April 23, 2014 Newsletter
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April 23, 2014
 

SFIG News

SFIG Calendar

Advocacy Outlook

Recent Developments

Next Week in Washington

 
SFIG NEWS
SFIG SUBMITS POLICY POSITIONS ON JOHNSON-CRAPO GSE REFORM TO SENATE BANKING COMMITTEE
SFIG submitted a briefing book to the Senate Committee on Banking, Housing, and Urban Affairs’ (Committee) staff on legislation proposed by Senator Tim Johnson (D-SD), Chairman of the Committee, and the Committee’s Ranking Member, Senator Mike Crapo (R-ID). SFIG staff and the GSE Reform Task Force developed the content of the briefing book after conducting a comprehensive review of all sections of the legislation including key areas of import such as:

  • 10 Percent Capital
  • Credit Risk Sharing
  • Mortgage Insurance Fund Insurance and Funding
  • Securitization Platform

A markup of the Johnson-Crapo legislation is scheduled for April 29, 2014, and SFIG is looking forward to advocating on behalf of its members with the Committee on the topics discussed above as well as other items contained in our briefing book. If you are interested in participating on the GSE Reform Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
SFIG SUBMITS COMMENT LETTER TO CANADIAN SECURITIES ADMINISTRATORS ON PROPOSED ASSET BACKED COMMERCIAL PAPER DISCLOSURE REQUIREMENTS
Today, SFIG’s Latin America and Canada Committee submitted a comment letter to the Canadian Securities Administrators (CSA) in response to the Request for Comments on the Proposed Amendments to National Instrument 45-106 Prospectus and Registration Exemptions relating to Short-Term Debt Prospectus Exemption and Proposed Securitized Products Amendments (Proposed Amendments). The Proposed Amendments, published on January 23, 2014, 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 (ABCP) transactions.

To learn more about SFIG’s involvement on issues in Canadian securitization please contact Mary.Robinson@sfindustry.org.

 
 
CONFERENCE ON CLOs AND LEVERAGED LOANS: SFIG HIGHLIGHTS
IMN's 3rd Annual Investors Conference on CLOs and Leveraged Loans concluded this afternoon after two days of panels that addressed, among other topics, the market impact of regulations such as the Volcker Rule, Risk Retention and the Foreign Account Tax Compliance Act. SFIG members and staff were in attendance, speaking on a number of panels as well as exhibiting the work produced by our Volcker Task Force and other committees on this important topic, including multiple comment letters and testimony provided to the House Financial Services Capital Markets and Government Sponsored Enterprises Subcommittee on February 26th.

This morning, Director of ABS Policy, Sairah Burki, represented SFIG on a panel entitled "Assessing the Fallout from Volcker: Is the Bark Worse than the Bite?" Burki and other panelists provided an overview of the rule’s impact on bank investors in AAA CLOs; walked through the regulatory and legislative engagement that’s taken place since the final rule was released; and identified other key regulatory hurdles on the horizon such as risk retention.

 
 
SFIG MEETS WITH FHFA ON PROJECT RMBS 3.0
On April 16th, SFIG members and staff met with the Federal Housing Finance Agency (FHFA) to discuss key factors impacting the return of private capital to the mortgage market. Specifically, SFIG reviewed progress made through Project RMBS 3.0, its project to bring back private capital to the U.S. housing finance marketplace.

For additional information on Project RMBS 3.0, or to participate on any of the working groups, please contact Mary.Robinson@sfindustry.org.

 
 
AGENCIES’ LETTER HIGHLIGHTS EFFORTS TO FIND SOLUTION FOR CLOs UNDER VOLCKER RULE
In a letter sent to House Financial Services Committee Chairman Jeb Hensarling, federal regulatory agencies highlighted the work being done by SFIG, the Loan Syndication Trade Association, American Bankers Association, Financial Services Roundtable, and Securities Industry and Financial Markets Association to find a solution for the treatment of collateralized loan obligations (CLOs) under the Volcker Rule.

Earlier this month, the Federal Reserve Board indicated that it intended to grant two additional one-year extensions of the conformance period for CLOs under section 619 of the Volcker Rule. Pursuant to those extensions, banking entities have two additional years to conform to the statute for CLOs in place as of December 31, 2013 that do not qualify for the loan securitization exemption.

 
 
SFIG CALENDAR
PROJECT RMBS 3.0 REPRESENTATIONS, WARRANTIES, AND REPURCHASE ENFORCEMENT WORKING GROUP CONFERENCE CALL
THURSDAY, April 24, 2014
4:00 p.m. – 5:00 p.m. (EST)
 
 
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.

SFIG is forming a working group to comment on the securitization-related impacts of the notice of proposed rulemaking (NPR) relating to the Supplementary Leverage Ratio. The Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency issued the NPR on April 8, 2014, that would modify the denominator calculation for the supplementary leverage ratio in a manner generally consistent with recent changes agreed to by the Basel Committee on Banking Supervision. The revisions in the NPR would apply to all internationally active banking organizations, including those subject to the enhanced supplementary leverage ratio final rule. Comments are due on June 13, 2014. For additional information or participate in this working group please email Mary.Robinson@sfindustry.org.

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 recently finalized SFIG’s policy positions as they relate to the proposed Johnson-Crapo legislation for housing finance reform. Please see SFIG news for additional information on recent GSE advocacy developments. 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 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
YELLEN ADVOCATES HIGHER CAPITAL REQUIREMENTS
In a speech at the Federal Reserve Bank of Atlanta’s 2014 Financial Markets Conference on April 15th, Chair Janet Yellen indicated that the onslaught of new rules designed to target risks posed by short-term credit markets is likely to continue under her watch. According to Yellen, runs from short-term creditors, money market mutual funds and asset-backed commercial paper programs in 2007 and 2008 acted as “the primary engine of a financial crisis from which the United States and global economy have yet to fully recover.” She advocates, therefore, for the implementation of stronger capital and liquidity standards for large banks and additional measures to curb risks in the shadow banking sector.

The Federal Reserve Chair noted there have already been significant actions by global and U.S. regulators in response to the risks exposed by the crisis. The Basel Committee on Banking Supervision (BCBS), for example, has sought to curb credit and market risks from the asset side of the balance sheet and from off-balance-sheet transactions through the adoption of the Basel III Capital Accord. A subsequent domestic rule allowed for these stronger capital requirements to be implemented in the United States. To address liquidity risk, Yellen highlighted the BCBS’ development of the Liquidity Coverage Ratio (LCR) and Net-Stable Funding Ratio (NSFR). The LCR is meant to improve banks’ ability to withstand severe short-term liquidity stress events by requiring a buffer of highly liquid assets to cover net cash outflows in a 30-day stress scenario. The NSFR, in turn, would promote resilience over a one-year horizon by requiring banks that hold less liquid assets to fund their activities with more stable sources of funding.

Yellen explained that while the new standards serve to both insulate banks from liquidity shocks and provide firms with an incentive to move to more stable funding structures, they do not fully address the financial stability concerns associated with short-term wholesale funding. These standards only pertain to the liquidity positions taken by firms individually, rather than the financial system as a whole, and do not directly apply to the shadow banking system, where liquidity shocks also helped fueled the recent crisis. Additionally, she noted the LCR and NSFR “do not address the risks associated with so-called matched books of securities financing transactions.”

In response to these and other residual risks in the short-term wholesale funding markets, Yellen stated that “Federal Reserve staff are actively considering additional measures,” such as requiring firms to hold larger amounts of capital, stable funding, or highly liquid assets based on the use of short-term wholesale funding. However, the measure would apply only to the largest, most complex bank organizations. On a marketwide basis, the Federal Reserve is considering applying minimum margin requirements for repurchase agreements and other securities financing transactions.

With respect to the financial tradeoffs associated with tighter liquidity regulation, Yellen pointed to a 2010 BCBS study which suggests that, “there may be net social gains from introducing further reforms to address short-term wholesale funding risks.” In words that signaled a warning to the financial services industry, she concludes that “this study provides some support for the view that there might be more room for stronger capital and liquidity standards for large banks than have been adopted so far.”

 
 
SEC RELEASES CYBERSECURITY GOVERANCE FOR FINANCIAL FIRMS
The U.S. Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations issued a Risk Alert last week to provide additional information regarding its initiative to evaluate cybersecurity preparedness among those within the securities industry. The Risk Alert “describes factors that firms may consider to (i) assess their supervisory, compliance and/or other risk management systems related to these risks, and (ii) make any changes, as may be appropriate, to address or strengthen such systems.”

The document’s release follows an SEC March 26th roundtable event where experts deliberated how public companies, asset managers, exchanges and brokerages can guard themselves against cyber threats and what role the government should be taking to guarantee these attacks are sufficiently disclosed. Recently, the Federal Deposit Insurance Corporation has also been pushing for the utilization of cyber resources by financial firms, stressing the importance for firms to be aware of ever-emerging cyber threats.

Immediately after the SEC issued their Risk Alert, the Government Accountability Office (GAO) issued a report indicating that the SEC has not consistently protected itself from potential intrusions into its computer network and found weaknesses in the way the agency identified and authenticated users, authorized access and encrypted data, among other shortcomings. The GAO report also indicated that the SEC did not exercise tight enough control over contractors working on its data system, failed to implement sufficiently strong password controls and poorly managed the migration of a key financial system to a new location.

 
 
DONOVAN: RIGHT NOW IS THE CHANCE TO MAKE REFORM A REALITY
In remarks the National Council of La Raza’s recent sustainable homeownership forum, Secretary of Housing and Urban Development, Shaun Donovan, encouraged listeners to support the Johnson-Crapo Housing Finance Reform and Taxpayer Protection Act. Though conceding nothing is perfect, with respect to S. 1217 he stated “despite its imperfections, this bill represents progress. That’s why we’ve got to push for it.”

According to Donovan, there are two basic steps our nation needs to take to achieve its goal of sustainable homeownership for all communities. First, citizens must be empowered with the tools necessary to be responsible homeowners. As indicators of progress, Donovan cited the $7 billion in funds allocated to address foreclosed and abandoned properties through HUD’s Neighborhood Stabilization Program, as well as the 9.5 million families that use HUD-approved housing counselors. Second, Donovan believes that we must ensure that when families are ready to buy, the housing finance system enables them to do so. Accordingly, HUD and the Federal Housing Administration “are looking for innovative ways to get credit to those ready to buy and ensure these transactions have the best possible chance to succeed.” Examples of such efforts include the Homeowners Armed With Knowledge initiative, updated Manual Underwriting guidance, the Back to Work initiative and revisions to Quality Assurance. Yet despite the progress FHA has made towards facilitating sustainable homeownership, Donovan concludes by emphasizing the need for housing finance reform with the explanation “this kind of work can only go so far.”

The majority of Donovan’s comments focused on the need to increase access to credit for low income families and minority communities. He said the Johnson-Crapo bill addresses this issue “by putting an equitable access requirement that would open new doors for responsible buyers in underserved communities, in good times and bad, while putting an end to Fannie and Freddie’s failed business model of ‘heads they win, tails taxpayers lose.’” It would also generate up to $5 billion a year for housing trust funds created to increase access homeownership and help produce affordable rental housing. Donovan called for Congressional legislation that “can put a definitive end to the GSEs’ failed business model and replace it with a system that shifts credit risk from taxpayers to the private sector and ensures that any government backstop is explicit and properly priced.” He warned failure to enact such legislation is prohibiting the return of private capital to mortgage financing, “which is why we need to get reform done so that Mel Watt and his team have five years at FHFA to build for the future.”

 
 
SALLIE MAE INTERESTED IN ACQUIRING ADDITIONAL FFELP LOANS
Sallie Mae may be looking to add additional Federal Family Education Loan Program (FFELP) loans to its portfolio. President and CEO Jack Remondi said in a conference call April 17th that “There are roughly $150 billion of FFELP out there that we don’t own or service, and we’d certainly be very interested in acquiring those loans but we will approach the opportunity in a disciplined way.” The remarks, issued after the release of Sallie Mae’s first-quarter financial report, also highlighted that the additional FFELP loans represent a “finite income genrerating portfolio” given the 2010 stop in U.S. government payment for bank origination of guaranteed student loans.
 
 
LONG FORECLOSURE PERIOD STALLING IMPROVEMENT IN LOSS RATE FOR SUBPRIME MORTGAGE BACKED SECURITIES
Lengthy foreclosure procedures in judicial states are slowing down improvements in the loss rate on suprime mortgage backed securities. Increased housing prices strengthened performance on legacy mortgage bonds in non-judicial states but higher expenses facing servicers and investors in the collateral take-back process have stalled such gains. Mortgage pools where a majority of the collateral is in judicial states are not experiencing the offset in loss severity attributed to increased home prices, and while it is possible that in the long run home prices may rise enough to offset the costs associated with long foreclosure periods, it has yet to occur.
 
 
SEC PROPOSES SWAPS RECORDKEEPING AND REPORTING REQUIREMENTS; CAPITAL RULE
On April 16, 2014, the Securities and Exchange Commission (SEC) voted to propose recordkeeping, reporting and notification requirements for security-based swap dealers (SBSDs) and major security-based swap participants, securities count requirements applicable to certain SBSDs, and additional recordkeeping requirements applicable to broker-dealers to account for their security-based swap and swap activities. The proposed rule is pursuant to the Dodd-Frank Act and also includes an additional capital charge provision that would be added to the proposed capital rule for certain SBSDs. Finally, it provides for technical amendments to the broker-dealer recordkeeping, reporting and notification requirements.

The public has 60 days to provide comments on the proposed rule to the SEC.

 
 
FSB CHAIR REPORTS TO G20 ON STATUS OF GLOBAL FINANCIAL REFORMS
According to Financial Stability Board (FSB) Chairman Mark Carney, progress has been made in the G20’s program to reform the global financial system, but difficult decisions still need to be made with respect to ending too-big-to-fail; transforming the shadow banking sector; and making derivatives markets safer. In a recent letter to the G20 Finance Ministers and Central Bank Governors, Carney summarizes the FSB’s plan of action on these issues including the steps it has taken thus far and those that will be taken ahead of and after the upcoming Brisbane Summit, the next gathering of the G20 Leaders.

As their first priority, Carney says the G20 Leaders must take steps to end the too-big-to-fail complex by ensuring systemically important institutions can be resolved in the event of failure without the need for taxpayer support. As such, the FSB is working to develop proposals by the end of this year on the adequacy of global systemically important financial institutions’ loss absorption capacity when they fail, or “gone-concern loss-absorbing capacity (GLAC).” To complete its proposal in time for the Brisbane Summit, Carey requests support on three particular issues: the criteria that bank liabilities should meet to be considered as GLAC; the appropriate amount of GLAC that systemically important banks should hold; and where in the structure of banking groups that GLAC should be held. The FSB intends for that proposal to be finalized in 2015. Among the additional measures to end too-big-to-fail noted by Carney include the resolution of cross-border banks must be supported by contractual or statutory approaches for cross-border recognition of resolution actions including temporary stays.

The second task the FSB is particularly focused on is transforming shadow banking to transparent and resilient market-based financing. To date, the FSB has agreed to an information sharing process to support implementation of a framework for the regulation of shadow banking entities other than money market funds. Regulators have also further developed the policy framework to address financial stability risks associated with securities financing transactions and agreed to a timetable for implementation that will soon be published. Finally, the Basel Committee on Banking Supervision has finalized its supervisory framework for large exposures and risk-sensitive capital requirements for banks’ investments in equity of funds. The FSB will implement information sharing in May and finalize the framework for “haircut” and “haircut floors” in repo and securities financing transactions ahead of the Brisbane Summit.

Finally, Carney reports that national implementation of agreed G20 objectives for OTC derivatives reform is overdue, but progress has been made in resolving the remaining cross-border issues. The BCBS, for example, has finalized capital standards for the treatment of banks’ exposures to central counterparties that clear OTC derivatives, and the OTC Derivatives Regulators Group (0DRG) has provided a report on the remaining cross-border implementation issues. The FSB and ODRG will provide additional reports on these issues prior to the Brisbane Summit in November.

 
 
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.
 

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


1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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