December 10, 2014 Newsletter

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

 
SFIG NEWS
SFIG MEMBERS MEET TO DISCUSS RMBS TRANSACTION ROLES

In support of the ongoing efforts of SFIG’s RMBS 3.0 initiatives, participating members from the Role of Transaction Parties and Bondholder Communications working group met today in New York to discuss potential assignment of roles and responsibilities in the future private label securities market.  Today’s meeting brought together participants from across industry sectors to discuss the functions and responsibilities necessary for future private label securities ("PLS") transactions and the parties that may be able and willing to perform such roles. SFIG’s efforts coincide with the work being undertaken by the Treasury to help revitalize the PLS market, announced at the November 12th SFIG/IMN Private Label RMBS Reform Symposium.  To join RMBS 3.0 and become involved in SFIG’s work on developing industry led solutions for the problems facing the PLS market please contact Mary.Robinson@sfindustry.org.
 
 
SFIG PRESENTS ON CLOs AT FDIC SUMMIT
On December 4th, SFIG participated in the Federal Deposit Insurance Corporation’s ("FDIC") Senior Regional Capital Markets Specialist Summit. Neil Weidner, Partner at Cadwalader, Wickersham & Taft and Wynne Comer, (Managing Director at Bank of America) presented on CLOs on behalf of SFIG, providing education on CLO structures and raising important questions related to recent regulation. For more information, please contact Sairah.Burki@sfindustry.org.
 
 
SFIG CALENDAR
BIWEEKLY EQUIPMENT ISSUER COMMITTEE CALL RE: REG AB II
MONDAY, December 15, 2014
2:00 p.m. – 3:00 p.m. (EST)
 
 
WEEKLY HIGH QUALITY SECURITIZATION TASK FORCE CALL

TUESDAY, December 16, 2014
10:00 a.m. – 11:00 a.m. (EST)

 
 
BIWEEKLY RISK RETENTION INDUSTRY GUIDE WORKING GROUP CALL

TUESDAY, December 16, 2014
11:00 a.m. – 12:00 p.m. (EST)

 
 
BIWEEKLY REG AB II INDUSTRY GUIDE COMMITTEE CALL

TUESDAY, December 16, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
BIWEEKLY AUTO ISSUER COMMITTEE CALL RE: REG AB II

WEDNESDAY, December 17, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
REG AB II COMMENT LETTER CALL

WEDNESDAY, December 17, 2014
3:30 p.m. – 4:30 p.m. (EST)

 
 
EXTERNAL ACCOUNTANT SUBCOMMITTEE CALL

THURSDAY, December 18, 2014
9:00 a.m. – 10:00 a.m. (EST)

 
 
BIWEEKLY CREDIT CARD ISSUER CALL RE: REGULATION AB II

THURSDAY, December 18, 2014
10:00 a.m. – 11:00 a.m. (EST)

 
 
BIWEEKLY RESIDENTIAL MORTGAGE COMMITTEE CALL RE: REGULATION AB II

THURSDAY, December 18, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
BIWEEKLY NRSRO DUE DILIGENCE INDUSTRY GUIDE WORKING GROUP CALL

THURSDAY, December 18, 2014
3:00 p.m. – 4:00 p.m. (EST)

 
 
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 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. 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 has been actively engaging the Federal Housing Finance Agency (“FHFA”) in recent months, including SFIG’s October 13th response to the proposed structure for a single agency security. SFIG has also recently submitted comments on guarantee fee pricing and FHFA’s Strategic Plan for 2015-2019. The Task Force previously reviewed various proposals in Congress including the Johnson-Crapo bill, with SFIG staff summarizing members’ recommendations in a briefing book, and 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 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 this year. 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 Mary.Robinson@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 Amanda.Bateman@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. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Amanda.Batemand@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. Monthly task force calls will be held to identify and address key questions regarding the implementation of the final rule. We will also be holding biweekly calls for the asset-level committees. SFIG members who are interested in joining this task force or asset specific committees should contact Mary.Robinson@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 review the BCBS final standard for the Net Stable Funding Ratio (“NSFR”) and develop a comment letter when U.S. regulators release their proposed NSFR. To become involved in SFIG’s advocacy on the Final LCR rule or NSFR, please contact Mary.Robinson@sfindustry.org.

The Derivatives in Securitization Task Force recently 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 also 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 prudential regulators in the original proposal. 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. Those interested in learning more should contact Amanda.Bateman@sfindustry.org.

The Money Market Fund Reform Working Group submitted a comment letter on October 13th regarding the Securities and Exchange Commission’s July 23rd 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 Amanda.Batemand@sfindustry.org.

The High Quality Securitization (“HQS”) Task Force will serve as the forum through which SFIG will respond to recent initiatives that seek to define “qualifying securitizations.” This Task Force is currently developing a response to the European Banking Authority’s Discussion Paper on simple standard and transparent securitization, with conference calls taking place every Tuesday at 10:00 am (EST). If you are interested in joining the Task Force, please email Amanda.Bateman@sfindustry.org.
 
 
INDUSTRY NEWS HIGHLIGHTS
INDUSTRY ON ALERT FOR "BASEL IV"

A recent article by the American Banker argues that the sweeping changes to the Basel III international accord that are expected in the coming years will amount to no less than a new capital regime and are warning of the advent of “Basel IV.” Anticipated changes include raising the risk-based capital ratio, revising risk weightings, and moving away from model based assessments in the calculation of capital requirements reflective of operations, market and credit risk. At the recent G20 meeting in Brisbane, global leaders received a preview of the upcoming reform agenda from the Financial Stability Board (“FSB”), the international standard-setting body charged with implementing the reforms.

Among other things, the FSB reported plans to propose new standards for total loss absorbing capacity that will make it easier for regulators to wind down too-big-to-fail banks. The Basel Committee, in the meantime, is reportedly finalizing work on capital requirements governing trading books, operational risk and credit risk. However, market watchers do not expect the term “Basel IV” to become common any time soon. As stated in the article, “That’s partly because the idea of Basel IV would be unpopular with banks, especially considering Basel III is still being finalized and implemented.”
 
 
BASEL STUDY ARGUES FOR HIGHER CAPITAL CHARGES ON MEZZANINE TRANCHES

A study published Sunday by the Basel Committee on Banking Supervision ("BCBS") calls for higher capital charges on mezzanine tranches due the uncertainty associated with these transactions which makes losses difficult to anticipate. The study comes as the BCBS is set to finalize revisions to the securitization framework proposed in January and could be used as justification for an expected hike in capital requirements that will likely raise the risk-weight floor for securitization exposures to nearly 15 percent from 7 percent, according to a report in Reuters. In the study, the BCBS focused on the uncertainty inherent in estimating the risk parameters of a securitized pool and study how it translates into uncertainty about the distribution of losses across tranches of different seniority. The study concludes that uncertainty could be considerable in the middle of a securitization structure due to a cliff effect that can be caused by even a small estimation error.

As stated by the BCBS, “Even when securitised assets are simple, transparent and of high quality, risk assessments will be uncertain. This will call for safeguards against potential undercapitalization. Since the uncertainty concentrates mainly in securitisation tranches of intermediate seniority, the safeguards applied to these tranches should be substantial, proportionately much larger than those for the underlying pool of assets.”
 
 
BCBS CONSULTS ON NET STABLE FUNDING RATIO DISCLOSURE STANDARDS

The Basel Committee on Banking Supervision (“BCBS”) released a consultative document on the disclosure standards that will be required under the Net Stable Funding Ratio (“NSFR”) when it is implemented. According to the BCBS, “to promote the consistency and usability of disclosures related to the NSFR, internationally active banks across Basel Committee member jurisdictions will be required to publish their NSFRs according to a common template. This template includes major categories of sources and uses of stable funding, along with quantitative requirements.”

The BCBS has invited comment on the NSFR disclosure standards, which must be submitted by March 6, 2015.
 
 
FRB PROPOSES CAPITAL FRAMEWORK FOR TOO BIG TO FAIL BANK HOLDING COMPANIES
Yesterday, the Federal Reserve Board (“FRB”) proposed a rule that would strengthen capital requirements for the largest, most systemically important bank holding companies as designated by the agency. These G-SIBs, or global systemically important banks, upon receiving such a designation, would be subject to a risk-based capital surcharge that is calibrated according to the G-SIBs systemic risk profile. The FRB notes in the announcement that there are currently eight bank holding companies that would qualify as G-SIBs under the proposed framework and hence be required to hold a “substantially increased” amount of high-quality capital as a percentage of their risk-weighted assets. According to FRB Chair Janet Yellen, this “would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability.”
 
 
ECB ABS BUYING DECREASES IN SECOND WEEK OF PROGRAM

According to a Bloomberg report, the European Central Bank (“ECB”) slowed asset purchases last week, underlining the challenge for policy makers trying to expand the institution’s balance sheet.  The ECB settled 233 million euros ($286 million) of asset-backed-securities (“ABS”) purchases the week of December 5th, after spending 368 million euros in the first week of the program. The Frankfurt-based central bank also bought 3.126 billion euros of covered bonds, down from 5.078 billion euros the previous week. 

ECB President Mario Draghi has held out the prospect of yet more stimulus to boost the balance sheet when policy makers review current measures early next year. The ECB is preparing broad-based asset purchases, including government bonds, with a decision expected at its meeting on January 22, 2015.  A key piece of data for policy makers’ deliberations will be demand exhibited this week in response to a second round of long-term loans aimed at boosting credit to the real economy. Analysts in a Bloomberg News survey predict a take-up of 148 billion euros, according to the median of 24 estimates. An initial offer in September injected 82.6 billion euros, less than economists forecast.

Since the ECB started asset purchases in October, it has spent a total of 21.5 billion euros. It bought 20.9 billion euros of covered bonds and 601 million euros of ABS.

Draghi said last week that one reason why ABS purchases have been muted is because the program started at the end of the year. December was among the three worst sales months in every year between 2010 and 2013, and new issues of the debt this month are on course for the second-lowest total of 2014, according to JPMorgan Chase & Co.  “Draghi indicated that the ECB is not willing to crowd out other investors, and in ABS in particular, the program is also designed to revitalize the market,” Ruben Van Leeuwen, an analyst at Rabobank in Utrecht, the Netherlands, wrote in a note to clients today. “At the same time, the attention to the ECB’s balance sheet size has increased further.”

 
 
ECOFIN MAKES DEVELOPMENT OF SIMPLE, TRANSPARENT SECRUTIZATIONS TOP PRIORITY

As reported by Prime Collateralised Securities (“PCS”) this morning, the council of European finance ministers (“ECOFIN”) made the development of an European Union framework for simple and transparent securitizations one of its priorities for 2015 at a meeting today. As stated by ECOFIN, one of the conclusions of the meeting was the need to begin work soon towards “revitalising the market for simple and transparent securitizations, including those products suitable for [small and medium-sized enterprises], based on a dedicated European securitisation framework addressing the inherent risks associated with securitisations.” As PCS notes, the suggested deadline for the development of this framework is summer 2015. SFIG’s High Quality Securitization Task Force is currently developing a response to the European Banking Authority’s consultative paper on simple, standard and transparent securitizations. If you would like to join this effort, please contact Amanda.Bateman@sfindustry.org.

 
 
SAN FRANCISCO STUDY ON EMINENT DOMAIN TO SEIZE MORTGAGES EXPECTED NEXT MONTH
Bloomberg reported on Monday that San Francisco’s controller anticipates releasing a study on the use of eminent domain to seize underwater mortgages next month. San Francisco Board of Supervisors had initially contemplated joining Richmond, California in passing the proposal but instead asked the controller to study the proposal first. The article noted that investor dissatisfaction with an eminent domain proposal may be manifested on San Francisco’s municipal bond offerings. A potential $400 million bond offering could be offered in January and market participants, the article suggests, are waiting to assess the impact of the eminent domain proposal on the general obligation bonds offering.
 
 
TREASURY AND HUD ANNOUNCE CHANGES TO HAMP

On Thursday, the US Department of the Treasury (“Treasury”) and the US Department of Housing and Urban Development (“HUD”) issued a joint statement announcing revised guidelines for the Home Affordable Modification Program (“HAMP”), a program designed to aid homeowners through modification of their mortgages. According to an article in Housingwire, approximately one million homeowners whose mortgages have already been modified under HAMP are now eligible for increased benefits as the government continues to push aid to struggling homeowners. 

Under the modified HAMP guidelines, a borrower may earn an additional $5,000 in the sixth year of a modification if they remain current on their modified loans. Under the previous guidelines, borrowers in the HAMP program were eligible to earn up to $5,000 over the first five years of their modification, which was applied to their outstanding principal balance.  As a result, borrowers may reduce their mortgage balance by up to $10,000. 

Treasury and HUD indicated that the additional incentive is to motivate borrowers to continue to perform on their mortgages. "Today's announcement signals our commitment to helping more hardworking families continue the American dream of homeownership," said HUD Secretary Julián Castro. "These enhancements will expand the opportunity for more folks to stay in their home, stabilizing local communities and continuing our nation's positive economic momentum."

"While the housing sector has strengthened in recent years, there are still many homeowners struggling to make their mortgage payments," said Treasury Secretary Jacob J. Lew. "The changes we are announcing today offer meaningful incentives for borrowers to stay current in their modifications, increase their opportunity to build equity in their homes, and provide vital safety nets for those facing greater financial strains."

Housingwire also stated that Treasury and HUD also announced changes to the HAMP Tier 2 and the Home Affordable Foreclosure Alternatives (“HAFA”) programs. HAMP Tier 2, which is an alternative modification that provides a low fixed rate for the life of the loan to homeowners who do not qualify for or cannot sustain a HAMP Tier 1 modification, will now adopt a lower interest rate. The reduced interest rate will be 50 basis points lower than the current HAMP Tier 2 rate, and the government expects these changes to allow more homeowners to qualify for a modification. Additionally, the extra $5,000 given to borrowers after their sixth year in a HAMP modification will be extended to HAMP Tier 2 borrowers as well, as long as they are in good standing.

Through the modified HAFA program, homeowners who need to transition to a more affordable living situation through a short sale or deed-in-lieu will now be eligible to receive $10,000 in relocation assistance. The government said the increase to $10,000 better reflects increased rents and the cost of moving in many parts of the country.
 
 
FANNIE MAE AND FREDDIE MAC OFFICIALLY APPROVE 3% DOWN PAYMENT MORTGAGES

On Monday, Fannie Mae and Freddie Mac officially announced their individual 97 percent loan-to-value products, the government’s latest attempt to expand the credit box for first-time homebuyers. 

“The new lending guidelines released today by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3 percent down. These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices,” Federal Housing Finance Agency Director (“FHFA”) Mel Watt said.

“To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness. In addition, the new offerings will also include homeownership counseling, which improves borrower performance. FHFA will monitor the ongoing performance of these loans,” Director Watt continued.

According to an article in Housingwire, FHFA officials said on a conference call with reporters Monday morning that the products target specific borrowers, and while it is predicted that this will represent a small portion of their businesses and an even smaller portion of their combined guarantee books, it is estimated to have a broad appeal to millennials. “There is a group of millennials that are waiting out there to jump into the market that do have the ability to repay,” FHFA officials on the call said. However, some market analysts are concerned that the 3 percent down payment may take business away from the Federal Housing Administration if the products do successfully attract new homeowners.
 
 
US HOUSE OF REPRESENTATIVES PASSES LEGISLATION TO PROVIDE TAX RELIEF IN SHORT SALES

On December 3rd, the US House of Representatives (“House”) approved a tax extenders bill, HR 5771, by a margin of 378-46. The bill, among other extensions of tax breaks, extends a provision in the Mortgage Debt Forgiveness Act, which expired on December 31, 2013. The new bill would extend the tax relief provided to homeowners who sell their home in a short sale—where the proceeds are less than the amount they owe on an outstanding mortgage. Traditionally, if the lender allows a homeowner to sell a property for less than the mortgage amount, the homeowner had to report the forgiven debt as taxable income. 

The measure now moves to the US Senate. Yesterday, the Sentae placed HR 5771 on the legislative calendar, signaling that the bill will likely be voted on and passed with no changes before the Senate adjourns. Upon Senate passage, the proposal would require the President’s signature to become law.
 
 

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 Policy Manager

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration


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