February 12, 2014 Newsletter
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February 12, 2014


SFIG Calendar

Issue Spotlight

Recent Developments

Next Week in Washington

On February 11th, SFIG staff and members of the Regulatory Capital and Liquidity Committee, along with representatives from the Global Financial Markets Association, Institute for International Finance, and Commercial Real Estate Finance Council met with representatives from the Basel Committee on Banking Supervision (BCBS) to discuss revisions to the securitization framework proposed in its Second Consultative Document (BCBS 269). The meeting provided association members with an opportunity to seek clarification on questions relating to implementation timing and process, calibration under the revised hierarchy, and the calculation of capital requirements. Additionally, the BCBS representatives stressed the importance of submitting formal comments to the BCBS and participating in the second Quantitative Impact Study (QIS), recently circulated to national supervisors. SFIG and the other associations are drafting a letter to submit before the comment period ends on March 21, 2014. If you would like to participate on the Regulatory Capital and Liquidity Committee, please email Committees@sfindustry.org

The regulatory treatment of collateralized loan obligations under the Volcker rule has fast become a priority for both Congress and Federal regulators.

Last week, as a follow up to the February 5th House Financial Services Committee (HFSC) hearing on the Volcker Rule, SFIG; along with advocates for the Loan Syndication and Trading Association (LSTA), Securities Industry and Financial Markets Association (SIFMA), American Bankers Association (ABA) and member companies met with the staff for Ranking Member Maxine Waters (D-CA), Congressman Carney (D-DE) and Congressman Foster (D-IL) to discuss the unintended consequences of the Volcker rule on legacy CLOs.

On Tuesday Janet Yellen, Chairman of the Board of Governors of the Federal Reserve (Fed) testified before the HFSC at a hearing entitled “Monetary Policy and the State of the Economy.” When questioned on Volcker rule implementation; Yellen stated that the interagency working group “will look at” the effect of the rule on collateralized loan obligations (CLOs). When pressed further, Yellen also stated that regulators will likely act “reasonably soon” in determining if certain CLOs will receive relief from the Volcker Rule.

Yellen’s testimony is consistent with Governor Tarullo’s testimony at last week’s HSFC Volcker hearing where he stated that CLOs were “at the top of the list” of issues for the interagency working group to address.

Tomorrow, Yellen is scheduled to deliver similar testimony to the Senate Banking Committee. The hearing can be viewed on the committee website starting at 10:30 a.m.

To get involved in SFIG’s advocacy efforts, please contact either Sairah.Burki@sfindustry.org or Michael.Flood@sfindustry.org.

On January 31st, 50 industry members submitted a letter to the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC) and Board of Governors of the Federal Reserve (collectively the Agencies) in support of the Liquidity Coverage Ration comment letter submitted by SFIG and the Securities Industry and Financial Markets Association (SIFMA). On February 7th, 10 additional institutions expressed their support through a related second letter.

SFIG is pleased to announce our Spring Symposium, which will be held on May 14th at the offices of Société Générale, located at 245 Park Avenue in New York City. Please save the date for this event. Further details will follow soon.


THURSDAY, February 13, 2014

4:00 p.m. (EST)

To participate in the call, please email Committees@sfindustry.org


TUESDAY, February 18, 2014

1:00 p.m. (EST)

Members that are interested in joining the GSE Reform Subcommittee should contact Amanda.Bateman@sfindustry.org


TUESDAY, February 18, 2014

11:00 a.m. (EST)

Discuss the industry's response to Basel's Second Consultative Document, Revisions to the Securitization Framework

To participate, please contact Amanda.Bateman@sfindustry.org.


THURSDAY, March 6, 2014

12:00 p.m. – 5:00 p.m. (EST)

Note: Closed Meeting


WEDNESDAY, May 14, 2014

Time and Agenda to be announced.

Société Générale

245 Park Avenue, New York, NY

SFIG’s GSE Reform Subcommittee continues its work on formulating a comprehensive policy recommendation which will be shared with the RMBS Committee and form the basis for SFIG’s position as Congress moves forward with Housing Finance Reform. As SFIG formalizes its position on housing finance reform, it will work with Members of Congress to ensure its positions are considered in both the House and Senate. If you would like to participate, please contact Amanda.Bateman@sfindustry.org.

SFIG has launched Project RMBS 3.0 in order to help restore private capital back into the market by providing effective recommendation on issues related to Representations and Warranties. The project is organized into three subcommittees: Representations, Warranties and Repurchase Enforcement; Due Diligence/Loan Review, Data and Disclosure; and Role of Trustees and Bondholder Communications. If you are interested in participating on any of the three subcommittees, please contact Mary.Robinson@sfindustry.org

SFIG’s 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. Please contact Alyssa.Acevedo@sfindustry.org for additional information. 

SFIG is working with the Global Financial Markets Association (GFMA), Institute for International Finance (IIF), and Commercial Real Estate Finance Council (CREFC) on a response to Basel’s Second Consultative Document, Revisions to the Securitization Framework. Conference calls are being held weekly with GFMA, IIF and CREFC. To participate in these calls, please email Amanda.Bateman@sfindustry.org and ask to join the Regulatory Capital and Liquidity Committee.

SFIG is continuing to engage with regulators and legislators on our concerns regarding the Liquidity Coverage Ratio proposal. Please contact Alyssa.Acevedo@sfindustry.org with your questions or comments.

The Volcker Task Force is working with the asset class committees to determine key issues and need for interpretative guidance regarding the Volcker Rule. Please contact Amanda.Bateman@sfindustry.org if you would like to participate.

The Regulatory Capital and Liquidity Committee will start working on a comment letter on Basel’s Net Stable Funding Ratio proposal. If you would like to participate, please email Mary.Robinson@sfindustry.org.

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

SFIG is continuing to build membership of its Chinese Market Committee among its members. If you would like to participate as well, please email Alyssa.Acevedo@sfindustry.org.

SFIG has launched its initiative to provide critically needed input for the Financial Stability Board’s “Shadow Banking” project. If you would like to be a part of the Task Force, please email Amanda.Bateman@sfindustry.org.

Last week, the House Financial Services Committee (HSFC) held a second hearing to examine the impacts of the Volcker rule on job creation and market liquidity.

At the first hearing, held on January 15th, industry experts discussed the unintended consequences of the final Volcker rule, including the effect on the collateralized loan obligation (CLO) marketplace. Members of Congress questioned the regulators on the potential disruptions to the marketplace that were identified by both the industry and academics.

Important to SFIG's membership, Members of Congress from both parties asked the regulators what was being done to address the unintended consequences of the Volcker rule. In response, the regulators, including the Securities and Exchange Commission (SEC), the Federal Reserve Board (Fed), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Commodities Futures Trading Commission (CFTC) have formed a "regulatory working group" to work through issues identified as problem areas.

When pressed by a bi-partisan group of Congressmen, including (but not limited to) Subcommittee Chairman Scott Garrett (R-NJ), Congresswoman Carolyn Maloney (D-NY), Congressman Andy Barr (R-KY), Congressman David Scott (D-GA) and Congressman Steve Stivers (R-OH), about what they were doing to address the issue of legacy CLOs, Federal Reserve Governor Tarullo said, “CLOs are at the top of the list of issues that the regulatory working group is going to address.” In response, Congressmen Scott, Barr and Stivers urged the regulators to work towards a solution promptly, and “consider grandfathering the legacy CLOs” as they did with TruPS CDOs.

On Tuesday Janet Yellen, Chairman of the Fed; testified before the HFSC at a hearing on monetary policy, where she reinforced Governor Tarullo’s statements on CLOs. Specifically, when Yellen was questioned on Volcker rule implementation; the Chairman stated that the interagency working group “will look at” the effect of the rule on CLOs.

When pressed further, Yellen also stated that regulators will likely act “reasonably soon” in determining if certain CLOs will receive relief from the Volcker Rule.

Tomorrow, Yellen is scheduled to deliver similar testimony to the Senate Banking Committee. The hearing can be viewed on the committee website starting at 10:30 a.m.

In combination, the hearings suggest that both Congress and the regulators are contemplating a grandfathering type solution for legacy CLOs similar to TruPS CDOs.

As such, SFIG staff, along with representatives from the LSTA, SIFMA and the ABA; have been following up with Members of Congress and the regulatory officials to find a solution that is workable for both the industry and the regulators. SFIG staff is also seeking clarification from the regulators on issues that have arisen across other asset classes.

Please contact either Michael.Flood@sfindustry.org or Sairah.Burki@sfindustry.org to join the Volcker Rule Task Force.

This morning, Housing and Urban Development (HUD) Secretary Shaun Donovan, speaking at a Politico and Peter G Peterson Foundation breakfast said he expects a strong bi-partisan housing finance reform bill to be released in “the next few weeks.”

Furthermore, Secretary Donovan stated that there are four key principles that are necessary for the Administration’s support of any housing finance system:

  1. Private capital must be at the center of any housing system
  2. TBA market is necessary for stable housing finance
  3. Any guarantee should be explicit with a catastrophic backstop; and
  4. Increased access to housing for those too often left out of the market

For the fourth point, Donovan mentioned down payment assistance as an example of ways to provide increased access to those in need.

Donovan’s comments reinforce a joint statement released last week by Senate Banking Chairman Johnson (D-SD) and Ranking Member Crapo (R-ID) that housing finance reform is the Committee’s top priority. “Members of the Banking Committee continue to provide momentum for reform by expressing interest in advancing bipartisan legislation, and we recognize that we must build a broad bipartisan consensus for an agreement to have a chance at becoming law. For these reasons, it remains the Banking Committee’s top priority and as we heard last week in his State of the Union Address, a priority for the President.”

Furthermore, at a hearing on financial stability and data security on February 6, 2014, when questioned by Ranking Member Crapo, Under Secretary of the Treasury for Domestic Finance Mary Miller confirmed that housing finance reform is also a priority for the Administration.

Secretary Donovan’s statements at this morning’s breakfast are also consistent with those of Treasury Senior Counselor for Housing Finance Policy Dr. Michael Stegman, who similarly endorsed the bi-partisan efforts in the Senate while speaking at SFIG’s annual meeting.

Last week, in an interview with the Washington Times; Former Secretary of the Treasury, Henry Paulson, indicated that vigorous, bipartisan action is needed to implement housing finance reform. Secretary Paulson further suggested that since the Government Sponsored Enterprises are now profitable again, reform would be more difficult. He pointed out that the profits are being transferred to the Treasury Department each quarter to help pay down budget deficits. In the interview, Secretary Paulson also lauded the Dodd-Frank financial reform mandates as an effort to end, what he characterized as, “too big to fail” institutions.

SFIG staff will analyze and summarize the key provisions of the Banking Committee bill once a draft is available.

In the interim, SFIG will conduct meetings with the RMBS Committee to discuss the findings and recommendations of the GSE Reform Subcommittee on housing finance reform.

If you are interested in participating in the GSE Reform Subcommittee or the RMBS Committee, please email Amanda.Bateman@sfindustry.org.

On February 7, 2014, U.S. Congressman Mark Takano (D-CA) offered an amendment to H.R. 3193, the Consumer Financial Protection Safety and Soundness Improvement Act that would have required the Consumer Financial Protection Bureau (CFPB) to study the impact of rental backed securities on housing markets at the local, state and national level. The study would also examine their impact on mortgage credit availability-homes purchased by cash rather than financed through a mortgage and the quality of property management offered to residents of these homes. The CFPB would have one year to report its findings and provide a list of U.S. housing markets with a high concentration of properties linked to rental-backed securities.

While the Rules Committee eventually tabled the amendment, Congressman Takano’s interest in the marketplace continues to be strong. Specifically, Rep. Takano called for Congress to hold hearings on the topic. In a letter to House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Ranking Member Maxine Waters (D-CA), he notes the rate of foreclosures in Inland Empire California, the rise in investor-owned properties and the “brand new securitization that has been borne out of it.” According to the Congressman, the development of single family rental backed securities threatens to shut the family purchaser out of the market as they are unable to compete with investment companies. 

SFIG will be monitoring both the amendment and any potential Congressional action on rental-backed securities.

On February 5, 2014, the Treasury Department released the Foreign Account Tax Compliance Act (FATCA) United States – Canada Intergovernmental agreement (IGA), providing Canadian financial institutions with final guidance on how the law applies to them. Congress enacted the FATCA in 2010. The law requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

According to the IGA, Canadian FFIs that determine the rules apply to them must register with the Internal Revenue Service by April 25, 2014, at which point they will be given a Global Intermediary Identification Number. Those institutions failing to meet that deadline will be subject to the 30 percent FATCA withholding tax, to be paid starting July 1, 2014. There will be a phased-in reporting of the information, which the IRS will administer until the Canadian Revenue Agency takes over the process in 2017.

Please see the U.S. Department of Treasury website for a comprehensive list of FATCA agreements with other countries.

Maxine Waters (D-CA), Ranking Member on the House Financial Services Committee (Committee), attempted to bring to vote in the House of Representatives a Senate bill that would delay for several years flood insurance premium increases that are designed to fix the National Flood Insurance Program. Opposition from the Chairman of the Committee, Jeb Hensarling (R-TX), prevented a vote from being taken. Chairman Hensarling indicated that the increase in premiums is needed to put the program on sound financial footing. On January 30, 2014, the Homeowner Flood Insurance Affordability Act (S.1926) cleared the Senate by a 67-32 vote. The Senate bill delays certain premium hikes mandated by the Biggert-Waters Act until the Federal Emergency Management Agency completes an affordability study and Congress approves the new premium structure. The 2012 law, the Biggert-Waters Act, ended longstanding federal subsidies for insuring buildings in flood-prone coastal areas. The Senate bill specifically prevents situations where a homebuyer has to pay the fully unsubsidized annual flood insurance premium at closing.
Freddie Mac priced its third risk sharing transaction (STACR) last week. Freddie Mac’s Senior Vice President Donna Corley stated that it plans “regular and consistent issuances this year so that the amount of risk transferred to private investors will increase over time.” More than 65 investors participated in the offering. Pricing for the single-A rated class was one month LIBOR plus 100 basis points and pricing for the triple-B rated class was one month LIBOR plus 220 basis points. Pricing for the unrated class was one month LIBOR plus 450 basis points. These transactions had three bonds compared to two for the deals done in 2013. The deal is backed by 140,000 residential mortgage loans with an unpaid principal balance of $32.4 billion.
On February 5th, the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking that would establish minimum standards for the design and implementation of a risk governance framework for large insured national banks, insured federal savings associations and insured federal branches of foreign banks with average total consolidated assets of $50 billion or more. The proposal also would establish minimum standards for an institution’s board of directors in overseeing the framework’s design and implementation. The comment period for the proposed rule ends March 28, 2014.

The senate confirmed Senator Max Baucus (D-MT), who announced in April 2013 that he would be leaving the Senate at the end of his term, as Ambassador to China on February 6, 2014. Sen. Baucus’ confirmation expedites his exit from the Senate and the vacancy of the chairmanship of the Senate Finance Committee. Senator Ron Wyden (D-OR) is widely speculated to be tapped to fill the role of Senate Finance Committee Chair, and an announcement on the position is expected within the coming weeks.
In a February 6, 2014 Reuter's Podcast, the Director of International Policy at Charles Schwab, Michelle Gibley, provided insight into investing in China’s emerging economy. China is now the world’s second largest economy and utilizes a “growth at all costs” economic policy. However, economic growth rates through the nation are not what they used to be and are forecasted to slow even further. The new economic model in China, according to Gibley, can be broken down into six major reforms, one being changes to China’s financial system. This includes taking a closer look at the Chinese shadow banking industry, which has encountered issues with unsustainable amounts of debt accumulating, incorrect projections of growth and questionable transparency. Gibley states that now is a potential window of opportunity in China in which the country can impede any financial decline by injecting liquidity into the banking system. The new economic model has promising potential to encourage reform and innovation in China and to better support the nation’s economic growth.  

The Consumer Financial Protection Bureau (CFPB) announced that it is taking steps to improve information reported about the residential mortgage market to help better understand borrowers’ access to credit. As a first step the CFPB is convening a panel of small businesses to provide feedback on potential changes to mortgage information under the Home Mortgage Disclosure Act (HMDA). The CFPB is also releasing a new online tool that makes it easier to navigate the HMDA data. CFPB Director Richard Cordray stated that the CFPB will be asking for more underwriting and pricing information. CFPB is also considering a data point that would ask the lender if the loan that was originated was a qualified mortgage. HMDA was passed in 1975 to provide information that the public and financial regulators could use to monitor whether financial institutions were serving the housing needs of their communities. The law requires lenders to disclose information about the home mortgage loans they sell to consumers. The Dodd-Frank Act transferred HMDA rulemaking authority to the CFPB.
The Federal Deposit Insurance Corporation (FDIC) released paying agent notification requirements in its Financial Institution Letter FIL-8-2014 on February 7, 2014. The rule falls under the authority of the Securities and Exchange Commission and was finalized on January 23, 2013. As part of regulations stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act. It amends Exchange Act Rule 17Ad-17 to include a requirement that “paying agents” send a one-time notification to “unresponsive payees” stating that the agent has sent a security holder a check that has not yet been negotiated.

According to the FDIC announcement, “paying agents” include: any issuer, transfer agents, brokers/dealers, Investment advisers, indenture trustees, custodians and any other person who accepts payments from an issuer of securities and distributes the payments to holders of the security. Entities that fall under the “any issuer” category are any banks that have issued equity or debt securities, regardless of whether or not the bank is publicly traded.

The rules will apply to all FDIC-supervised institutions. The first round of notices to unresponsive payees would be due no later than August 23, 2014. Additional details can be found in the January 2013 Federal Register announcement of the final rule.

According to the Treasury Department, the U.S. spending authority will expire on February 27, 2014. Once again, Democrats and Republicans must come to the table to negotiate a package palatable to both sides with little time to spare. Democrats have repeatedly stated that any bill to increase to the debt ceiling should be “clean,” or contain no other provisions. The situation is even more pressing given the Congressional recess starting next week and lasting until February 25, 2014.

Yesterday, with a bipartisan vote of 221-201, the House passed a clean bill that would lift the debt ceiling until the first quarter of 2015. Initially, the Republican proposal included a provision to both lift the debt limit and restore military pension cuts in an attempt to attract conservative Republican and Democratic votes. However, the package did not appear to have enough votes to pass with republican support alone. The debt-ceiling bill is expected to pass the Senate today and be signed by the President.


Hearing entitled “Monetary Policy and the State of the Economy”

TUESDAY, February 11, 2014

10:00 a.m. (EST)

The witnesses will be:

  • The Honorable Janet L. Yellen, Chairman, Board of Governors of the Federal Reserve System
  • Dr. John B. Taylor, Mary and Robert Raymond Professor of Economics, Stanford University
  • Dr. Mark A. Calabria, Director, Financial Regulation Studies, Cato Institute
  • Ms. Abby M. McCloskey, Director, Economic Policy, American Enterprise Institute
  • Dr. Donald Kohn, Senior Fellow, Economic Studies, Brookings Institution

Federal Financial Institutions Examination Council; Appraisal Subcommittee (F.R. Page 6903) holds a meeting at the Federal Reserve Board.

WEDNESDAY, February 12, 2014

10:30 a.m. (EST)

Agenda includes:

  • Executive Director's Report; Delegated State Compliance Reviews; and 2013 Financial Report


The Semiannual Monetary Policy Report to the Congress

THURSDAY, February 13, 2014

10:30 a.m. - 12:30 p.m. (EST)

The witness will be:

  • The Honorable Janet L. Yellen, Chair, Board of Governors of the Federal Reserve System

Commodity Futures Trading Commission (F.R. Page 6190) holds a close meeting on surveillance, enforcement matters and examination issues.

FRIDAY, February 14, 2014

10:00 a.m. (EST)

Meeting to finalize rules (under Sections 165 and 166 of the 2010 Dodd-Frank law) intended to strengthen the regulation and supervision of large U.S. banks and foreign banks with a large presence in the United States.

TUESDAY, February 18, 2014

3:15 p.m. (EST)


SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry.  Please visit our website 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 to learn 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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