a comment letter when U.S. regulators release their proposed Net Stable Funding Ratio (“NSFR”). To become involved in SFIG’s advocacy on the Final LCR rule or NSFR, please contact Alyssa.Acevedo@sfindustry.org.

The Derivatives in Securitization Task Force recently obtained no-action relief from the CFTC giving swap dealers comfort that the CFTC would not take enforcement action against swap dealers that did not comply with certain CFTC Regulations when taking actions in response to the credit ratings downgrade of a counterparty to a legacy swap. The relief applies to swaps with SPVs that were in existence prior to October 10, 2013. The Task Force also commented on the CFTC’s proposal on margin requirements for uncleared swaps, as well as the prudential regulators’ proposal regarding margin and capital requirements for covered swap entities. SFIG members who are interested in learning more about this initiative should email Amanda.Bateman@sfindustry.org.

The NRSRO Due Diligence Industry Guide Work stream is continuing to review the due diligence elements of the Final Rules on NRSROs. The working group meets biweekly on Thursdays at 3:00 p.m. (ET) and members interested in learning more should contact Amanda.Bateman@sfindustry.org.

The Money Market Fund Reform Working Group submitted a comment letter on October 13, 2014 regarding the Securities and Exchange Commission’s July 23, 2014 proposal which includes, among other things, possibly amending rule 2a-7’s issuer diversification provisions to eliminate an exclusion that is currently available for securities subject to a guarantee issued by a non-controlled person. SFIG also submitted a comment letter in September 2013 on Money Market Fund Reform. If you are interested in joining this working group, please contact Alyssa.Acevedo@sfindustry.org.

The High Quality Securitization Task Force submitted a response to the BCBS-IOSCO consultation on its criteria for identifying simple, transparent and comparable securitizations. SFIG’s comments were built off of those sent to the European Banking Authority on January 14, 2015 (available here) regarding its proposed criteria and to the European Central Bank and Bank of England last summer (available here) regarding the development of a sustainable securitization market in Europe. The HQS Task Force is currently developing a response to the European Commission’s related proposal, announced in conjunction with its plans for a capital markets union. Comments are due by May 13, 2015. To join the High Quality Securitization Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
INDUSTRY NEWS HIGHLIGHTS
FEDERAL RESERVE COMMENTS ON ABS AND CREDIT LENDING

The Federal Open Market Committee (“FOMC”), which includes members of the Federal Reserve Board, held a meeting last month in order to review the rate of economic growth, market conditions, and monetary policy action.

The FOMC will be maintaining existing policies concerning “reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.” The FOMC indicated that this policy will help maintain accommodative financial conditions by keeping its holdings of longer-term securities at sizable levels.

With regard to securitization and credit lending, the FOMC noted in its minutes that:

Credit conditions faced by large nonfinancial firms remained generally accommodative. Corporate bond issuance increased in February, mostly reflecting activity by investment-grade firms. Commercial and industrial loans on banks’ books continued to expand strongly, reportedly in part to fund increased merger and acquisition activity. Institutional leveraged loan issuance during January and February was supported by strong issuance of new money loans, while refinancing activity effectively came to a stop, likely reflecting elevated loan spreads. On net, issuance of collateralized loan obligations was only modestly below the strong pace registered in the fourth quarter of 2014. Financing for the commercial real estate (CRE) sector stayed broadly available over the intermeeting period. Growth of CRE loans on banks’ books remained solid, in part supported by loans to finance construction activity. The issuance of commercial mortgage-backed securities (CMBS) was still robust so far this year, and spreads continued to be low. After taking into account deals in the pipeline for March, issuance in the first quarter of 2015 was expected to be the strongest since the financial crisis. According to the March Senior Credit Officer Opinion Survey on Dealer Financing Terms, dealers’ willingness to provide warehouse financing for loans intended for inclusion in CMBS increased since the beginning of 2014. In addition, demand for funding of CMBS by hedge funds and real estate investment trusts reportedly rose over the same period. Credit conditions for mortgages remained tight for riskier borrowers, with relatively few mortgages originated to borrowers in the lower portion of the credit score distribution. For borrowers who qualify for a mortgage, the cost of credit stayed low by historical standards. Consumer credit rose further over the intermeeting period. Auto and student loan balances continued to expand robustly through January, while credit card balances decelerated slightly. Issuance of consumer asset backed securities remained robust.

 
 
EUROPEAN STOCKS RECEIVE BOOST FROM THE ECB’s BOND-PURCHASING PROGRAM

European stocks climbed to a new record last week, shortly after the European Central Bank (“ECB”) kicked off its 1.1 trillion euro quantitative-easing program (“QE”), according to an article in MarketWatch. The Stoxx Europe 600 rallied last week surpassing an all-time high reached in 2000. Included in its policy measures of a negative deposit rate, the ECB has also focused on purchasing asset-backed securities and covered bonds. The ECB will continue its QE program for the next 17 months, with hopes that it will increase borrowing and lending and will lift the issuance of asset-backed securities.

 
 
CMBS REFINANCING POSES CHALLENGES DUE TO DECREASED VALUATIONS

More than 30 percent of the $300 billion in loans due to mature over the next three years will include those backed by retail properties, according to a recent article in National Real Estate Investor. The maturities should lead to increasing commercial mortgage-backed securities (“CMBS”) origination, with many of the properties refinanced being appraised at different values that will force borrowers to contribute more equity, the article states. One source quoted in the article notes that while 70 percent of loans should have no issue being refinanced, it is likely that the remaining 30 percent will be more problematic.

According to another source, while CMBS lenders prefer retail property types, they “are particularly concerned with occupancy costs since retailers’ profitability is key.” As a result, “we’re seeing some rents written down to achieve acceptable occupancy costs.” Another issue with underwriting has been co-tenancy, whereby tenants can pay reduced rent, leading the notional interest-only to drop significantly. While larger markets seem much more confident about retail CMBS, some have yet to recover since the recession and properties in those markets might be troubled because they have vacant space or are leasing at lower rates.

 
 
IMF REPORT: INCREASED FINANCIAL STABILITY IN INTERNATIONAL BANKING, RISK IN ASSET MANAGEMENT INDUSTRY

Last week, the International Monetary Fund (“IMF”) published two new chapters for its Global Financial Stability Report, including one on international banking trends since the crisis and one on the risks posed by the asset management industry. The chapter on international banking notes that direct cross-border lending as a share of total banking assets has declined since the global financial crisis, largely a result of European banks’ retrenching. However, the share of local lending by foreign bank affiliates has remained steady, and the report argues this has had a positive effect on the financial stability of host countries. While cross-border lending is said to compound adverse domestic and global shocks, foreign-owned subsidiaries, “particularly those with better-capitalized parent banks,” are less likely to behave procyclically than domestic banks during domestic crises.

In the chapter on the asset management industry, the IMF describes how concerns about the financial stability risks it poses have increased recently due to the sector’s growth and structural changes in financial systems. These changes include the significant growth of bond funds, investment in less liquid assets, and the substantial expansion of the volume of investment products offered to the general public in advanced economies. The IMF argues the following policy messages as a result:

  1. Securities regulators should enhance microprudential supervision of risks stemming from individual institutions, building on regulators’ own risk analysis and stress testing, supported by global standards for supervision and better data and risk indicators.
  2. Regulatory and supervisory reforms are needed to incorporate a macroprudential approach. Additionally, incorporating monitoring of linkages to other sectors that rely on the industry for financing may even be necessary.
  3. Liquidity rules, the definition of liquid assets, investment restrictions, and reporting and disclosure rules could be enhanced.
  4. Consideration should be given to the use of tools that adequately price-in the cost of liquidity, including minimum redemption fees, improvements in illiquid asset valuation, and mutual fund share pricing rules.
  5. A product, or activity-based emphasis, seems to be important, given that the industry is diverse and that differences in investment focus seem to matter significantly for funds’ contribution to systemic risk.
 
 
CHINESE REGULATORS EASE INVESTMENT RULES, OPENING UP NEW FINANCING CHANNELS

The China Insurance Regulatory Commission (“CIRC”) recently relaxed areas where Chinese insurance companies are permitted to invest. Investment firms believe that this will give them the chance to offer secured returns through lease securitization, a much higher return compared to bond yields.

Aircraft leasing is one particular sector in which investor interest is increasing due to the relaxation of investment rules by the CIRC. As China Business explains, aircraft leasing has become an investment product open to China's 10-trillion yuan ($1.6 trillion) insurance industry.

Clarence Leung, who specialized in asset finance and leasing at PricewaterhouseCoopers, said securitization of aircraft lease receivables was new to the Chinese aircraft leasing market, though the techniques have been widely used in Europe and the United States. "From a lessor's perspective, it is another channel to raise additional capital through its assets, while for investors it will provide stable returns on their investments," he said.

 
 
UPCOMING EVENTS IN WASHINGTON
SENATE COMMITTEE ON BANKING, HOUSING, & URBAN AFFAIRS HEARING ENTITLED “REGULATORY BURDENS TO OBTAINING MORTGAGE CREDIT”
THURSDAY, April 16, 2015
10:00 a.m. (ET)
538 Dirksen SOB
Click here for hearing information.
 
 
SFIG COMMITTEES AND TASK FORCES

SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry. Please email us for more information, including how to join.

SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community. To ensure that you receive future editions of the newsletter, please visit our website or email us to learn more about membership opportunities.

Contact Information

Richard Johns Executive Director

Kristi Leo Investor Relations

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson Policy Manager

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Daniel Tees Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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