February 18, 2015 Newsletter
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February 18, 2015
 

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
THANK YOU FOR MAKING ABS VEGAS 2015 A SUCCESS
Dear Friends and Colleagues,

Over 6,500 industry professionals registered for last week’s conference, making it indisputably the largest capital markets conference in the world.

While I received numerous compliments on the success of the conference, for a second year running I am again humbled by such praise, as it is the industry itself that is responsible for having such a great conference. On behalf of both SFIG staff and leadership, and our partners at IMN, I want to extend a huge “THANK YOU” for making this conference what it is.

With over 70 packed panels and more than 330 speakers, the educational content of the conference really stood out and blended perfectly with the networking benefits many of you enjoyed through face-to-face meeting time. Of course, we do not stop there. Our goal is to continue to enhance the benefits of such events, and while the conference is fresh in your minds, please forward any feedback (positive or negative) to 2015Vegas@sfindustry.org. We truly welcome such commentary as an opportunity to continue to deliver additional value.   

For those who attended the conference, please remember that you may soon access conference presentations and panel recordings at IMN’s website, via the ABS Vegas 2015 agenda. We will send out a notification when these are available. Additionally, please do not hesitate to take advantage of the wealth of regulatory, legislative and industry information, guidance and comment on SFIG’s website. SFIG members can access member-only content by registering here.

Next stop – ABS East in Miami this coming September 16th – 18th…hopefully those of us stuck in this arctic chill will have had time to thaw out by then.

Thank you again!

With kindest regards,

Richard Johns Sig
 
 
SFIG COMMENTS ON SIMPLE, TRANSPARENT AND COMPARABLE ABS
On February 13, 2015, SFIG submitted comments in response to the Basel Committee on Banking Supervision (“BCBS”) and International Organization of Securities Commission’s (“IOSCO”) consultative document entitled “Criteria for identifying simple, transparent and comparable securitisations.” SFIG’s High Quality Securitization Task Force, with Hogan Lovells serving as drafting counsel, provided thoughtful feedback on both the concept of “simple, transparent and comparable securitisations” and the best way in which to implement such a structure. The recommendations provided to BCBS and IOSCO build upon SFIG’s earlier comments to the European Banking Authority earlier this year and to the European Central Bank and Bank of England last summer.

SFIG strongly supports initiatives to strengthen the global securitization markets and looks forward to continued dialogue with global policymakers on the concept of high quality securitizations. Contact Amanda Bateman to learn more.
 
 
EUROPEAN COMMISSION CONSULTATION ON HQS: IMPLICATIONS FOR RISK RETENTION, REGULATORY CAPITAL AND DISCLOSURE REGIMES
The European Commission (“EC”) today released two important documents:

As stated in the foreword of the Green Paper, the EC’s priority is jobs and growth. To help achieve these goals, the EC lays out the following five priorities:

  • develop proposals to encourage high quality securitisation ("HQS") and free up bank balance sheets to lend;
  • review the Prospectus Directive to make it easier for firms, particularly smaller ones, to raise funding and reach investors cross border;
  • start work on improving the availability of credit information on SMEs so that it is easier for investors to invest in them;
  • work with the industry to put into place a pan European private placement regime to encourage direct investment into smaller businesses; and
  • support the take up of new European long term investment funds to channel investment in infrastructure and other long term projects.

The Consultation Document develops upon the first priority, proposing a framework for high quality securitization which includes criteria for simplicity, transparency, standardization and additional risk features. The EC cites recent proposals by the European Central Bank and Bank of England, the European Banking Authority, and the Basel Committee of Banking Supervision and International Organization of Securities Commissions, all of which SFIG commented on.

According to the EC, “the aim of this consultation is to gather information and views from stakeholders on the current functioning of European securitisation markets and how the EU legal framework can be improved. On the basis of the feedback received, the Commission will put forward a proposal on how to build a sustainable securitisation market.”

Important to SFIG members, the consultation seeks input not only on the development of criteria for high quality securitizations, including for ABCP (section 2.2), but also the treatment of such structures with respect to disclosure regimes (section 2.6), the Basel capital securitization framework (section 2.8) and risk retention requirements (section 2.3).

Comments are due to the EC on May 13, 2015 and SFIG will prepare a response through its High Quality Securitization Task Force. Members of the Regulatory Capital and Liquidity Committee, ABCP Committee and Risk Retention Task Force are highly encouraged to participate. To join the HQS task force and contribute, please contact Amanda.Bateman@sfindustry.org.
 
 
BARNEY FRANK KEYNOTES ABS VEGAS, SAYS “DODD-FRANK CAN BE CHANGED”
Barney Frank, the former Congressman from Massachusetts and co-author of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), keynoted SFIG and IMN’s ABS Vegas 2015 conference last week, and was well received. Mr. Frank spoke on numerous items, including his belief that the Dodd-Frank Act can be tweaked, as long as it is not “re-litigated.” He further stated that if arguments to change the law would both benefit the economy and fit within the framework of Dodd-Frank, then bipartisan reforms can be achieved.

Of further importance to the securitization industry, Mr. Frank gave his thoughts on the following issues:

  • Housing Finance Reform: Any housing finance reform efforts must preserve the 30-year fixed rate mortgage.
  • Final Qualified Residential Mortgage (“QRM”)/Qualified Mortgage (“QM”) Rules and Risk-Retention: The rules are too prescriptive towards underwriting. Mr. Frank would have preferred to see 5 percent blanket risk retention on “all” residential mortgage-backed security loans, and then allow financial institutions to make any loans they wanted.
  • Ratings Agency Reform: Reform cannot occur through a buy-side model, due to the “free-rider” problem.
  • Auto Dealers: He would have preferred that auto dealers fell under the purview of the Consumer Financial Protection Bureau.
  • Derivatives: Putting derivatives onto exchanges would allow for price disclosure and capital to stand behind trades.
Finally, on a humorous note, Mr. Frank apologized for the too-similar initials for QM and QRM. “I was tired that day,” stated Mr. Frank.
 
 
NATIONAL MORTGAGE NEWS SAYS INDUSTRY STANDARDS WILL REVIVE PLS MARKET
In an article, National Mortgage News stated that industry standardization is a key to reviving the private-label RMBS market. “Industry standardization is important to these developments because it promotes the use of common reference points that ensure buyers and sellers are on the same page when they enter into a deal.” The article specifically cited SFIG's RMBS 3.0 and its effort to create standardization in representations and warranties, due diligence and data, and the role of transaction parties and bondholder communications. The article further mentioned investor reporting between servicers, especially in the case of transfers, as another important aspect. Finally, the article also focused on the role of varying transaction parties in a deal as a focus, another aspect that SFIG is putting substantial effort into.
 
 
SFIG CALENDAR
INVESTOR COMMITTEE CALL
WEDNESDAY, February 18, 2015
4:00 p.m. – 5:00 p.m. (EST)
 
 
BIWEEKLY NRSRO DUE DILIGENCE INDUSTRY GUIDE CALL
THURSDAY, February 19, 2015
3:00 p.m. – 4:00 p.m. (EST)
 
 
BIWEEKLY EQUIPMENT ISSUER COMMITTEE CALL
MONDAY, February 23, 2015
2:00 p.m. – 3:00 p.m. (EST)
 
 
BIWEEKLY RISK RETENTION INDUSTRY GUIDE CALL
TUESDAY, February 24, 2015
11:00 a.m. – 12:00 p.m. (EST)
 
 
MONTHLY EXTERNAL COUNSEL SUBCOMMITTEE CALL
TUESDAY, February 24, 2015
2:00 p.m. – 3:00 p.m. (EST)
 
 
SEC VEGAS Q&A DEBRIEF: REGULATION AB II TASK FORCE CALL
WEDNESDAY, February 25, 2015
11:00 a.m. – 12:00 p.m. (EST)
 
 
BIWEEKLY AUTO ISSUER COMMITTEE CALL
WEDNESDAY, February 25, 2015
2:00 p.m. – 3:00 p.m. (EST)
 
 
BIWEEKLY CREDIT CARD ISSUER COMMITTEE CALL
THURSDAY, February 26, 2015
10:00 a.m. – 11:00 a.m. (EST)
 
 
BIWEEKLY RESIDENTIAL MORTGAGE COMMITTEE CALL
THURSDAY, February 26, 2015
2:00 p.m. – 3:00 p.m.
 
 
CHINESE SECURITIZATION FORUM 2015 ANNUAL CONFERENCE
TUESDAY, March 24, 2015 – WEDNESDAY, March 25, 2015
JW Marriott Hotel
Beijing, China
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 on several fronts, including SFIG’s response to the proposed structure for a single agency security. SFIG has also 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 2014. 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 Alyssa.Acevedo@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 Alyssa.Acevedo@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 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 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. SFIG members who are interested in joining this task force or asset specific committees should contact Alyssa.Acevedo@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 develop a comment letter when U.S. regulators release their proposed Net Stable Funding Ratio (“NSFR”). To become involved in SFIG’s advocacy on the Final LCR rule or NSFR, please contact Alyssa.Acevedo@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 2014, 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. The working group meets biweekly on Thursdays at 3:00 p.m. (EST) and members interested in learning more should contact Amanda.Bateman@sfindustry.org.

The Money Market Fund Reform Working Group submitted a comment letter on October 13, 2014 regarding the Securities and Exchange Commission’s July 23, 2014 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 Alyssa.Acevedo@sfindustry.org.

The High Quality Securitization Task Force developed and submitted a response to the BCBS-IOSCO consultation on its criteria for identifying simple, transparent and comparable securitizations. SFIG’s comments were built off of those sent to the European Banking Authority on January 14th (available here) regarding its proposed criteria and to the European Central Bank and Bank of England last summer (available here) regarding the development of a sustainable securitization market in Europe. To join the High Quality Securitization Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
INDUSTRY NEWS HIGHLIGHTS
REGULATORS RELEASE SSFA SECURITIZATION TOOL
Last Wednesday, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation published a simplified supervisory formula approach (“SSFA”) securitization tool to help institutions implement the revised capital rules. The SSFA is a formula-based approach for banks to calculate capital requirements for securitization exposures. It is designed to apply relatively higher capital requirements to the more risky junior tranches that are the first to absorb losses, and relatively lower requirements to the most senior tranches. Regulators hopes to help reduce potential burdens with this calculator.
 
 
SEC COMMISSIONER PIWOWAR SKEPTICAL OF FINRA’S CARDS PROPOSAL
U.S. Securities and Exchange Commission (“SEC”) Republican Commissioner Michael Piwowar has expressed skepticism concerning the Financial Industry Regulatory Authority’s (“FINRA”) data collection program called the Comprehensive Automated Risk Data System (“CARDS”), according to a recent Reuters article. CARDS would require firms to submit large quantities of data aimed at strengthening FINRA’s market surveillance. FINRA would use these large quantities of data to help analyze securities transactions from all U.S. brokerage accounts.

Piwowar believes that the data collection program may be unnecessary and could lead to cyber-attacks or other privacy breaches. Many others in the industry have also argued that CARDS could be too costly, overly broad, and may put investors at risk of having their personal accounts hacked, according to the article.
 
 
NEW DELINQUENCIES OF CMBS HIT A POST-RECESSION LOW IN JANUARY
Delinquencies of new commercial mortgage-backed securities (“CMBS”) finished January at a post-recession low, according to a new report by Fitch Ratings. New CMBS late payments totaled $274 million last month. The overall delinquency rate in January was 4.72 percent, 10 basis points higher than the previous month. This increase was due to Fitch updating its methodology used in calculating its late-pay rate. While hotels maintained the highest percentage of delinquencies in January at 6.15 percent, it fell from 6.20 percent in December. Hotels were followed by retail at 5.39 percent and multifamily at 5.21 percent.
 
 
PBOC INJECTS $33.44 BILLION INTO CHINESE FINANCIAL SYSTEM
The People’s Bank of China (“PBOC”) has injected 205 billion yuan ($33.44 billion) net last week into China’s financial system in an effort to meet high cash demand before the week-long New Year holiday, according to a recent article. This is the largest amount pumped in since January 2014.

The PBOC injected funds through reverse repurchase agreements, a process in which central banks purchase securities from banks with an agreement to resell them at future dates. PBOC has stepped up their level of cash injections following concerns regarding funding availability in the interbank system.

China’s financial markets and operations will be closed from February 18th through the 24th for the Lunar New Year holiday when a surge in cash demand is expected.
 
 
HUD SECRETARY CASTRO DEFENDS DECISION TO LOWER FHA FEES
Last week, Housing and Urban Development (“HUD”) Secretary Julian Castro testified before the House Committee on Financial Services at a hearing that mainly focused on the Federal Housing Administration’s (“FHA”) decision to lower fees it charges to lower income borrowers. Specifically, before the State of the Union, President Obama announced that the FHA, which is housed within HUD, would lower the fees it charges eligible borrowers by a half percentage point to 0.85 percent.

Republicans, on the whole, questioned why FHA would lower fees when it has yet to reach a statutory mandate to maintain a capital buffer equal to at least two percent of the loans it guarantees. While the FHA does not make direct loans, it sells insurance to make investors whole in case of default. Borrowers pay for the insurance, and through the program, are able to make down payments of as little as 3.5 percent. “Do we really want the federal government to be leading the charge into subprime lending?” stated Chairman Jeb Hensarling (R-TX).

The FHA took on large losses for the loans made during the end of the crisis as it increased its loan limits to help spur lending. In 2013, it required a $1.7 billion bailout from the United States Treasury. The FHA has not met the 2 percent capital buffer since 2009.

Democrats on the committee by in large supported the cuts. Furthermore, Secretary Castro said that the FHA could afford to make the premium cuts as they will only delay reaching the statutory capital buffer by a “few months.”
 
 
UPCOMING EVENTS IN WASHINGTON
PLI SEMINAR: THE SEC SPEAKS IN 2015
FRIDAY, February 20, 2015
8:20 a.m. – 5:45 p.m. (EST)
Ronald Reagan Building and International Trade Center
1300 Pennsylvania Ave., N.W., Washington, D.C.
An update on the current initiatives at the SEC as well as the priorities for the coming year.
 
 

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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