February 4, 2015 Newsletter
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February 4, 2015


SFIG Calendar

Advocacy Outlook

Industry News Highlights

We are pleased to announce that the “ABS Vegas” App is now available! Simply search for "ABS Vegas" in the Apple App Store or Google Play, and download to your iPhone, iPad or Android device.

To log-in, use the email address associated with your IMN conference registration and the temporary password absvegas15. You will be able to choose your password once you log-in to the App.

Features of the ABS Vegas app include:

  • Complete schedule of events with the ability to build your own agenda and upload it to your calendar;
  • Detailed speaker information including bios and presentations;
  • Full attendee list with ability to direct message and share contact information;
  • List of sponsors and related contacts;
  • Interactive maps of the Exhibit Hall and meeting space;
  • Live polling in select sessions and Forums;
  • Notifications of important conference updates; and
  • Much more.

Be sure to make the most of your ABS Vegas event experience and download the App now!

With only four days remaining until ABS Vegas 2015, don’t miss your chance to join approximately 6,000 registered participants, including more than 2,500 investors and issuers, making this year’s conference the largest capital markets conference in the world. Click here for the conference agenda, and click here to register for ABS Vegas 2015.

SFIG staff and members of the Derivatives in Securitization Task Force had a call on Friday, January 30th, with the Commodity Futures Trading Commission (“CFTC”), specifically the Division of Swap Dealer and Intermediary Oversight (“DSIO”), regarding no-action relief from specific CFTC regulations in connection with legacy swaps. The purpose of the call was to follow up SFIG’s earlier request that the DSIO not “recommend that the [CFTC] take enforcement action against certain registered swap dealers (“Swap Dealers”) for failing to comply with any of the Specified Regulations that may become applicable to a legacy SPV swap solely as a result of actions taken to address, or in reasonable anticipation of, a credit rating downgrade of a Swap Dealer.” The DSIO understood our request, and rationale for such request, and indicated they will be responding to SFIG shortly. Please contact Sairah.Burki@sfindustry.org with any questions.
Due to the overwhelming positive response, the Women in Securitization launch event at ABS Vegas had reached capacity and registration is now closed. We are excited to welcome over 250 women from the structured finance industry to help launch this exciting initiative, and encourage all industry members who would like to become more engaged to register for Women in Securitization.
There will not be an SFIG Newsletter on February 11th. The SFIG staff look forward to seeing many of you in Las Vegas at the ABS Vegas 2015 conference from February 8th-11th. Newsletter publications will resume on February 18th.

THURSDAY, February 5, 2015
10:00 a.m. – 11:00 a.m. (EST)


THURSDAY, February 5, 2015
3:00 p.m. – 4:00 p.m. (EST)


TUESDAY, February 10, 2015
4:00 p.m. – 5:00 p.m. (PST)
Las Vegas, NV


WEDNESDAY, February 11, 2015
8:00 a.m. – 11:00 a.m. (PST)
Las Vegas, NV


SUNDAY, February 8, 2015 – WEDNESDAY, February 11, 2015
The Aria Resort and Casino
Las Vegas, NV
Registration available here.


SUNDAY, February 8, 2015
3:00 p.m. – 5:00 p.m. (PST)
The Deuce Lounge at the Aria
Las Vegas, NV
Sign up for Women in Securitization here.


MONDAY, February 9, 2015
11:00 a.m. – 12:00 p.m. (PST)
The Aria Resort and Casino
Las Vegas, NV
Please note, there will not be a dial-in provided for this meeting.


TUESDAY, March 24, 2015 – WEDNESDAY, March 25, 2015
JW Marriott Hotel
Beijing, China
Registration available here.


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 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.Bateman@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 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 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 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 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 Amanda.Bateman@sfindustry.org.

The High Quality Securitization Task Force is developing a response to the BCBS-IOSCO consultation on its criteria for identifying simple, transparent and comparable securitizations. Comments are due on February 13, 2015. SFIG’s comments will build 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 and contribute to the BCBS-IOSCO comment letter, please contact Amanda.Bateman@sfindustry.org.
The International Monetary Fund (“IMF”) published a paper last Thursday which examines the current state of global securitization markets and advocates policy changes so that securitization can “retake its instrumental role in rekindling credit flows and diversifying risks.” The staff discussion, entitled “Securitization: The Road Ahead,” takes a broadly positive view of the role securitization can play in funding the real economy and notes that the rehabilitation of private securitization markets has emerged as a key area of focus for policymakers.

The authors first outline a set of principles encompassing loan originators, securitization intermediaries, credit rating agencies and end-investors and proposes measures to address remaining impediments in each step of the financial intermediation. The authors also highlight the gains associated with more consistent industry standards for the classification of risk but argue that standardization should be applied at a granular rather than overarching level in order to support investor analysis.

Important to SFIG members, the paper includes the following policy recommendations:

  • Derivatives: to reduce regulatory complexity, relief for securitization vehicles from compliance with swaps clearing rules should be formalized and made permanent as soon as possible.
  • Regulatory Capital and Liquidity: regulators should continue their efforts to improve the consistency of capital charges across methods and jurisdictions through greater coordination between the Basel Committee on Banking Supervision (“BCBS”) and local authorities. The discussion on capital arbitrage and cliff effects (pp.16-17) states that “relevant features of cash flow characteristics and risk mitigation mechanisms embedded in securitizations should be recognized.” The paper also notes the “asymmetric” regulatory treatment between securitizations and covered bonds.
  • High Quality Securitization: while the criteria developed by the BCBS and International Organization of Securities Commissions is “a welcome step forward,” it would be useful for standard-setting bodies to recognize relevant structural features of securitizations that are not addressed in the capital charge formula.
  • Loan-Level Reporting: to address concerns over the consistency of information on securitizations, loan-level reporting standards should be harmonized.
The Federal Housing Finance Agency (“FHFA”) announced a proposal for new minimum financial requirements for nonbank mortgage sellers and servicers that do business with Fannie Mae and Freddie Mac. Under FHFA’s proposal, nonbank sellers and servicers will have the following requirements:

  • Minimum Net Worth: all sellers and servicers are required to have a minimum net worth of $2.5 million plus 25 basis points of the total unpaid principal balance of the loans that each nonbank services;
  • Minimum Capital Ratio: maintain a minimum capital ratio of tangible net worth equal to 6 percent of the nonbank’s total assets; and
  • Minimum Liquidity: 3.5 basis points of total agency servicing (Fannie Mae, Freddie Mac, and Ginnie Mae) and incremental 200 basis points of total nonperforming agency servicing in excess of 6 percent of the total agency servicing unpaid principal balance.
FHFA anticipates that the proposed minimum financial requirements will be finalized in the second quarter of 2015 and will be effective six months after they are finalized. Seller/Servicers should forward any inquiries to their customer account manager at either Fannie Mae or Freddie Mac, or send inquiries to ServicerEligibility@FHFA.gov.
Congressman Jeb Hensarling (R-TX), Chairman of the House Committee on Financial Services (“Committee”), stated in an interview on C-SPAN that he plans to revisit plans to reduce government involvement in the housing finance system. “Housing finance reform, a sustainable housing finance system, one that gets us off the boom-bust-bailout cycle, one where there is competitive, transparent, innovative credit markets is a huge priority,” stated Hensarling.

Last year, Chairman Hensarling passed a bill through the Committee on a party line vote that would have wound down both Fannie Mae and Freddie Mac in five years, replacing them with a non-profit entity that would issue securities without a government guarantee. However, in his C-SPAN interview, Chairman Hensarling did not discuss any specific proposals for the 114th Congress. "I have strong beliefs about where public policy ought to go but I always stand ready to compromise policies in order to advance principles. I don’t ask myself is this the perfect bill. I ask myself, does this bill take a step in the right direction or does it take a step in the wrong direction?" Hensarling said.

In order to move housing finance reform forward, Mr. Hensarling would have to work with Senate Banking Committee chair Richard Shelby (R-AL) on any potential legislation, as well as with the Administration. To date, Mr. Shelby has not publicly discussed whether he plans to tackle housing finance reform in the 114th Congress.
On Monday, President Barack Obama released his budget proposal for fiscal year (“FY”) 2016. At a high-level, the President’s proposal calls for a $4 trillion budget with tax increases on the wealthy, and breaks through the agreed-upon spending caps established through the sequestration by $74 billion. The additional money would fund both the Department of Defense and domestic programs.

While the President’s budget has little chance of passing the Republican-controlled Congress, it did signal his intent to protect the principles of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Important to structured finance professionals, the President’s budget would "fight attempts to roll back Wall Street reform” through the following actions:

  • Securities and Exchange Commission (“SEC”): The Administration asks Congress to increase the SEC’s budget by 15 percent to $1.7 billion.
  • Commodity Futures Trading Commission (“CFTC”): The White House requests to increase the CFTC’s budget by 29 percent to $322 million.
  • Financial Transactions Tax: The Administration proposed a new tax of 7 basis points on liabilities of financial firms’ with more than $50 billion in assets, which would take effect on January 1, 2016 if it became law. “The fee is intended to discourage excessive risk-taking by financial firms, who were key contributors to the recent financial crisis,” according to the proposal.
Senate Banking Committee Chairman Richard Shelby (R-AL) said in a statement that the proposal “would immediately raise the cost of saving and borrowing for all Americans. Simply put, this new tax would discourage thrift, stifle economic growth, and cost American jobs.”
The People’s Bank of China (“PBOC”) is reportedly considering adopting new rules that would make it easier for banks to issue asset-back securities as part of an ongoing effort by Premier Li Keqiang to expand the availability of credit for small businesses. According to an article published by Bloomberg on Monday, the PBOC is studying a system in which lenders could register for a quota for two years covering multiple issuances in the interbank market. Under the current arrangement, lenders must seek approval for every offering. However, Premier Li has been encouraging banks to free up their balance sheets to help shift the economy towards growth driven by smaller, consumer-oriented companies.

According to Bloomberg, the PBOC reportedly shared a document with certain banks earlier this month on the proposed changes in an effort to obtain quick feedback and reach a decision as soon as possible. Should the new rules take effect, industry experts say the change should help arrangers and issuers time their transactions better, allowing issuers to come to market when yields are favorable instead of waiting months for regulatory approval.

According to a Globe Street report, early refinancing is a trend in commercial mortgage-backed securities (“CMBS”) issued after 2008, commonly known as “CMBS 2.0.” The trend is expected to continue as interest rates remain low and property fundamentals improve, and borrowers have increasingly turned to defeasance and prepayments on the post-2008 generation of securitized loans.

Specifically, $9.3 billion in CMBS 2.0 loans have refinanced since they were issued, consisting of $7.2 billion in prepayments, $2.0 billion in defeasance and $42 million in payoffs at maturity, according to Fitch Ratings. This represents 5 percent of the original $192 billion in the Fitch-rated CMBS 2.0 universe, excluding non-performing loan pools and restructured or Re-REMIC deals. Loan performance continues to improve or remain stable. As a result, the costs of defeasance or prepayment are often offset by value growth, says Fitch.

The highest amount of loan prepayments occurred in Q2 and Q3 of both 2013 and 2014, according to Fitch. “Although defeasance and paydowns increase credit enhancement, potential upgrades in 2.0 CMBS may be limited as many of these transactions have become more concentrated,” according to Fitch.
The asset management industry may remain under further scrutiny according to an article in the Financial Times. During a panel session at the World Economic Forum, Mark Carney, governor of the Bank of England said, “The big question for us now is about liquidity cycles that come from fund managers that do not have leverage.” The asset management industry has battled against the potential designation of the largest firms as systemically important financial institutions (“SIFIs”), arguing that their firms do not pose the same threats as banks, and therefore, should not be subject to the same regulation and Federal Reserve Board (“FRB”) oversight.

Several regulators believe that they have dealt sufficiently with cleaning up banks and will now focus on asset managers for marcoprudential regulations. Regulators expressed concern with two significant issues: the growth of the asset management industry leading it to potentially becoming systemically important and diminishing market liquidity given growing investments in illiquid asset classes. Governor Carney claimed that $35 trillion is invested in “relatively illiquid securities.”

Governor Carney’s statements were echoed in a speech by FRB Governor Daniel Tarullo at the Office of Financial Research and Financial Stability Oversight Council’s 4th Annual Conference. According to Mr. Tarullo, the FRB has proposed measures to mitigate systemic risk in the asset management industry which include minimum requirements for capital, liquidity, and loss-absorbing capacity. Additionally, “one policy response that the Federal Reserve has advocated, and that has now been proposed by the Financial Stability Board (“FSB”), is for minimum margin to be required for certain forms of securities financing transactions (“SFTs”) that involve extensions of credit to parties that are not prudentially regulated financial institutions,” said Mr. Tarullo. The FSB will welcome comments on this proposal when the Federal Reserve issues a notice of proposed rulemaking to implement it domestically. Mr. Tarullo also stated, “The use of leverage by investment funds, including through derivatives transactions, could create interconnectedness risks between funds and key market intermediaries and amplify the risk of such firesales.”
In an article in National Mortgage News, two legislative experts said that the Treasury Department has exceeded its authority by keeping Fannie Mae and Freddie Mac in conservatorship for so long and taking all their profits. Michael Krimminger, a former General Counsel for the Federal Deposit Insurance Corporation, and Mark Calabria, a former top aide to Senate Banking Committee Chairman Richard Shelby, said Treasury’s actions violate the Housing and Economic Recovery Act of 2008 (“HERA”). Krimminger and Calabria assisted in drafting HERA which allows for conservatorship of Fannie Mae and Freddie Mac.

"We very consciously decided in HERA that FHFA would have the sole discretion to appoint a conservator or receiver and it would have the sole discretion to say when that would end," Calabria said at an event sponsored by Investors Unite, which is suing the Treasury Department over its treatment of the GSEs, the article states.

The article continues by stating a FHFA spokesperson responded that "Director Watt has consistently expressed the view that conservatorship should not be a permanent end state and that it is the role of Congress to determine what the future of the housing finance system should be." Treasury officials have also said Congress should decide the future role of Fannie and Freddie before FHFA terminates the conservatorships.
According to a National Mortgage News article, Federal Housing Finance Agency Director Mel Watt told reporters today that he is still studying the idea of principal reductions on mortgages which are secured by properties that are worth less than what a borrower owes on his or her mortgage. He noted that “I think it [principal reduction] will be substantially narrower than the vision people have. Reducing everybody’s principal would cost taxpayers billions.” About 5.1 million homeowners, approximately 10 percent of those with a mortgage, had negative equity in the third quarter of last year, the article continued, citing data from CoreLogic, Inc.


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.

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

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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