April 16, 2014 Newsletter
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April 16, 2014
 

SFIG News

SFIG Calendar

Advocacy Outlook

Recent Developments

Upcoming Events in Washington

 
SFIG NEWS
SFIG SUBMITS COMMENT LETTER ON NET STABLE FUNDING RATIO
On Friday, April 11th, SFIG submitted a comment letter to the Basel Committee on Banking Supervision (BCBS) in response to the Basel III Net Stable Funding Ratio (NSFR) consultative document. The consultative document, released on January 12th, proposed adjustments to the NSFR requirements, designed to reduce funding risk over the longer term by requiring banks to fund their activities with sufficiently stable sources of funding. The proposed NSFR requirements would require banks to maintain an amount of available stable funding over a prospective one-year period (the numerator) equal to its amount of required stable funding (the denominator).

With respect to the numerator, SFIG made the following recommendations:

  • As recommended in the liquidity coverage ratio (LCR) comment letter, certain high credit quality asset-backed securities not currently treated as high quality liquid assets (HQLA) under the LCR should receive such treatment within the NSFR context because they demonstrate liquidity characteristics consistent with assets that do qualify as HQLA.
  • National supervisors should have greater flexibility to implement HQLA requirements to allow them to take into consideration the unique characteristics of their regulatory environment.
  • Because the NSFR addresses long-term stress scenarios, the 30-day pricing volatility test should be removed from the criteria for determining HQLA treatment for private label residential mortgage backed securities (RMBS), covered bonds and asset backed securities (ABS); and lower RSF factors should apply to RMBS guaranteed by government sponsored entities, private label RMBS, covered bonds and ABS regardless of their treatment as HQLA under the LCR.
  • A zero percent RSF factor should apply to asset-backed commercial paper (ABCP) held by a bank that is fully supported by a credit or liquidity facility.
  • Securitization exposure originated by a financial institution should not be treated as a loan if it either qualifies as HQLA treatment or is a “traditional securitization.”
  • Assets and liabilities of ABCP conduits that are consolidated on the balance sheet of a sponsor bank should not be treated as assets and liabilities for the purposes of the NSFR. Stable funding should be required only for the liquidity and credit facilities provided by the sponsor bank that supports the ABCP of such conduits using the 5 percent RSF factor that applies to other off-balance sheet commitments under the NSFR.
 
SFIG HOLDS FIRST CANADIAN SYMPOSIUM
On April 15th SFIG held its first Canadian Symposium in Toronto. Dirk Rueter, Partner at McCarthy Tétrault LLP welcomed participants to Toronto and the Symposium, which included:

  • A presentation by SFIG Executive Director, Richard Johns, regarding SFIG advocacy and developments.
  • A discussion with Winnie Sanjoto, Senior Legal Counsel, Corporate Finance Branch, Ontario Securities Commission regarding the Proposed Amendments to National Instrument 45-106 Prospectus and Registration Exemptions relating to the Proposed Securitized Products Amendments. Dean Masse, partner at McCarthy Tétrault presented Ms. Sanjoto with questions on the securitization industry’s perception of the proposed amendments.
  • A panel discussion on current regulatory issues in the Canadian Structured Finance Market, moderated by McCarthy Tétrault Counsel, Candace Pallone.

In his presentation, Richard Johns provided an overview of SFIG’s activities over the past year. Highlighting various advocacy efforts that impact members in the United States and Canada, Mr. John’s applauded the involvement of SFIG members in shaping the advocacy agenda and contributing to national and global level discussions on regulatory and market issues in structured finance.

Ms. Sanjoto provided insight into how Canadian regulators are looking for industry input to assure that implementation of the proposed amendments on Asset Backed Commercial Paper (ABCP) disclosure requirements achieves the proper balance between regulatory oversight and market development.

The Canadian Securitization panel presented the following updates:

  • Susan Calder of RBC presented an overview of the “look through” approach SFIG and its members are advocating in discussions on LCR proposals in the United States and Canada. She also explained the framework for the bank customer securitization credit facility.
  • Matt Armbruster from Ford Motor Company provided an issuer perspective on how Canadian derivatives rules on trade reporting and central clearing affect business, and contributed additional perspectives on issues relating to the LCR.
  • Wojtek Niebrzydowski, Canadian Imperial Bank of Commerce, presented a comparison of the Canadian covered bond market indexation regime jurisdictions and offered ideas on the implementation of the indexation requirements.
  • SFIG’s Senior Policy Analyst, Mary Robinson, presented an overview of SFIG’s involvement in Canadian securitization developments including submission of a comment letter on Canadian liquidity coverage ratio (LCR) proposals and current working group efforts to develop a response to the proposed ABCP disclosure requirements.

The symposium concluded with remarks from Anna-Liza Harris, Partner at Katten Muchin Roseman LLP, who gave a high level overview on the Foreign Affairs Tax Compliance Act (FATCA). Ms. Harris’ remarks provided an explanation of the possible approaches Canadian and other foreign members of the securitization industry may take in complying with pending implementation of FATCA filing and registration requirements.

SFIG would like to thank McCarthy Tétrault LLP for hosting the inaugural Canadian Symposium and looks forward to continued involvement on issues facing the Canadian securities industry.

For additional information on SFIG’s activities involving Canadian securitization please contact Mary.Robinson@sfindustry.org.

 
JOINT TRADE ASSOCIATIONS MEET WITH BASEL REGULATORS
On Wednesday, April 9th, SFIG members and staff joined the Global Financial Markets Association, Commercial Real Estate Finance Council, Institute of International Finance, International Association of Credit Portfolio Managers, International Swaps and Derivatives Association and Securitization Forum of Japan (collectively, the Joint Trade Associations) for a meeting in the Washington, DC offices of Mayer Brown LLP with over 25 officials from over ten countries representing the Basel Committee on Banking Supervision (BCBS). The purpose of the meeting was for industry representatives to present the positions advocated in a comment letter, submitted on March 21, 2014, in response to revisions to the securitization framework proposed in the Second Consultative Document (CD), BCBS 269.

As enumerated on in the CD, the BCBS has proposed a “simplified hierarchy of approaches” which banks acting as originators, investors or sponsors would be required to apply when calculating their capital requirements. Although the Internal Ratings Based Approach, External Ratings Based Approach and Simplied Approach were calibrated to result in descending sensitivity to credit risk, when applying the approaches to a variety of sample portfolios, the Joint Trade Associations found significantly divergent results in capital requirements. In their comment letter, the Joint Trade Associations illustrated weaknesses and proposed solutions to many of the BCBS proposals. During the meeting on Wednesday, industry representatives provided an overview of these results for the BCBS staff in attendance and their recommendations for improving the framework. The banking regulators focused their questions on methods used by the associations to arrive at their results and requested additional data from those in attendance. This data will be supplemented by responses from the financial services industry to the Quantitative Impact Study currently underway.

 
SFIG DISCUSSES JOHNSON-CRAPO LEGISLATION WITH FHFA
On Wednesday, April 9th, SFIG discussed its views on housing finance reform with the Federal Housing Finance Agency (FHFA). Specifically, SFIG focused its discussion on housing finance reform legislation proposed by Senate Banking, Housing, and Urban Affairs Chairman Tim Johnson (D-SD) and Ranking Member Senator Mike Crapo (R-ID).

SFIG believes that it is critical that any housing finance reform proposal address the following principles:

  • Preserve and grow the To-Be-Announced (TBA) market, which is the most efficient mechanism to enable consumers to “lock-in” interest rates on a forward basis and help minimize the cost of borrowing;
  • Preserve the 30-year fixed-rate mortgage;
  • Create a common TBA security to foster a deep and liquid housing market;
  • Implementation of a securitization platform;
  • Preserve the liquidity of legacy securities without creating a bifurcated market; and
  • A deliberate and orderly transition from the existing Government-Sponsored Enterprises.

SFIG’s GSE Reform Task Force is meeting frequently in order to analyze the differences between the proposed Johnson-Crapo legislation and the draft positions established by the GSE Reform Task Force. If you would like to learn more about SFIG’s activities with respect to GSE Reform, please contact Amanda.Bateman@sfindustry.org.

 
SFIG CALENDAR
REGULATION AB II TASK FORCE CONFERENCE CALL
THURSDAY, April 17, 2014
11:00 a.m. – 12:00 p.m. (EST)
 
 
GSE REFORM TASK FORCE CONFERENCE CALL
THURSDAY, April 17, 2014
1:00 p.m. – 2:30 p.m. (EST)
 
 
GSE REFORM TASK FORCE CONFERENCE CALL
MONDAY, April 21, 2014
1:00 p.m. – 2:30 p.m. (EST)
 
 
IMN INVESTORS’ CONFERENCE ON CLOs AND LEVERAGED LOANS
TUESDAY, April 22, 2014 – WEDNESDAY, April 23, 2014
Marriott Marquis
1535 Broadway
New York, NY 10036
SFIG’s Director of ABS Policy, Sairah Burki, will be speaking on the “Assessing the Fallout from Volcker: Is the Bark Worse than the Bite?” conference panel
Registration available here

 
SFIG SPRING SYMPOSIUM
WEDNESDAY, May 14, 2014
Time and Agenda to be announced
Société Générale
245 Park Avenue, New York, NY
 
 
IMN 2014 GLOBAL ABS CONFERENCE
TUESDAY, June 10, 2014 – THURSDAY, June 12, 2014
Barcelona International Convention Centre
Barcelona, Spain
Registration available here

 
SFIG BOARD OF DIRECTORS MEETING Q2’14
TUESDAY, June 24, 2014
12:00 p.m. – 5:00 p.m. (EST)
New York, NY
Note: Closed Meeting
 
 
IMN ABS EAST 2014 CONFERENCE
SUNDAY, September 21, 2014 – TUESDAY, September 23, 2014
The Fontainebleau Hotel
Miami Beach, FL
Registration available here

 
SFIG & IMN ABS VEGAS 2015
SUNDAY, February 8, 2015 – WEDNESDAY, February 11, 2015
The Aria Resort and Casino
Las Vegas, NV
Registration available here

 
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.

Regulation AB II SFIG continues to develop a response to the proposal on asset-level disclosures issued by the Securities and Exchange Commission (SEC) on February 25, 2014 (for additional details on this approach please see the staff memorandum included in the public comment file). The SEC extended the deadline and comments are now due on April 28, 2014. SFIG will continue to hold calls in order to address key arguments included in the letter. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

Project RMBS 3.0 continues to work towards bringing private label securities back to the mortgage market. SFIG members and staff are actively engaging government officials to demonstrate the unique position of the organization in re-establishing a robust private label RMBS environment. Working Groups conduct regular meetings via conference call to address issues specific to private label mortgage securities in the following categories: 1) Representations, Warranties and Repurchase Enforcement; 2) Due Diligence/Loan Review, Data and Disclosure; and 3) Role of Trustees and Bondholder Communications. We encourage members to participate in any or all of the Working Groups to contribute towards the mission of Project RMBS 3.0. Please contact Mary.Robinson@sfindustry.org to join a Working Group or with any additional questions on Project RMBS 3.0.

The GSE Reform Task Force has formulated policy recommendations that it is reviewing within SFIG. The GSE Reform Task force held multiple calls recently to analyze the differences between the proposed Johnson-Crapo legislation and the draft positions established by the GSE Reform Task Force. These differences will form the basis of SFIG’s advocacy efforts with members of the Senate Committee on Banking, Housing, and Urban Affairs in advance of its markup of the Johnson-Crapo bill on April 29, 2014 at 10:00 a.m. (EST). If you would like to learn more about SFIG’s activities with respect to GSE Reform, please contact Amanda.Bateman@sfindustry.org.

The Mortgage Loan-Level Disclosure Subcommittee has reviewed and developed additional data elements for potential disclosure. SFIG will use this work as a basis of discussions and correspondence with the Securities and Exchange Commission on the mortgage aspects of Regulation AB II. SFIG continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. Please contact Alyssa.Acevedo@sfindustry.org for additional information on SFIG’s work on this topic.

The Working Group on the Canadian Proposed ABCP Disclosure Requirements is finalizing comments in response to the Canadian Securities Administrators’ proposed New Prospectus Exemption that would require that short-term securitized products comply with a number of new conditions and disclosure requirements, including extensive disclosure of Asset Backed Commercial Paper transactions. The Working Group met live in Toronto on April 15th and is considering additional input to ensure that the letter provides a full account of member concerns. Comments are due April 23, 2014. For more information, or to participate on this working group, please contact Mary.Robinson@sfindustry.org.

The Volcker Task Force is working with the asset class committees to determine key issues and needs for interpretative guidance regarding the Volcker Rule. Please contact Amanda.Bateman@sfindustry.org for additional information on the Volcker Task Force.

The Risk Retention Committee is continuing to follow up with regulators on risk retention questions across asset classes. Topics currently under discussion include participations, representative sample and the alternative to simplified approach. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG is continuing to build membership for its Chinese Market Committee and is currently looking to establish committee chairs as well. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Alyssa.Acevedo@sfindustry.org.

SFIG has launched its initiative to provide critically needed input for the Financial Stability Board’s “Shadow Banking” project. For more information on SFIG’s work on Shadow Banking, please contact Amanda.Bateman@sfindustry.org.

 
 
RECENT DEVELOPMENTS
THE BANK OF ENGLAND AND EUROPEAN CENTRAL BANK RELEASE REPORT ENTITLED “THE IMPAIRED EU SECURITISATION MARKET: CAUSES, ROADBLOCKS AND HOW TO DEAL WITH THEM”
The Bank of England and European Central Bank prepared a short report ahead of the G20/IMF meetings, with a longer discussion paper to be issued in May. According to the report, “A market for prudently designed ABS has the potential to improve the efficiency of resource allocation in the economy and to allow for better risk sharing. It does so by transforming relatively illiquid assets into more liquid securities. These can then be sold to investors thereby allowing originators to obtain funding and, potentially, transfer part of the underlying risk, while investors in such securities can diversify their portfolios in terms of risk and return. This can lead to lower costs of capital, higher economic growth and a broader distribution of risk.”

The report further notes the low level of ABS issuance in Europe, highlighting the failure of structural reforms to kick start the market as well as roadblocks put in place by certain regulatory initiatives. “The proposed changes arguably treat ABS in ways that might be perceived as unduly conservative, both relative to their performance in the European context and more particularly relative to other forms of long-term wholesale funding such as covered bonds. One reason is that the proposed changes do not appear to distinguish sufficiently between the actual performance of simple and prudently structured ABS – for example, including some of those predominantly issued in Europe – and of more complex, opaque structures. In addition, there appear to be inconsistencies across different regulatory initiatives in a number of different fields such as capital charges and liquidity requirements.” For example, “a key issue would be the relative treatment of securitization and covered bonds in the forthcoming EU implementation of the Liquidity Coverage Ratio… Banks, insurers and pension funds that are affected by these regulations are the major players in the securitization market, and their ongoing participation is vital to its ongoing functioning.”

 
 
SENATOR BROWN SAYS HOUSING FINANCE REFORM WILL NOT BECOME LAW THIS YEAR
Senator Sherrod Brown (D-OH) recently speculated that a comprehensive revamp of the U.S. housing finance system will not become law this year and called for simpler changes to Fannie Mae and Freddie Mac. Brown, a member of the Senate Committee on Banking, Housing, and Urban Affairs (Committee) , said a bipartisan bill from Committee Chairman Tim Johnson (D-SD) and Committee Ranking Member Mike Crapo (R-ID) to replace Fannie Mae and Freddie Mac is too complicated and does not do enough to address too-big-to-fail concerns or provide enough assistance for affordable housing. The Committee has planned a markup of the legislation on April 29th.

“It’s not going to pass this year,” Senator Brown said today at a Bloomberg Government breakfast in Washington. “If anything, it can get out of committee, I think it probably will.” Brown said he did not know if Senate Majority Leader Harry Reid, a Nevada Democrat, would schedule the measure for full Senate consideration as the legislators deal with other business this year. There is also no serious effort to act on housing finance reform in the House of Representatives, he added.

The bill by Senators Johnson and Crapo is modeled after legislation introduced last year by Senators Bob Corker (R-TN), and Mark Warner (D-VA). The measure would dismantle Fannie Mae and Freddie Mac, which buy loans and package them into securities with guaranteed payments of principal and interest. The U.S.-owned companies would be replaced by a system in which mortgages are mostly backed by private capital. The federal government would play a smaller role in the market by taking a backstop position on mortgage securities, stepping in only if private interests were wiped out by catastrophic losses. It would create a Federal Mortgage Insurance Corporation to provide insurance for mortgage-backed securities. It also would allow banks to be an aggregator, guarantor, securitizer and lender of mortgages. The bill relies on incentives to persuade financiers to lend to groups with higher risk profiles. Consumer and civil-rights advocates are pushing instead for a mandate that those groups must be served, a concept that has become a political flash point since the housing market collapsed.

 
 
NEW-ISSUE CLO CLIMBS TO OVER $17.14 BILLION DESPITE REGULATORY UNCERTAINTY
Despite continued uncertainty over the implications of the Volcker Rule on banks’ collateralized loan obligation (CLO) business, the new-issue CLO pipeline increased to $17.14 billion over the past week. Last week, the Federal Reserve Board extended the Volcker Rule conformance period for CLOs by two years to 2017. However, the securitization industry is still working to develop possible grandfathering provisions. The CLO pipeline was $15.83 billion last week. For more information on SFIG’s activities regarding the Volcker Rule and its impact on the CLO market, please contact Amanda.Bateman@sfindustry.org.


 
THE BIPARTISAN POLICY CENTER ISSUES REPORT ENTITLED “DODD-FRANK’S MISSED OPPORTUNITY: A ROAD MAP FOR A MORE EFFECTIVE REGULATORY ARCHITECTURE”
The Bipartisan Policy Center released a report outlining ways in which to improve the quality of the U.S. regulatory architecture and achieve better regulatory outcomes for both financial institutions and the end users of financial services. According to the report, “Fragmentation in the U.S. financial regulatory structure contributed to the most recent financial crisis. For example, the lack of comprehensive oversight of the mortgage market, from the underwriting process through the securitization of mortgage loans, was at the heart of the crisis. Opportunities for regulatory arbitrage, particularly in the establishment and operation of thrift holding companies, further amplified these problems. Such problems can be substantially mitigated through improvements to the existing regulatory regime.” The report focuses on six specific areas: improved quality of examinations; a new, consolidated regulatory structure; greater authority and independence for the Financial Stability Oversight Council and Office of Financial Research; the creation of a single Capital Market Authority; independent funding for all agencies (via removal from congressional appropriations); and cross-border impact assessments.  


 
MORTGAGE BANKERS ASSOCIATION FORECASTS LOWEST ORIGINATION ACTIVITY SINCE 2000
Although mortgage applications rose over the past three weeks, origination activity failed to tick up sufficiently to adjust annual projections upward. The Mortgage Bankers Association (MBA) is projecting that mortgage originations in 2014 will be at their lowest level in 14 years, with total origination of $1.065 trillion, down 39 percent from 2013 figures. The low first quarter figures follows earlier downward adjustments to the original 2014 forecast. However, MBA’s projections for the second quarter suggest originations will climb to $267 billion.
 
 
FDIC PUSHES FOR UTILIZATION OF CYBER RESOURCES BY FINANCIAL INSTITUTIONS
The Federal Deposit Insurance Corporation (FDIC) is urging financial institutions to identify and utilize all available cyber resources to help them manage potential cybersecurity risks. The FDIC stresses the importance for these institutions to be aware of ever-emerging cyber threats and the established government-sponsored resources that have been made available. These resources include:

  • The United States Computer Emergency Readiness Team (US-CERT) – The Department of Homeland Security’s US-CERT coordinates cyber information sharing and provides cyber vulnerability and threat information.
  • The FBI Infragard – Infragard is an information sharing forum between the FBI and private sector.
  • U.S. Secret Service Electronic Crimes Task Force (ECTF) – ECTF is comprised of local, state and federal law enforcement personnel and teams them with prosecutors, the private industry and academia to maximize what each has to offer in an effort to combat cyber-criminal activity.
  • Regional Coalitions – The financial services sector has established multiple local regional coalitions to enhance partnerships between the private sector and state, local or regional governments.
  • Information Sharing and Analysis Centers (ISACs) – The ISACs provide risk mitigation information, alerts and other information among its members.
 
 
IMF REPORT FINDS U.S. FINANCIAL MARKET OVERSIGHT INSUFFICIENT
We may have finally begun to turn the corner from the global financial crisis, but the International Monetary Fund (IMF) cautions that further vigilance - and regulatory oversight - is needed to prevent its reoccurance. According to the Global Financial Stability Report released on April 9th, there is still a need to move beyond liquidity dependence by overcoming the remaining challenges to global stability. While the IMF sets forth a number of issues that threaten global financial markets, U.S. monetary policy and “shadow banking” are highlighted as having particularly significant implications in a future economic downturn.

Jose Vinals, Financial Consellor and Director of Monetary and Capital Markets at the IMF, while introducing the report on April 9th, noted there have been notable strides with respect to monetary policy in the U.S., euro zone, Japan and emerging market economies in recent months. At the same time, this progress has resulted in new challenges to financial stability as the legacy of the crisis recedes. The IMF found that the U.S. has begun to make a smooth exit from its very accommodative monetary policy that has been in place for the last few years. Vinals referred to this exit as a “Goldilocks exit: Neither too hot, nor too cold; just right.” According to Vinals, a bumpy scenario is also possible if there are growing concerns regarding financial stability risks in the U.S. or it so happens that inflation rises faster than expected and the Federal Reserve believes it must increase the policy rate faster than expected.

He stated that the IMF is continuing to tracking increasingly hot spots in the financial system, with a particular focus on the shadow banking system, which has facilitated a high-yield but lower quality issuance over the past three years and is now more than double the amount recorded before the last downturn. Other “challenges” noted in the report include the substantial growth in China’s debt and overreliance on shadow banking, corporate debt in emerging economies and cross-border issues regulators must overcome to coordinate their implementation of new regulations.

 
 
SCHUMER RELEASES BIPARTISAN BILL TO REAUTHORISE TERRORISM RISK INSURANCE FOR SEVEN YEARS
Last Thursday, Senator Charles Schumer (D-NY), along with Senators Dean Heller (R-NV), Mark Kirk (R-IL), Jack Reed (D-RI), Mike Johanns (R-NE) and Chris Murphy (D-CT) announced that they had reached a bipartisan agreement on legislation that would reauthorize the Terrorism Risk Insurance Act (TRIA). TRIA is set to expire at the end of 2014. Created in 2002 in the aftermath of the September 11, 2001 attacks, TRIA provides a federal backstop for insurance coverage against losses from terrorist attacks. TRIA has been reauthorized in 2005 and then again in 2007. Under the bipartisan agreement, TRIA would be reauthorized for seven years and contain the following two changes that would be phased in over five years:

  1. Co-pay: In the event of a terrorist attack, insurance companies would first be obligated to pay a portion of their premiums (20 percent of the prior year’s direct earned premium for covered commercial lines) as a deductible. Following that deductible payment, however, the program currently requires that the federal government cover 85 percent of each company’s losses until the amount of losses totals $100 billion. Each company is obligated to pay the other 15 percent of losses. In other words, after an insurer’s losses exceed its deductible, it faces a 15 percent co-pay on all additional terrorism losses in conjunction with the federal government’s 85 percent recoupable co-pay.
  • The proposed legislation would increase an insurers’ co-pay from 15 to 20 percent, with the government still covering 80 percent of each company’s additional losses. As stated, this increase would be phased in incrementally over five years.
  1. Recoupment: When aggregate insured losses are less than $27.5 billion, the TRIA program currently imposes mandatory policy surcharges that require recoupment of federal payments made under the program. In other words, recoupment by the federal government is mandatory if the insurance industry’s aggregate uncompensated loss is less than $27.5 billion. Additionally, under the current program, when aggregate insurer deductibles and co-payments exceed $27.5 billion, TRIA provides the Secretary of the Treasury the authority to recoup federal payments above that amount based on pre-established factors and conditions.
  • The proposed legislation would raise the mandatory recoupment threshold to $37.5 billion, so that when the insurance industry’s aggregate uncompensated losses are below $37.5 billion, the government will be required to recoup its TRIA payments outlaid to insurers.

“In a post-9-11 New York, Terrorism Risk Insurance has proven to be an absolutely essential partnership between the government and the private sector that has turned rebuilding downtown Manhattan from a question to a certainty,” said Senator Schumer. “But there is still more to be done and this crucial bipartisan plan will reauthorize and extend the Terrorism Risk Insurance Act before it expires at year’s end. Redevelopment and economic growth should be encouraged in New York and other high-risk areas across the country, even in the face of unfathomable terrorist events, and I will work with my colleagues to get TRIA passed this year to preserve this essential tool.”

 
 
DROP IN MORTGAGE LOAN MODIFICATIONS SIGNALS DECLINE IN NEED FOR ASSISTANCE FOR DISTRESSED BORROWERS
The number of borrowers receiving mortgage loan modifications through the Home Affordable Modification Program (HAMP) fell 5 percent in February—with fewer than 30,000 receiving proprietary loan modifications and approximately 12,500 receiving HAMP mortgage payment reductions. The Hope Now alliance released the data and stated that the figures are “an indicator that the availability of a multitude of nonforeclosure options continues to have a positive impact on the housing market.” The drop in the number of borrowers receiving mortgage loan modifications was complemented by a monthly decline in foreclosure sales and starts of 24 percent. Mortgage delinquencies of 60 days or more also came in below two million for the second month in a row. The Hope Now alliance said, “This number is yet another indicator of the progress made in stabilizing the housing market.”
 
 
QM RULES MAY IMPACT IMMIGRANTS AND OTHERS FITTING NON-TRADITIONAL CREDIT PROFILES
The new qualified-mortgage (QM) rule may start to produce unintended consequences for immigrants and other non-traditional credit seekers. Several of those within the industry have warned that borrowers who do not have a traditional credit profile could find it challenging to secure a mortgage. This group includes immigrants who lack a credit or work history in the U.S. to support their application or those who are self-employed, according to insiders. Both of these scenarios make it more difficult to secure a mortgage under the QM rule (impacting the debt-to-income ratio requirements).

Nearly 80 percent of bankers said they expect QM to reduce mortgage credit, based on a recent survey from the American Bankers Association. Roughly a third said they would restrict lending only to QM loans, and 29 percent said their non-QM lending would be limited to specific markets. Despite the risks, many lenders have determined that certain loans that fall outside of QM are worth making and holding on their balance sheets. Many will continue to originate and hold non-QM, interest-only loans to high net-worth borrowers.

QM loan focuses on a borrower's debt-to-income ratio as the main underwriting requirement and credit history isn't necessarily part of that. Borrowers that fall in the non-traditional credit category may have a difficulty documenting income (impacting the debt-to-income ratio requirements of the QM Rule) or have less established credit histories. One portion of the QM rule limits the debt-to-income ratio to 43 percent. Still, QM is "not a substitute for the lender's underwriting standards," meaning lenders are being particularly cautious about making loans and may consider credit history anyway, Mr. Richard Andreano Jr., partner at Ballard Spahr, states. He also noted that if a lender is doing a temporary QM loan using standards from Fannie Mae and Freddie Mac, or completing the loan under the general ability-to-repay rule, then credit history is considered.

 
NEXT WEEK IN WASHINGTON
OCC BANK DIRECTOR WORKSHOP
MONDAY, April 28, 2014 – WEDNESDAY, April 30, 2014
Embassy Suites Baltimore-Inner Harbor, Baltimore, MD
Three-day workshop designed exclusively for directors of institutions supervised by the Office of the Comptroller of the Currency. The workshop will provide practical information on the roles and responsibilities of a community bank director.
 
 
JOHNSON-CRAPO HOUSING FINANCE REFORM BILL MARKUP
TUESDAY, April 29, 2014
10:00 a.m. (EST)
Senate Banking, Housing, and Urban Affairs Committee
534 Dirksen Senate Office Building
A webcast of the markup will be available on the Senate Banking, Housing & Urban Affairs Committee website.

 
 
FINRA ANNUAL CONFERENCE
MONDAY, May 19, 2014 – WEDNESDAY, May 21, 2014
Renaissance Hotel
Washington, DC
Click here for a detailed agenda and to register.  
 

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

Sonny Abbasi Director of MBS Policy

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson Senior Policy Analyst

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration


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Washington, DC 20006

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