August 20, 2014 Newsletter
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August 20, 2014
 

SFIG News

SFIG Calendar

Advocacy Outlook

Recent Developments

Next Week in Washington

 
SFIG NEWS
SFIG MEETS WITH TREASURY AND FHFA ON RMBS 3.0 GREEN PAPERS

On Monday, SFIG members and staff discussed the First Edition RMBS 3.0 Green Papers with officials from the Department of Treasury and the Federal Housing Finance Agency. SFIG’s discussions centered on the development of its Green Papers and highlighted the topics covered in its First Edition release, including:

  • Fraud Representation and Warranty
  • Regulatory Compliance Representation and Warranty
  • Objective Independent Review Triggers and Make-Whole Provisions
  • Sample Underwriting Guidelines Matrix
  • Due Diligence Extracts to Investors
  • Role of Transaction Parties and Bondholder Communication

SFIG’s Green Papers are a product of SFIG’s RMBS 3.0 initiative (“RMBS 3.0”) —a broad industry supported endeavor designed to develop proposed standards and reduce substantive differences within current market practices. The Green Papers are preliminary documents released with the aim of stimulating further debate and discussion. Ultimately, these are expected to evolve into a final set of “White Papers,” relating both to the release of Green Papers and to additional agenda items identified for future delivery.

SFIG encourages interested members to join the RMBS 3.0 Task Force and contribute to the ongoing dialogue for development of its Green Papers. To learn more about RMBS 3.0 and join the Task Force, please contact Mary.Robinson@sfindustry.org.

 
 
FHFA REQUESTS INPUT ON AGENCY STRATEGIC PLAN

Last Friday, the Federal Housing Finance Agency announced a request for input on its Strategic Plan: Fiscal Years 2015-2019. The plan lays out the agency’s priorities as the regulator and conservator of the government-sponsored enterprises (“GSEs”) Fannie Mae and Freddie Mac. It also reflects the priorities outlined for the GSEs in the 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, released in May.

The three goals set forth in the agency’s strategic plan include:

  1. Ensuring Safe and Sound Regulated Entities;
  2. Ensuring Liquidity, Stability and Access in Housing Finance; and
  3. Managing the Enterprises’ Ongoing Conservatorships.

Comments are due on September 15, 2014. SFIG is considering a response and will discuss the matter during the GSE Reform Task Force conference call scheduled for August 21st at 1:00 p.m. (EST). Members interested in participating in the call should please contact Amanda.Bateman@sfindustry.org

 
 
SFIG CALENDAR
GSE REFORM TASK FORCE CONFERENCE CALL
THURSDAY, August 21, 2014
1:00 p.m. – 2:00 p.m. (EST)
 
 
ABCP COMMITTEE CALL ON MONEY MARKET FUND REFORM PROPOSAL
THURSDAY, August 21, 2014
3:00 p.m. – 3:30 p.m. (EST)
 
 
CHINESE MARKET COMMITTEE CALL
THURSDAY, September 12, 2014
9:00 a.m. – 10:00 a.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 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 continues to build upon the momentum of its recent release of its First Edition RMBS 3.0 Green Papers, and the submission of a response to Treasury’s request for input on Private Label Securities.  The Task Force is developing an agenda for its Second Edition Green Papers and will continue 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 finalizing its response to the Federal Housing Finance Agency's ("FHFA") request for input on guarantee fees. On Thursday, August 21st at 1:00 p.m., the Task Force will meet to discuss FHFA’s proposed structure for a single agency security and whether SFIG should comment on its 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac. The Task Force had previously reviewed Johnson-Crapo proposal, with SFIG staff summarizing its recommendations in a briefing book on the legislation. SFIG has also reviewed the PATH Act. If you would like to learn more about SFIG’s activities in these areas, 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 to participate on the Volcker Task Force.

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 12th. 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.

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
SEC EXPECTED TO RELEASE NEW RULES FOR CREDIT-RATINGS FIRMS

The Securities and Exchange Commission (“SEC”) is expected to finalize new rules for credit-rating firms as early as this month. These rules are aimed at improving the regulation of the credit-rating industry, following criticism that, in the past, some firms did not adequately alert people about flawed mortgage securities.

According to industry experts, these new rules are also expected to ensure that the firms’ interest in winning business does not affect ratings analysis and will grant regulators more jurisdiction to take disciplinary action when rules are broken. The SEC rules are also expected to require more ratings disclosures for investors and create a more streamlined process when imposing penalties for violations.

Credit-ratings firms have acknowledged that they did not fully anticipate the consequences of the financial crisis and added that regulators and other market participants were caught off guard as well. The firms also say that they are far more regulated than in the past, have already created their own safeguards for risk management and welcome chances to improve their transparency.

Once the new SEC rules are finalized, rating firms are anticipating a period of several months to ensure compliance.
 
 
MOODY’S ANNOUNCES PROPOSED UPDATES ON RATINGS CRITERIA FOR PRIME RMBS
Last week, Moody’s Investor Service announced several proposed updates to its ratings approach on U.S. prime residential mortgage backed securities (“RMBS”). The planned updates would expand the criteria considered in respect to seasoned loans in Moody’s assessment of RMBS transactions. In addition to an evaluation of representations and warranties and independent third party reviewer data quality analysis, Moody’s proposes to examine default and prepayment behavior as functions of 12-month projections of house price appreciation. In a similar vein, Fitch also recently proposed changes to its RMBS ratings methodology to account for representations and warranties included in a transaction.
 
 
CHINESE BIG BANKS HOLD TWO-WEEK BOND OFFERING

As Chinese bank regulators begin phasing in new higher capital adequacy requirements, in line with Basel III rules, some of the country’s biggest banks will be holding a two-week bond offering. China’s top five banks have announced plans to raise 128 billion yuan ($20.8 billion) worth of Basel III-compliant Tier 2 capital via the two-week offering. Industry experts believe these recent offerings indicate that Chinese regulators are signed off and comfortable with the Basel III requirements.

If you are interested in keeping up with the most recent Chinese market trends and would like to join SFIG’s Chinese Market Committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
CHICAGO FEDERAL HOME LOAN BANK INCREASING CONDUIT PROGRAMS

The Chicago Federal Home Loan Bank (“Chicago FHLB”) has now taken a further step towards allowing its member institutions to originate and sell government-backed loans and private jumbo loans. In addition to existing mortgage conduit programs, the Chicago FHLB will open additional conduit programs, including one that will allow its members to sell loans to Ginnie Mae. The Federal Housing Finance Agency, which oversees the Federal Home Loan Banks along with Fannie Mae and Freddie Mac, gave approval for the Chicago FHLB to start the conduit program with Ginnie Mae. The Ginnie Mae conduit is in a pilot stage and is limited to member banks in Illinois and Wisconsin. Separately, the Chicago FHLB is working on a program, to roll out on a limited basis, to sell jumbo mortgage loans to Redwood Trust. Previously, the Chicago FHLB had entered into a conduit program with Fannie Mae.

 
 
EUROPEAN COMMISSION TO RELAX SOLVENCY II CAPITAL REQUIREMENTS

The European Commission (“EC”) plans to issue proposals that will ease capital requirements under Solvency II for insurers and pension funds who invest in securitizations, according to recent reports. An alternative proposal released by the EC in March would have been more punitive for markets, but the final draft cuts levels for Double-A, Single-A and Triple-B investments. The EC hopes the change will make holding ABS instruments more attractive for investors, who have shied away from EU securitization markets in the aftermath of the crisis.

The latest Solvency II draft reflects a steady downward revision of proposed capital charges; the March version suggested cutting in half the amount that would be required under a plan released by the European Insurance and Occupational Pension Authority (“EIOPA”) last December. Under the EIOPA draft, the “spread risk charge”—or starting point for insurers to calculate their capital requirements—would be 4.3 percent, as opposed to 2.1 percent under in the EC’s plans.

The decision comes as global policymakers increasingly vocalize support for promoting securitization as a means of boosting credit transmission to capital markets and the real economy. This trend is particularly evident in Europe, where the European Central Bank and Bank of England recently requested comment on The case for a better functioning securitization market in the European Union (see SFIG’s comment letter). With respect to the Solvency II changes, skepticism remains whether it will impact lending levels, particularly since charges unchanged for most senior tranches are left unchanged.

 
 
ECONOMIST REPORT DETAILS DROP IN BANK SME LENDING

Small and medium-sized enterprises (“SMEs”) contribute to a substantial share of the European Union (“EU”) economy, but a recent report by The Economist highlights how these firms’ reliance on bank lending may be slowing its recovery. SMEs, which include firms with fewer than 250 employees and less than €50m in annual turnover, account for 99 percent of all non-financials, 58 percent of value-added and 66 percent of jobs in the EU. As banks reassess their lending decisions in response to new regulatory capital rules, small firms have been hit hard, evidenced by the 35 percent drop -or €649 billion- in loans to SMEs between 2008 and 2013.

The Economist describes the alternative sources of funding that SMEs might consider to make up for the shortfall in bank lending. Financing by public-sector banks and funds may help in this regard, and the European Central Bank consequently plans to offer another €400 billion in loans this September. Though securitization enables banks to clear space on their balance sheet and increase lending, reputational issues stemming from the crisis and new rules on capital have limited its impact. As The Economist concludes, “Unless the rules change, securitised SME loans may struggle to be both lucrative enough for insurers to covet and cheap enough for small firms to afford.”
 
 
POLICYMAKERS PREPARE FOR FEDERAL RESERVE SYMPOSIUM IN JACKSON HOLE

Leaders from the G7’s central banks will soon convene for the Federal Reserve’s Annual Symposium in Jackson Hole, Wyoming, which begins on Thursday. The event is considered one of the top forums for decision makers to exchange ideas and provide the public with insight regarding their upcoming decisions. On Friday, Federal Reserve Chair Janet Yellen will deliver the keynote address on “re-evaluating labor market dynamics,” and include comments on how low earnings growth in the US supports the view that there is still significant slack in the economy.

Given the focus on underemployment and labor market issues rather than interest rates, this year’s event is expected to provide less insight on monetary policy than previous conferences did. However, bank watchers should at least gain a better understanding of how officials will react to future data. For additional information on the symposium, please see next week’s newsletter.
 
 
CFPB RELEASES NEW GUIDANCE ON SERVICING TRANSFERS

The Consumer Financial Protection Bureau (“CFPB”) released a compliance bulletin and policy guidance to mortgage servicers regarding mortgage servicing transfers on Tuesday, updating previous guidance released in February 2013. Under the new guidance, “servicers engaged in significant servicing transfers should expect that the CFPB will, in appropriate cases, require them to prepare and submit informational plans describing how they will be managing the related risks to consumers” according to the release. The CFPB advised mortgage servicers that its examiners will be carefully reviewing compliance with Federal consumer financial laws applicable to servicing transfers. 

 
 
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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