August 13, 2014 Newsletter
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August 13, 2014
 

SFIG News

SFIG Calendar

Advocacy Outlook

Recent Developments

Next Week in Washington

 
SFIG NEWS
SFIG RESPONDS TO TREASURY REQUEST FOR COMMENT ON PLS MARKET
Following the release of the First Edition RMBS 3.0 Green Papers on August 6th, SFIG submitted comments to the Department of the Treasury (“Treasury”) in response to the request for public comment on questions related to the development of a responsible private label securities (“PLS”) market on Monday. The response was developed by members of SFIG’s Residential Mortgage Committee, GSE Reform Task Force, and RMBS 3.0 Task Force—over 600 individual members—and included investors, issuers, due diligence contractors, law firms, trustees, servicers, rating agencies, accounting firms, and others.

For more information on the SFIG response to the Treasury PLS questions and the RMBS 3.0 initiative, please contact Mary.Robinson@sfindustry.org.

 
 
SFIG & IMN ANNOUNCE 1st ANNUAL PRIVATE LABEL RMBS REFORM SYMPOSIUM
SFIG & IMN are proud to present the 1st Annual Private Label RMBS Reform Symposium, the first of its kind, aimed at addressing the major obstacles that remain in the revitalization of a private label RMBS market, as well as potential solutions. The featured keynote speaker for this event is Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy.

The timing of the symposium is in concert with SFIG’s expected release of its RMBS 3.0 “Green Papers” Second Edition in early November. SFIG’s RMBS 3.0 Initiative (“RMBS 3.0”) is a broad industry supported endeavor that is designed to develop proposed standards and reduce substantive differences within current market practices.

The Symposium’s main areas of focus will mirror SFIG’s RMBS 3.0 work streams, including:

  1. Representations, Warranties and Repurchase Enforcement
  2. Due Diligence/Loan Review, Data and Disclosure
  3. Role of Transaction Parties and Bondholder Communications

The Symposium will be attended by investors, issuers, servicers, trustees and other market participants, leading academics, government officials, renowned industry research analysts and economists to discuss these and other issues currently plaguing the market.

Join us on November 12th in New York City to take part in this extraordinarily important gathering and be part of the rebuilding of a vitally essential private mortgage credit market.

 
 
RMBS 3.0 TASK FORCE KICKS OFF WORK ON SECOND EDITION GREEN PAPERS
Following last week’s release of RMBS 3.0 “Green Papers,” SFIG’s RMSB 3.0 Task Force will meet Friday to begin work on the Second Edition.   

The RMBS 3.0 Task Force is composed of over 200 individual members, working together to reduce substantive differences within current market practices and, where possible, proposing agreed upon best practices to support the revitalization of the private label securities market. SFIG encourages all members interested in engaging on the further development of the “Green Papers” to join the Task Force.

Additional details on the call can be found under the SFIG Calendar. If you would like more information on RMBS 3.0 or would like to join the Task Force please contact Mary.Robinson@sfindustry.org.
 
 
JOINT TRADES SUBMIT DATA STUDY TO BCBS ON PROPOSED REVISIONS TO THE SECURITIZATION FRAMEWORK
A study recently submitted to the Basel Committee on Banking Supervision (“BCBS”) finds that the proposals set out in its second consultative document, “Revisions to the Securitisation Framework,” may result in capital requirements that are not proportionate to risk. The study is meant to provide support to the positions advocated by SFIG, the Commercial Real Estate Finance Council, Global Financial Markets Association, Institute of International Finance, International Association of Credit Portfolio Managers, International Swaps and Derivatives Association and Securitization Forum of Japan (“Joint Trade Associations”) in their related comment letter submitted in March 2014 and includes an analytic review of certain data provided by a sample of banks.

In the accompanying cover letter for the study, the Joint Trade Associations suggest that the BCBS take additional time to refine the calibration of the proposed framework and improve the consistency of results between the internal ratings-based approach, external ratings-based approach and the standardized approach. In particular, the Joint Trade Associations believe that BCBS should collect more granular data and conduct an analysis of data grouped by the asset classes of the underlying exposures. They also ask the BCBS to consider the Joint Trade Associations’ analytical work provided in the March 24th comment letter.

 
 
FHFA REQUESTS INPUT ON CREATING A SINGLE SECURITY FOR THE GSEs
Yesterday, the Federal Housing Finance Agency ("FHFA") released a request for public comment on creating a single security to be issued by the Government Sponsored Enterprises ("GSEs"). Comments are due to the FHFA by October 13, 2014.

The FHFA's release aligns with its strategic plan to build a new single-family securitization infrastructure for the GSEs, including both a single security and a common securitization platform ("CSP").

SFIG has continued to advocate that creation of a single security is a necessary step prior to the creation of a CSP. Accordingly, SFIG commends the FHFA for taking this first step forward towards reaching this goal.

SFIG will work through its GSE Reform Task Force to provide comments to the FHFA. Please contact Amanda.Bateman@sfindustry.org if you would like to participate on SFIG's GSE Reform Task Force.

 
 
SFIG CALENDAR
PROJECT RMBS 3.0 TASK FORCE CONFERENCE CALL
FRIDAY, August 15, 2014
11:00 a.m. (EST)
 
 
SFIG MEETING WITH FHFA REGARDING FIRST EDITION OF RMBS 3.0 GREEN PAPERS
MONDAY, August 18, 2014
11:00 a.m. (EST)
Note: Closed Meeting
 
 
SFIG MEETING WITH TREASURY REGARDING FIRST EDITION OF RMBS 3.0 GREEN PAPERS
MONDAY, August 18, 2014
1:00 p.m. (EST)
Note: Closed Meeting
 
 
CHINESE MARKET COMMITTEE CALL
THURSDAY, September 4, 2014
2:00 p.m. – 3:00 p.m. (EST)
 
 
IMN ABS EAST 2014 CONFERENCE (SFIG—LEAD ASSOCIATION PARTNER)
SUNDAY, September 21, 2014 – TUESDAY, September 23, 2014
The Fontainebleau Hotel
Miami Beach, FL
Registration available here
 
 
SFIG FALL SYMPOSIUM
TUESDAY, October 21, 2014
6:00 p.m. – 9:00 p.m. (EST)
Ernst & Young
5 Times Square
New York, NY 10036
Registration and agenda will be forthcoming

*Please note, this event is closed to the press.

 
 
SFIG & IMN 1st ANNUAL PRIVATE LABEL RMBS REFORM SYMPOSIUM
WEDNESDAY, November 12, 2014
New York Marriott Downtown
New York City, NY
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.

The RMBS 3.0 Task Force released the First Edition of its Green Papers last week. On Monday, the Task Force, in conjunction with the GSE Reform Task Force and Residential Mortgage Committee, submitted a response to Treasury’s request for input on Private Label Securities. Members participating on RMBS 3.0 work to address issues specific to private label mortgage securities on 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. 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 is developing comments in response to the FHFA’s request for input on guarantee fees. The Task Force previously focused on reviewing the Johnson-Crapo proposal, with SFIG staff summarizing its recommendations in a briefing book on the legislation. SFIG staff is currently reviewing the PATH Act, which will serve as the basis for the task force to develop a briefing book outlining members’ views on the House proposal. If you would like to learn more about SFIG’s activities with respect to housing finance reform, please contact Amanda.Bateman@sfindustry.org.

The Mortgage Loan-Level Disclosure Task Force 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 has worked with SFIG’s various asset class and legal counsel committees to identify areas within the Volcker Rule in need of clarification. The proposed questions and answers are currently being reviewed by the task force via a survey. If your institution intends to provide a response to the survey, please do so as soon as possible. Please contact Amanda.Bateman@sfindustry.org for additional information on the Volcker Task Force, including questions regarding the FAQ survey of task force members.

The Risk Retention Committee is continuing to follow up with regulators on risk retention questions across asset classes. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG is launching its Chinese Market Committee and will be holding the first full committee call on September 4th. The agenda for this call includes: an introduction of the co-chairs, a high level description of SFIG’s partnership with the Chinese Securitization Forum, potential upcoming educational discussions and a sharing of recent market developments in China. 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.

SFIG has established a coordinated approach for its members to respond to the IOSCO-BCBS Survey of Market Participants regarding the impediments that may be preventing the development of sustainable, transparent securitization markets. Please contact Amanda.Bateman@sfindustry.org if you have any questions.

The Regulation AB II Task Force submitted its response to the SEC’s reproposal on asset level disclosure in late April of this year. The letter focused on the privacy aspects of the proposal, including concerns regarding reputational risks and potential liabilities related to the Fair Credit Reporting Act. We expect the final rule will be released in the near future. SFIG members who are interested in joining this task force or who have any questions should contact Alyssa.Acevedo@sfindustry.org.

SFIG is continuing to engage with regulators and legislators in order to further its advocacy efforts regarding the Liquidity Coverage Ratio proposal. Please contact Alyssa.Acevedo@sfindustry.org with your questions or comments.

The Derivatives in Securitization Task Force submitted a comment letter at the end of June, advocating for asset-backed securities issuers to qualify for the “low-risk financial end user” designation proposed by the prudential regulators in their original proposal. SFIG members who are interested in learning more about this initiative should email Alyssa.Acevedo@sfindustry.org.

 
 
RECENT DEVELOPMENTS
FITCH WIRE APPLAUDS SFIG’s FIRST EDITION OF RMBS 3.0 GREEN PAPERS RELEASE
On the heels of SFIG’s release of the First Edition RMBS 3.0 Green Papers, Fitch Wire published a release noting that SFIG’s efforts “are a step in the right direction and could help improve structural and disclosure standards that should ultimately help increase investor confidence” in the sector. RMBS 3.0’s efforts focus on increasing standardization and transparency in the residential mortgage backed securities market, and Fitch noted that “the establishment of best practices that focus on aligning interests and increasing transparency can only improve market confidence and drive a more sustainable and scalable market.”
 
 
FED GOVERNOR CALLS FOR FURTHER REFORM OF SHADOW BANK, CREDIT RATINGS
The global economy is recovering, but long-term projections for growth are slowly being revised downward due to a combination of structural and cyclical causes. Describing the regulatory landscape since the crisis in a recent speech, Federal Reserve Board Governor Stanley Fischer argues considerable progress has been made by the Basel Committee on Banking Supervision (“BCBS”), Financial Stability Board (“FSB”) and Group of Thirty to strengthen the financial system, but more work remains to be done.

According to Fischer, reforms enacted thus far have incorporated policy goals such as strengthening the stability and robustness of financial firms, particularly with respect to standards for governance, risk management, capital and liquidity; strengthening the quality and effectiveness of prudential regulation and supervision, including higher standards for systemically important financial institutions (“SIFIs”); building the capacity for undertaking effective macroprudential regulation and supervision; better monitoring risks within the shadow banking system, and finding ways to dealing with them; and improving the performance of credit rating agencies, especially those based on mortgage finance. Fischer notes that some countries have taken reform further than others, citing U.S. standards for capital ratios and liquidity buffers as examples.

While the BCBS and FSB agreed quickly on needed changes in regulation and supervision, Fischer points out that progress has been slow in reaching agreement on the resolution of global SIFIs and other aspects of international coordination. Questions remain for policymakers regarding the impact these reforms will have on financial market structure and functioning, whether they will be effective in enhancing stability, or whether there will be unintended consequences such as banks moving away from the regulated financial system and into the shadow banking system. Additional work is also needed to improve the performance of credit rating agencies and compensation practices in financial institutions. Fischer concludes by suggesting a combination of creative monetary and fiscal policy can be used to increase growth and to deal with potential problems of financial stability.

 
 
ECB INTENSIFIES WORK IN PREPARATION OF ASSET PURCHASING PROGRAM
The European Central Bank (“ECB”) is taking additional steps meant to “ease funding conditions further and stimulate credit provision to the real economy” so that inflation rates return to levels closer to 2 percent, President Mario Draghi said at an August 7th press conference. In addition to enhancing its current accommodative monetary policy stance through targeted longer-term refinancing operations, the ECB is intensifying preparatory work related to the ABS purchasing program announced by the central bank in early June.

However, market participants caution the cheap funding for banks could actually be a hindrance to revitalizing the ABS market, as it could crowd out private investors unable to complete with the unrealistically low spreads. In fact, with the ABS it holds as collateral for repo transactions and other funding programs, the ECB is the largest holder in Europe.

The ECB statement regarding its planned asset purchasing program comes at a time when lending to non-financial corporations appears to be weak, “reflecting the lagged relationship with the business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector balance sheets,” according to Draghi. However, loans to non-financial corporations have showed some signs of stabilizing in recent months and banks are reporting an improvement in net loan demand by non-financials as well as households. In light of this backdrop of weak credit growth, the ECB urges banks to take advantage of the asset purchasing program to improve their capital position and facilitate credit expansion during the next stages of the recovery.

 
 
FED FINDS BANKS MAKING FEWER MORTGAGE LOANS DUE TO CFPB RULES
The Federal Reserve Board (“FRB”) released a survey Monday that concludes new mortgage rules enacted by the Consumer Financial Protection Bureau are leading banks to issue fewer loans. The survey found that while the ability-to-pay and qualified mortgage rules were not impacting the approval rate for prime conforming mortgages by large banks, most other respondents indicated the rules were leading them to approve fewer of such loans.

The FRB surveyed 36 large U.S. banks, 44 percent of which said their approval of loans exceeding the statutory limits were lower than normal. Nineteen percent of banks said their approval of prime mortgages was lower than before the rules took effect.

 
 
SUBPRIME AUTO LOAN SUBPOENAS ISSUED BY JUSTICE DEPARTMENT
Last week, federal prosecutors began a civil investigation into the subprime auto lending business, focusing on the packaging and selling of loans to investors. Some regulators are concerned that checks and standards are being neglected as the subprime auto loan market continues to thrive.

In August 2013, however, the Federal Reserve Bank of New York analyzed auto lending data in its Quarterly Report on Household Debt and Credit and found that subprime auto lending fears are misplaced. They are planning to release an updated analysis later on this week and “it’s unlikely the composition of auto loan originations seen in our data will radically change since last year,” according to an associate at the Federal Reserve Bank of New York.

 
 
STRUCTURED FOREIGN EXCHANGE OPTIONS DEBUT IN CHINA
On Thursday, multiple banks throughout China launched the use of new structured currency option products denominated in Yuan for corporate clients in China. The country is hoping to accelerate its domestic foreign exchange market reform by allowing the Yuan to trade more freely. This follows an announcement by China’s State Administration of Foreign Exchange, China’s main regulatory authority for currency trading, of revised regulations on Yuan derivatives. Those changes took effect on August 1st and permits banks to offer more diversified option products.

These products will combine buy and sell options instead of being restricted to a simple option structure. These options will allow corporate clients to minimize risks and benefits from exchange rate fluctuations in a two-way current market compared with basic options.

These recent regulatory shifts are expected to make it easier for U.S. business expansion into China’s market. SFIG continues to follow these updates in order to share relevant developments in the Chinese market. If you are interested in joining SFIG’s Chinese Market Committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
LENDERS WAITING FOR FHFA TO ACT BEFORE BOOSTING CREDIT
In anticipation of new policies from the Federal Housing Finance Agency (“FHFA”), banks and other lenders seem to be holding off on approving loans for borrowers with lower credit. These new FHFA policies are expected to encourage credit availability by easing standards for Fannie Mae and Freddie Mac (“GSEs”), thus giving lenders more confidence in making loans to a broader range of borrowers.

FHFA Director Mel Watt indicated earlier this year that this would be a point of emphasis for the agency. "Our overriding objective is to ensure that there is broad liquidity in the housing finance market and to do so in a way that is safe and sound,” he said during a May 13th policy speech.

It is also expected that the GSEs will soon clarify their buyback and lending requirements while reducing their guarantee fees to make loans more affordable.

 
 
EUROPEAN COMMISSION PUSHES TO STRENGTHEN EU BLOC’S SUPERVISORY AUTHORITIES
Last Friday, the European Commission released a report that reviewed the European Union’s (“EU”) trio of new financial supervisors: the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pension Authority. Collectively known as the European Supervisory Authorities (“ESA”), these agencies were set up in 2011 to improve oversight of the 28-country bloc’s market and banks following the 2007-2009 financial crisis.

"In particular, the ESAs should give a higher profile to issues related to consumer/investor protection, and strengthen the focus on supervisory convergence," the European Commission stated in their report. The authority of the ESAs could also be strengthened to take "swift decisions in the interest of the EU as a whole," thus making it more difficult for a national regulator to protect one of its banks or insurers from an EU rule.

The European Commission is also interested in giving the ESA’s “direct access to data” so that they would not have to rely on the national regulators, extending their authority to enforce accounting rules, and granting “binding mediation powers” to ensure national regulators are complying with EU rules.

 
 
FICO TO RECALIBRATE ITS CREDIT SCORE CALCULATIONS
Last Thursday, the Fair Isaac Corporation (“FICO”) announced that its credit score calculation will no longer include any record of a consumer failing to pay a bill if it has been paid off or settled with a collection agency. FICO also announced that it will give less weight to unpaid medical bills that are with a collection agency.

These moves follow discussions with the Consumer Financial Protection Bureau regarding the boost of lending with creating more credit risk. They are also expected to make it easier for consumers to acquire loans, especially those previously excluded from the market or charged high interest rates due to their low scores.

Some within the industry believe that loosening standards may lead to future losses for borrowers and lenders because of those who may not be able to handle the increased credit and could up filing for bankruptcy.

These changes by FICO could take more than a year to trickle down towards consumers as banks spend time analyzing the impact of the recalibration.

 
 
NEXT WEEK IN WASHINGTON
FEDERAL DEPOSIT INSURANCE CORPORATION 4TH ANNUAL CONSUMER RESEARCH SYMPOSIUM
THURSDAY, October 16, 2014 – FRIDAY, October 17, 2014
FDIC L. William Seidman Center
Hove Auditorium
3501 Fairfax Drive
Arlington, VA 22226
This symposium will focus on the recent research on consumers’ capabilities, knowledge, preferences, and experiences in the market for financial products and services, as well as the effects of public policy interventions and new regulations on consumers, households, communities, and financial institutions.
Registration is available here
 

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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