January 15, 2014 Newsletter
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January 15, 2014
 

SFIG News

Issue Spotlight

Recent Developments

SFIG NEWS
SFIG MEMBERS AND STAFF MEET WITH REGULATORS TO DISCUSS THE PROPOSED LIQUIDITY COVERAGE RATIO
On January 10, 2014, SFIG members and staff met with the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to share comments regarding the Liquidity Coverage Ratio Proposal. The topics covered both the denominator and numerator: the proposed draw down assumptions regarding commitments to SPEs, as well as the treatment of private label RMBS, GSE securities, ABS and covered bonds. For additional information, please contact Sairah Burki at Sairah.Burki@sfindustry.org.
 
 
SFIG, LSTA, AND SIFMA SUBMIT RISK RETENTION LETTER TO THE AGENCIES ON “QUALIFIED” CLOs
On January 10, 2014, SFIG, the Loan Syndications and Trading Association, and Securities Industry and Financial Markets Association submitted a follow-up letter on risk retention to the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, Securities and Exchange Commission and the Department of Housing and Urban Development. Under the proposed approach outlined in this letter, Open Market CLOs that meet a series of criteria would qualify to satisfy the credit risk retention requirement through the Open Market CLO manager’s purchase of five percent of the CLO’s equity and through credit risk retained by the manager through the deeply subordinated compensation structure. The criteria are designed to protect investors and improve asset selection through loan asset and portfolio restrictions, leverage limitations, manager regulation and alignment of manager interests with investors and transparency. For additional information, please contact Sairah Burki at Sairah.burki@sfindustry.org.
 
 
SFIG, LSTA, AND SIFMA SUBMIT FOLLOW UP LETTER TO THE AGENCIES REGARDING CLOs AND VOLCKER
On January 10, 2014, the Loan Syndications and Trading Association, Securities Industry and Financial Markets Association and SFIG submitted a follow-up letter regarding the January 9, 2014 meetings, as well as the letters submitted December 24, 2013 and December 31, 2013 to the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and Securities and Exchange Commission. The objective of this letter was to propose language that would confirm, in a FAQ or other appropriate interpretive guidance, that the term “ownership interest” as defined in §__.10(d)(6) of the final rule implementing the Volcker Rule does not include debt securities of collateralized loan obligation (“CLO”) issuers that are covered funds solely because they have certain creditor-protective rights, whether or not an event of default or acceleration event exists under the CLO indenture. For additional information, please contact Sairah Burki at Sairah.burki@sfindustry.org.
 
 
SFIG STAFF AND MEMBERS TO HAVE FOLLOW UP RISK RETENTION CALLS WITH THE AGENCIES ON JANUARY 17, 2014
SFIG staff and members will have two additional meetings with the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Securities and Exchange Commission on January 17, 2014 on risk retention. The meetings will focus on clarifying questions that arose during the Auto and Master Trust risk retention meetings that were held with the agencies in December. For additional information, please contact Sairah Burki at Sairah.burki@sfindustry.org.
 
 
SFIG MEMBERS AND STAFF ATTEND “THE POLICY AND POLITICS OF GSE REFORM” DISCUSSION FEATURING SENATORS CORKER AND WARNER
On January 8, 2014, SFIG staff attended The Policy and Politics of GSE Reform discussion presented by the Financial Services Roundtable and Housing Policy Counsel. The panel discussion was moderated by Governor Tim Pawlenty and featured comments by Jim Parrott, Senior Fellow at the Urban Institute, Robert Couch, Housing Commissioner at the Bipartisan Policy Center, and Senators Mark Warner (D-VA) and Bob Corker (R-TN). Senators Corker and Warner maintained that bipartisan action to move model legislation similar to the S.1217 - Housing Finance Reform and Tax Payer Act (Corker-Warner) out of committee is the best path forward to begin to tackle GSE reform during this session of Congress. The Senators introduced Corker-Warner, designed to replace Fannie Mae and Freddie Mac with a privately capitalized mortgage finance system while maintaining a government backstop, in June 2013.

A full recording of the discussion is available on the Financial Services Roundtable website.

There will be no SFIG Newsletter the week of January 20th, 2014. The SFIG staff look forward to seeing many of you in Las Vegas at the ABS Vegas conference from January 21-24th, 2014. Publication of the Newsletter will resume the week of January 27th, 2014.

 
ISSUE SPOTLIGHT

Introducing the “Engine Room”

A Message from your Executive Director

Dear Friends and Colleagues,

2013 was a fantastic first year (or nine months!) for SFIG—not just because of the way that our broad institutional membership grew at an astonishing rate and delivered against a packed advocacy and education program, but also because we built a very strong policy and advocacy leadership team with the additions of Sairah Burki, Sonny Abbasi and Mike Flood coupled with the advisory services of Kristi Leo and Armando Falcon.

As we head into 2014, there is much for SFIG membership and staff to look forward to—a formidable advocacy agenda, continued membership growth and, of course, ABS Vegas. In Vegas, we will welcome over 5,000 of our industry friends and colleagues to the Cosmopolitan Hotel for the industry event of the year, with three and a half days of fantastic panels developed by you, the membership, covering the most pressing issues in the marketplace.

While the year is still young, I am thrilled to say that we have already made a great start with several new additions to the SFIG team—the SFIG “engine room”—our analysts and administration specialists who will help propel our organization even further. As we all know, an organization is only as good as its people. With the introduction of these individuals, we are even better situated to serve the needs of our membership in 2014.

Please welcome our new recruits:

Jennifer Serpas Jennifer Serpas, Office Manager
Jennifer.Serpas@sfindustry.org
202-524-6305

Jennifer joins SFIG after working at Capital One Financial Corporation where she was a Bilingual Process Manager for the Language Services Department and Financial Analyst/Coordinator. During her time at Capital One, Jennifer focused on Executive Administration for the Capital Markets Group. She supported Senior Global Finance Executives and worked towards improving Vendor and Contractor Management, and overall process management. Jennifer is currently enrolled at Strayer University and is looking forward to graduating in Spring 2015 with a BBA and Minor in Human Resource Management. She is very excited to be a part of the SFIG team where she will continue to apply her experience in Administrative and Process Management in supporting our membership.

Mary Robinson Mary Robinson, Senior Policy Analyst
Mary.Robinson@sfindustry.org
202-524-6306

Mary began her career in trade associations as a Research Assistant at the Beer Institute where she monitored economic trends, legal and policy developments. Mary completed her law degree in 2011 and subsequently worked at the U.S. Court of Federal Claims and in private practice where she assisted on SEC litigation and other regulatory affairs. Mary is looking forward to applying her experience to ensuring the SFIG membership is kept informed of industry developments and that all member interests are well represented in the public sphere. Mary has a Bachelor of Arts in Diplomacy and Foreign Affairs, with a minor in Economics, from Miami University. She received her Juris Doctor from The American University Washington College of Law and is a Member of the State Bar of California.

Amanda Bateman Amanda Bateman, Policy Analyst
Amanda.Bateman@sfindustry.org
202-524-6307

Amanda joins SFIG after serving as Government Relations Coordinator at Louis Dreyfus Commodities where she supported agribusiness outreach and advocacy efforts on a wide range of issues impacting commodity markets. In her previous position, Amanda became familiar with issues regulated by the Commodity Futures Trading Commission including Dodd-Frank implementation. Amanda spent time as a teacher in South Korea and graduated from Virginia Tech magna cum laude and Phi Beta Kappa with a Bachelor of the Arts in World Politics & Economy, and French.

Alyssa Acevedo Alyssa Acevedo, Policy Analyst
Alyssa.Acevedo@sfindustry.org
202-524-6309

Alyssa is excited to bring together her prior experience and passion for public policy in order to promote the group-wide strategy efforts and initiatives in education and advocacy at SFIG. Alyssa previously served as Court Department Administrator and Client Liaison at Protas, Spivok & Collins, LLC where she focused on federal and state regulatory compliance with relevant debt-collection procedures and practices for Capital One Bank. She has a Master of Public Policy from The American University and a Bachelor of Arts from The University of Pittsburgh.

Allison Creswell Allison Creswell, Executive Administration
Allison.Creswell@sfindustry.org
202-524-6310

Allison is a hard-working, motivated individual with the desire to assure needs are met and tasks are fully completed without sacrificing quality. She comes to SFIG after working as Administrative Assistant at Centripetal Networks where she assisted C-level executives and provided full support for the full staff. Her experience includes managing website content, assisting internal Human Resources, and providing administrative and clerical support. Allison received her Bachelor of Arts in English, with a minor in Journalism, from the University of Mississippi.

Over the past several months we’ve introduced you to the SFIG leadership team.

Michael FloodMichael Flood, Director of Advocacy
Michael.Flood@sfindustry.org
202-524-6302
Sairah BurkiSairah Burki, Director, ABS Policy
Sairah.Burki@sfindustry.org
202-524-6303
Sonny AbbasiSonny Abbasi, Director, Mortgage Policy
Sonny.Abbasi@sfindustry.org
202-524-6304
Richard JohnsRichard Johns, Executive Director
Richard.Johns@sfindustry.org
202-524-6301


All SFIG personnel will be attending ABS Vegas—If you see us in the hallway please stop us and introduce yourself. The entire SFIG team looks forward to working with all of you in the coming year.

Richard A. Johns

Richard A. Johns
Executive Director
 
RECENT DEVELOPMENTS
SENATORS QUESTION SEC ACT PLAN FOR STRUCTURED FINANCE CREDIT RATING REFORM
On January 8, 2014, a bipartisan group of 13 Senators sent a letter to the Securities and Exchange Commission (SEC) questioning its timeline and action plan for implementing structured finance credit rating reform. Specifically, Section 939F, also known as the Franken Amendment, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, required the SEC to both (1) study the current ratings process for structured finance products as well as (2) study the feasibility of replacing the current ratings process with a system in which either the SEC or a self-regulatory organization would assign ratings agencies to determine the initial credit rating for structured finance products. Furthermore, the SEC is required to implement a system of assigned credit ratings for structured products unless it determines that an alternative system would better serve to protect investors and the public interest.

The SEC released the study on assigned credit ratings in December, 2012. The study outlined the current process, alternatives to the current process, as well as conflicts of interest inherent in each option.

The Senators asked the SEC to respond back to them February 14 on its timeline and action plan to address structured finance rating reform.

 
HOUSE FINANCIAL SERVICES CHAIR SUBMITS LETTER TO SEC QUESTIONING LEGALITY OF VOLCKER IMPLEMENTATION
On January 13, 2014, Representatives Jeb Hensarling (R-TX 5), Chairman of the House Financial Services Committee, and Scott Garrett (R- NJ 5), Chairman of the Subcommittee on Capital Markets and Government Sponsored Entities, submitted a letter to the Securities and Exchange Commission (SEC) asserting that the SECs failure to “conduct any economic analysis in promulgating the [Volcker Rule], violates Federal law. The letter states that, as required by federal security law and confirmed by the U.S. Court of Appeals for the D.C. Circuit, the SEC has a “statutory obligation to determine as best it can the economic implication of the rule.”

Chairman Hensarling and Subcommittee Chairman Garrett requested that the SEC provide an account of the legal basis “for not conducting an economic analysis to accompany the final Volcker Rule” no later than January 24, 2014.

 
BASEL GROUP RELEASES PROPOSALS TO MOVE FURTHER TOWARDS COMPLETION OF REGULATORY REFORM
On January 12, 2014, the Group of Governors and Heads of Supervision (GHOS), the Basel Committee’s oversight body, released additional proposals and final revisions intended to further post-crisis regulatory reform. The GHOS endorsed proposals on several measures including:

Please see the SFIG Alert for a detailed analysis of the Basel Proposals.

The complete list of publications is available on the Bank of International Settlements website.

 
AGENCIES APPROVE INTERIM FINAL RULE PERMITTING RETENTION OF CDOs BACKED BY TRUST PREFERRED SECURITIES UNDER VOLCKER RULE
On January 14, 2014, the Board of Governors of the Federal Reserve, Commodities Future Trading Commission, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Securities and Exchange Commission approved an interim final rule allowing retention of certain collateralized debt obligations backed by trust preferred securities (TruPS CDOs) under the Volcker Rule. The interim final rule will allow banking entities to retain an interest in TruPS CDOs provided they meet certain qualifications dictating that the establishment and issuance dates of the TruPS CDO falls before May 19, 2010; the banking entities reasonable believed that the offering proceeds received by the TruPS CDO were invested primarily in Qualifying TruPS Collateral; and, the date; and the banking entities interest in the TruPS CDO was acquired before the agency’s issued final rules on the implementation of the Volcker Rule on December 10, 2013. Also included was definition of Qualifying TruPS CDO. The agencies also included a non-exclusive list of issuers that meet the requirements of the interim final rule.

 
OBAMA TO NOMINATE FISCHER, BRAINERD, POWELL; COMMUNITY BANKS HOPE FOR VOICE ON BOARD OF GOVERNORS
On January 10, 2014, President Obama indicated his intention to nominate Dr. Stanley Fisher, Dr. Lael Brainerd, and Jerome H. Powell to fill positions on the Board of Governors of the Federal Reserve System (Fed). The President, as quoted in a White House Press Release, said the three intended nominees “have the proven experience, judgment and deep knowledge of the financial system to serve the Federal Reserve during this important time for our economy.” The nominees are viewed as being largely in line with the policy positions of incoming Fed Chair, Janet Yellen, who will assume the role at the end of January.

While many industry followers predicted the nominations, some industry members have expressed concern over the lack of a community banking voice. In a December interview on Bloomberg Radio, Frank Keating, President and CEO of the American Bankers Association, said “It’d be nice to have a community banker,” on the Fed Board to represent “what middle America, small-town America is thinking and bring that voice to the table.” Community banking executives are hoping for an advocate on the Fed to aid in understanding the implications Dodd-Frank poses to their credit and lending.

For additional information on the intended nominees, please see the White House Press Release.

 
OSNATO NAMED AS ENFORCEMENT DIVISION CHIEF AT SEC
Mr. Michael J. Osnato, Jr., who has worked for the U.S. Securities and Exchange Commission (SEC) since 2008, will now serve as the Chief of the Enforcement Division unit. This unit investigates potential asset-backed securities, derivatives and other financial misconducts. Mr. Osnato has helped lead prior misconduct cases at the SEC.

For the full text of the announcement and more information about Mr. Osnato, please see the SEC announcement.

 
SEC ANNOUNCES 2014 EXAMINATION PRIORITIES
On January 9, 2014, the Securities and Exchange Commission (SEC) announced its examination priorities for 2014. These priorities cover a wide range of issues at financial institutions, including investment advisers and investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds and transfer agents.

Issues impacting the market as a whole as highlighted by the SEC include, fraud detection and prevention; corporate governance and enterprise risk management; and issues posed by the convergence of brokerage-dealer and investment advisor businesses and new rules and regulations.

The SEC 2014 Priorities and corresponding press release can be found on the agency’s website.

 
CFTC EXTENDS PUBLIC COMMENT PERIOD ON PROPOSED AMENDMENT TO AGGREGATION POLICY UNDER PART 150
The comment period for a proposed amendment to rules on aggregation for position limits will now close on February 10, 2014. The Commodity Futures Trading Commission (CFTC) extended the comment period on part 150 of its regulations so that interested parties would be able to simultaneously comment on a concurrent proposed rule governing position limits for derivatives.

The Notice of Proposed Rulemaking for part 150 and related public comment can be found on the CFTC website.

 
U.S. GAINS IN NON-REVOLVING DEBT CONTINUE
U.S. consumer borrowing has continued to grow in the area of non-revolving debt, especially over the past couple of months, according to the Federal Reserve (Fed). Credit conditions have progressed due to the improving job market and growing household incomes. Both of these led to a boost in consumer spending. The change in consumer credit, as surveyed by Bloomberg, ranged from increases of $5 billion to $25 billion. However, this survey does not account for secured real estate debt. Federal government lending to consumers, primarily for student loans, also grew over the past two months. Overall growth in the U.S. is expected to reach 2.6 percent this year, according to the Fed.

The November 2013 Statistical Release on Consumer Credit can be found on the Federal Reserve website.

 
RELIEF FROM DERIVATIVES RULES EXTENDED FOR FOREIGN SWAP DEALERS
The Commodity Futures Trading Commission (CFTC) is granting foreign swap dealers additional time to comply with Transaction-Level Requirements under the Commodity Exchanges Act. In a decision announced on January 3, the CFTC extended the period of no-action relief enjoyed by non-U.S. market participants until September 15, 2014. In doing so, the Commission acknowledged stakeholder concerns about the potential disruptive market impact its regulations have on what also happened to be Gary Gensler’s final day as Chairman.

According to the No-Action Letter, non-U.S. registered swap dealers will have until September 15, 2014 to comply with the derivatives rules.

 
SPECULATION ON EUROPEAN CENTRAL BANK LENDING, OTHER STEPS TOWARDS ‘DECISIVE ACTION’ TO SPUR ECONOMIC GROWTH
After another quarter of slow growth, analysts are speculating that the European Central Bank (ECB) may take action to offer reduced cost loans to banks in order to open up lines of business credit. In a press conference ECB President, Mario Draghi, indicated that key ECB interest rates would be left unchanged and credit dynamics in the euro area remain subdued. Draghi advised policy makers to be vigilant and indicated that the ECB could use any tools permitted by the European Union to help spur growth.

Please see the full transcript of Margio Draghi’s press conference for additional information.

 
FEDERAL RESERVE AND FDIC RELEASE THIRD ROUND OF RESOLUTION PLANS
On January 10, 2014, the Federal Reserve Board (Fed) and Federal Deposit Insurance Corporation (FDIC) made public resolution plans submitted in December 2013 by 116 institutions under provisions established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. These plans detail the companies’ strategy for a “rapid and orderly resolution” in the event of a financial crisis and must be submitted by entities with more than $50 billion in consolidated assets and certain nonbank financial companies designated by the Financial Stability Oversight Council. The third round of proposals reflect the submissions of companies with less than $100 billion in qualifying non-bank assets.

The plans can be viewed on the Federal Reserve Board and FDIC websites.

 
MSRB PROPOSES CURB ON MUNICIPAL ADVISORS UNDER DODD-FRANK
The Municipal Securities Rulemaking Board (MSRB) issued draft rules on January 9 that would bar municipal advisors from engaging in certain activities when guiding public officials. The proposed standards of conduct would bar firms from splitting fees with banks, receiving excessive compensation or making recommendations at odds with the best interests of clients.

More than 900 companies, including members of SFIG, will be required to comply with the regulations and disclose any potential conflicts of interest in their advisory activities. For those seeking additional clarification on the rule, the MSRB will host an educational webinar at 3 p.m. on February 6, 2014. Members interested in participating can register here.

On January 13, 2014, the Securities Exchange Commission issued its own announcement impacting municipal advisors, granting a temporary stay to those required to comply with the regulations, who will now have until July 1, 2014 to register.

 
MEL WATT ANNOUNCES FOUR FHFA STAFF APPOINTMENTS
On January 10, 2014, Mel Watt, Director of the Federal Housing Finance Agency (FHFA), announced the appointment of four special advisors. Watt said the special advisors will “provide solid advice and perspective on the important issues [he] will be facing as Director of the Agency.” The Special Advisor appointees are:

  • Megan Moore, Special Advisor—Intergovernmental,
  • Bob Ryan, Special Advisor—Industry,
  • Eric Stein, Special Advisor and Acting Chief of Staff, to become Special Advisor—Consumer,
  • Mario Ugoletti, Special Advisor—Agency.

Please see the FHFA Press Release for more information on the appointees.

 
DECLINE IN ANNUAL COMPLETED FORECLOSURES RATE
The rate of seriously delinquent mortgage loans has dropped by 29 percent, a record low over the past five years. Throughout the country, there was only a total of 46,000 finalized foreclosures during the month of November. This figure has dropped as well by 8.3 percent on a monthly basis. CoreLogic assesses the reasoning behind the decrease in completed foreclosures stems from people’s prioritizing mortgage payments as the U.S. housing crisis subsides and home prices continue to rise. Since the beginning of the housing financial crisis, the majority of the 4.7 million completed foreclosures nationwide have been concentrated in Florida, Michigan, California, Texas and Georgia

For more detailed information, please see CoreLogic’s November 2013 National Foreclosure Report.

 
HUD HOUSING SCOREBOARD RELEASED
The December 2013 report findings by the Obama Administration’s Housing Scoreboard revealed improvement in terms of the housing market’s key indicators. As the value of homes continue to rise, homeowner’s equity has improved and the amount of underwater borrowers has declined. For those homeowners who still find themselves underwater, the Treasury has expanded its Second Lien Modification Program (2MP) to assist. The 2MP program helps borrowers save money on their monthly mortgage payments and presents borrowers with additional options once their first lien modifications have been satisfied. Overall, however, the number of deeply underwater homeowners has been decreased to 19 percent of all mortgages over the past year.

Please see HUD's Full Housing Scoreboard for additional information.

 
POTENTIAL DRASTIC DROP IN CMBS DELINQUENCIES
This past year saw a two percent improvement in delinquencies and continued progress is expected, according to analyst predictions in the US CMBS Delinquency Report for December 2013. Overall, the year-end delinquency rate is expected to drop below four percent in 2014. Analysts attribute the drastic drop to the bulk sale of certain assets, thus creating a decline in late-pay rates.

A more detailed analysis can be found in the CMBS Delinquency Report.

 
DECREASE IN GINNIE MAE MBS ISSUANCE
Mortgage-backed securities (MBS) issuance by Ginnie Mae dropped by 36 percent during the last quarter of 2013. MBS issuance levels are at their lowest since 2008. The majority of this decline stems from a drastic drop in refinancing during the last quarter as well as single-family loan volumes. Federal Housing Administration endorsements (105,955 in July) and purchase loan endorsements (66,555) also dropped to 61,300 and 47,900, respectively.

 
EFFECTS OF INSURANCE PREMIUMS ON BORROWER CREDIT SCORES
The Federal Housing Administration has reported a 6.3 percent increase of borrowers with credit scores ranging from 640 to 679 during the fourth quarter. The report also revealed an increase in applications for FHA-insured reverse mortgages in September. This was due to substantial product choice changes.
 
 

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 visit our website for more information, including how to join.

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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 (www.sfindustry.org) to learn about membership opportunities.

SFINDUSTRY.ORG

Contact Information

Richard Johns for all matters

Kristi Leo for Investor related matters

Sairah Burki for ABS Policy related matters

Sonny Abbasi for MBS Policy related matters

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