April 22, 2015 Newsletter
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April 22, 2015
 

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
SFIG MEETS WITH CFTC, PRUDENTIAL REGULATORS ON MARGIN RULEMAKING

On Tuesday, SFIG staff and members of the Derivatives in Securitization Task Force met with the Farm Credit Administration, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Federal Reserve Board, Office of the Comptroller of the Currency and the Commodity Futures Trading Commission ("CFTC") to discuss the forthcoming rules regarding margin requirements for uncleared swaps. SFIG commented on the proposal in November 2014. The call yesterday provided an opportunity for members of the task force to highlight key points from that letter and discuss the potential impact the proposal could have on the real economy if finalized.

To join SFIG's Derivatives in Securitization Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
SFIG FILES AMICUS CURIAE BRIEF WITH CALIFORNIA SUPREME COURT IN WRONGFUL FORECLOSURE CASE

On April 16th, SFIG filed an Amicus Curiae Brief (“Brief”) in support of Ocwen Loan Servicing, LLC with the California Supreme Court in the case of Yvanova v. New Century Mortgage Corporation, Et. Al. At issue is whether a borrower, in an action for wrongful foreclosure on a deed of trust securing a home loan, has standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void. SFIG asked the California Supreme Court to reaffirm that a borrower does not have standing to bring a wrongful foreclosure action based on alleged breaches of a pooling and servicing agreement to which the borrower is neither a party nor an intended third-party beneficiary.

To join SFIG’s Residential Mortgage Committee, please contact Mary.Robinson@sfindustry.org.

 
 
SFIG CALENDAR
CREDIT CARD ISSUER COMMITTEE CALL
THURSDAY, April 23, 2015
10:00 a.m. – 11:00 a.m. (ET)
 
 
BIWEEKLY RISK RETENTION INDUSTRY GUIDE CALL
TUESDAY, April 28, 2015
11:00 a.m. – 12:00 p.m. (ET)
 
 
BIWEEKLY AUTO ISSUER COMMITTEE CALL
WEDNESDAY, April 29, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
CREDIT CARD ISSUER COMMITTEE CALL
THURSDAY, April 30, 2015
10:00 a.m. – 11:00 a.m. (ET)
 
 
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
MARKETPLACE LENDING LOOKS TO SECURITIZATION FOR FUNDING

As participation in the marketplace lending platform continues to increase, Global Capital reports that new parties are getting involved and turning to securitization as a funding tool. During the Lendit USA conference in New York City last week, Ron Suber of Prosper, one of the largest marketplace lenders in the U.S., said, “[t]here is no choice for platforms anymore to say ‘I don’t want to do securitizations.’ Investors have spoken, they have seen the success, and we’re going to see more of it.”

The increasing involvement in marketplace lending is a sign that marketplace lending is maturing, and along with the growth many see an opportunity for securitization to offer discipline to new lending firms. Nino Fanlo, chief financial officer at SoFi, noted that “anyone that does not see [securitization] as a plausible tool to not just expand your business but to think about this as a useful method of disciplining your process…misses a tremendous opportunity.” In order to achieve the desired sector growth and discipline, market lending platforms will need to invest in technology and standards such as independent third party credit risk modeling and prepackaged representations and warranties. According to Ram Ahluwalia of PeerIQ, “[a]s these tools and standards develop I think you’re going to see an acceleration in securitization and an improvement in terms of ratings, advance rate and…deductions in the cost of capital.”

 
 
FHFA FINISHES REVIEW OF G-FEES, DECIDES ON SOME ADJUSTMENTS

The Federal Housing Finance Agency (“FHFA”) announced last week that its comprehensive review of guarantee fees (“g-fees”) charged by Fannie Mae and Freddie Mac (the “GSEs”) was completed, with FHFA determining that current fees, on average, are at an appropriate level and that some modest adjustments to upfront guarantee fees are also appropriate. FHFA’s announcement notes that the agency is directing the GSEs to eliminate the adverse market charge with targeted increases in g-fees to address various risk-based and access-to-credit considerations. For certain categories of loans, FHFA stated, consideration was given to its simultaneous decision to strengthen financial and operational eligibility standards for mortgage insurance companies that insure loans either owned or guaranteed by the GSEs.

According to that announcement, also released on April 17th, “the finalized requirements reflect a multi-year effort to produce a clear and comprehensive set of standards that incorporate a new, risk-based framework to ensure that approved insurers have sufficient financial and operational strength to weather an economic downturn.” As noted by FHFA Director Mel Watt, “Completion of this requirement fulfills a key Scorecard item for the [GSEs].” To see the detailed changes to the g-fees please visit FHFA’s fact sheet.

 
 
CHINA EXPANDING MORTGAGE-BACKED SECURITIES TO REVIVE HOUSING MARKET

According to a recent Bloomberg article, China is looking to lift its declining real estate market by expanding its mortgage bond market. Chinese officials will likely start allowing banks to sell commercial mortgage-backed securities (“CMBS”) for the first time by the end of the year.

China previously revived securities tied to home loans in 2014 and these new CMBS offerings are expected to grow “substantially” according to the China Chengxin International Credit Rating Company.

“The launch of [CMBS] may send a strong policy signal because it will give banks more space to lend money directly to property developers,” said Zuo Fei, Director of Structured Finance at China Merchants Securities. “The regulators are trying to improve property purchases in a gradual and an appropriate way.”

According to Bloomberg, the Chinese government is aiming to balance efforts to provide new financing with steps to rein in unprecedented borrowing with real estate companies selling a record $44.4 billion-equivalent of bonds in 2014. Lending restrictions have pushed down home prices throughout China with prices dropping in 64 cities in January.

The introduction of CMBS may help improve investor demand because their yields are generally higher than residential mortgage-backed securities (“RMBS”). “We will actively follow any possible policy signal from the regulators to launch the product,” said Zuo.

Others in the industry agree that the Chinese market’s improving knowledge along with regulators’ support will help to spur overall CMBS and RMBS sales in 2015.

 
 
FHFA RELEASES STATEMENT ON HOA SUPER-PRIORITY LIEN FORECLOSURES

Yesterday, the Federal Housing Finance Agency (“FHFA”) released a statement regarding homeownership association (“HOA”) super-priority lien foreclosures.

While the FHFA acts as Conservator, "[no] property of the Agency shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Agency." This law precludes involuntary extinguishment of Fannie Mae or Freddie Mac liens while they are operating in conservatorships and preempts any state law that purports to allow holders of homeownership association (HOA) liens to extinguish a Fannie Mae or Freddie Mac lien, security interest, or other property interest.

The FHFA noted in their December 22, 2014 statement on certain super-priority liens that they will aggressively protect Fannie Mae’s and Freddie Mac’s rights by “bringing or supporting actions to contest HOA foreclosures that purport to extinguish Enterprise property interests in a manner that contravenes federal law.”

 
 
EUROPEAN CMBS LENDING INCREASES IN THE FIRST QUARTER OF 2015

In the first quarter of 2015, compared to the first quarter of 2014, volume has doubled for European commercial mortgage-backed securities (“CMBS”) according to an article in GlobalCapital.

“Global investments in European commercial real estate increased by 35% to €65bn in 2014, with the European Central Bank’s quantitative easing program suppressing bond yields and giving commercial real estate extra relative value,” said rating agency Dominion Bond Rating Service. 

 
 
CMBS AND RMBS COULD SEE NEGATIVE EFFECTS FROM INTEREST RATE INCREASE

Commercial (“CMBS”) and residential mortgage-backed securities (“RMBS”) could see negative effects from a rate rise by the Federal Reserve according to an article in National Mortgage News. A new report from Fitch Ratings found that the CMBS market would be most impacted from a rate rise through 2016 due to about $117 billion of transactions that are scheduled to mature between 2015 and 2018. The report also found that RMBS pools with more adjustable-rate mortgages could face higher payments in light of an interest rate increase. “A rise in rates and an economic slowdown would also likely affect home prices, adding negative pressure on legacy borrowers with little or no home equity,” said Fitch. 

 
 
CENTRAL BANK POLICY DIVERGENCE SUGGESTS CONSIDERABLE OPPORTUNITIES IN CMBS AND LATIN AMERICAN MARKETS

As global monetary policy divergence increases market volatility, new opportunities exist in commercial mortgage-backed securities (“CMBS”) and emerging Latin American markets according to a new report by Manulife Asset Management. Current expectations are that the U.S. and UK will begin tightening monetary policy by raising interest rates earlier than other developed markets such as Canada and Sweden, due to the fact that both the U.S. and UK began their stimulus programs earlier.

According to the report, a divergence in monetary policy will put the U.S. out of sync with other developed nations in which “this ‘winning’ position puts US growth and US export share at the mercy of aggressive currency devaluations by other countries.” However, the divergence in monetary policy around the world offers considerable market opportunities. “Investors need to focus on specific individual issuers, countries and regions of the world, rather than adopting the broad-based exposure that may have worked up until now.”

In an effort to guard against increased volatility Manulife suggests investing in longer-dated assets such as, “CMBS especially single-asset “trophy” properties that cannot be duplicated (such as prime Manhattan office blocks).” In addition, Manulife highlights the importance of geographical versatility and focuses on emerging markets in Asian and Latin-American countries such as Brazil and Mexico. “All of these countries are fundamentally strong, with current-account surpluses, are subject to ratings upgrades or are on watch for potential upgrades.”

 
 
SECURITIZATION EMERGES AS NEW CAPITAL STRUCTURE FOR RENEWABLE ENERGY 

The fast-growing renewable energy sector is looking to securitization as a new capital structure according to an article in The National Law Journal. Clean energy investments grew from $10.3 billion in 2004 to $51.8 billion last year as advances in solar and wind technology have made renewable energy more competitive with fossil fuels. While institutional interest in renewables increases, “[a]sset managers have tailored infrastructure investments, particularly in renewable energy, to have both lower risk and stable cash flows,” said The National Law Journal. In order to access low-cost public capital, energy companies are also creating energy asset-backed securities.  

 
 
UPCOMING EVENTS IN WASHINGTON
HOUSE FINANCIAL SERVICES COMMITTEE HEARING ENTITLED "EXAMINING REGULATORY BURDENS - REGULATOR PERSPECTIVE"
THURSDAY, APRIL 23, 2015
9:15 a.m. (ET)
HVC-210 Capitol Visitor Center
Financial Institutions and Consumer Credit
 
 
SENATE BANKING FULL COMMITTEE MARK-UP: LEGISLATION ON REGULATORY RELIEF AND OTHER MATTERS
THURSDAY, MAY 14, 2015
10:00 a.m. (ET)
Room 538 of the Dirksen Senate Office Building
 
 
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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