January 29, 2014 Newsletter
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January 29, 2014
 

SFIG News

Recent Developments

 

 
SFIG NEWS
CONFERENCE SUCCESS

Dear Friends & Colleagues,

As the curtain closes on ABS Vegas 2014, I would like to say a huge thank you to everyone who helped make this conference an unequivocal success.

Despite the wretched weather on the East coast, the vast majority of over 5,600 registered attendees found their way West and were treated to a simply incredible inaugural conference. Attendees benefitted from over 50 packed panels and more than 220 speakers, two insightful and charismatic keynote speeches from Dr. Michael Stegman (Counselor to the Secretary of the Treasury for Housing Finance Policy) and Chris Cox (Former Chairman of the US Securities and Exchange Commission), multiple meetings between SFIG membership and regulatory authorities, packed one-on-one meeting rooms, fabulous exhibits and of course, who could forget the opening night extravaganza put on by our friends at VantageScore? I believe this industry has spoken loud and clear, establishing ABS Vegas, not only as the marquee winter gathering of the industry, but as the leading capital markets conference globally.

Over the course of the conference I lost count of the number of people who congratulated me on the success of the conference – praise that I reluctantly accept on a personal basis, but enthusiastically receive on behalf of you, the Industry.

It is the combination of outstanding partnership with IMN and you, the Industry and the membership of SFIG, who made this conference what it was. Routed in incredible leadership from key individuals, empowered through the support and sponsorship of virtually every key industry institution, and ultimately endorsed by over 5,600 individuals.

I am truly humbled by the efforts of so many of you, the members and participants of the Structured Finance Industry, for your outstanding contributions in making this event such an incredible success.

Thank you!
…and see you at ABS Vegas 2015.

With kindest regards,

Richard Johns Signature

Richard A. Johns
Executive Director

Note: As a registrant of ABS Vegas 2014, you’ve been included in the distribution of SFIG’s weekly newsletter. To get involved in the advocacy activities of SFIG, please visit our website or email us at Committees@sfindustry.org.

 
SFIG SUBMITS COMMENT LETTER ON CANADIAN LIQUIDITY ADEQUACY REQUIREMENTS
On Friday, January 24th, 2014 SFIG submitted a comment letter to the Canadian Office of the Superintendent of Financial Institutions (OSFI) concerning proposed draft guidelines on Canadian Liquidity Adequacy Requirements (LAR). The letter highlighted two areas of industry concern in the draft LAR guideline and issued commentary around the following:

  • The guideline does not sufficiently distinguish between types of securitizations and therefore the liquidity coverage ratio requirement is unnecessarily punitive for certain securitization transactions designed to facilitate access to short and medium term markets.
  • Certain high quality securitization exposures should qualify for treatment as high quality liquid assets under the draft guideline because they are sufficiently liquid such that a bank could readily convert them in to cash to meets its outflow obligations.

The comment letter was developed through an SFIG working group created for this project. For more information the OSFI LAR Comment Letter please contact Mary Robinson at Mary.Robinson@sfindustry.org. For more information on how to become involved with SFIG committees and working groups please contact committees@sfindustry.org.

 
SFIG JOINS SIFMA/IIF EFFORTS ON BASEL COMMENTARY
SFIG will join forces with the Securities Industry and Financial Markets Association (SIFMA) and Institute for International Finance (IIF) when commenting on Basel’s 2nd Consultative Document: Revisions to the Securitization Framework. The comments are due on March 21, 2014 and will address proposed changes to the hierarchy, calibration and various other issues that are currently being reviewed by members of the organizations.

Members interested in SFIG’s advocacy on Basel’s 2nd Consultative Document should contact Amanda.Bateman@sfindustry.org to receive updates on the matter. For more information on how to become involved with SFIG committees and working groups please contact committees@sfindustry.org.

 
SFIG, LSTA DISCUSS RISK RETENTION LETTER ON “QUALIFIED” CLOs WITH THE FEDERAL RESERVE AND TREASURY
On January 27, 2014, SFIG and the Loan Syndications and Trading Association (LSTA) met with staff from the Federal Reserve to discuss the option of a “qualified” CLO to satisfy the risk retention regime proposed by Federal regulators. The meeting was a follow up to the letter that SFIG, LSTA and the Securities Industry and Financial Markets Association submitted as a follow-up 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 on January 10, 2014.

During the meeting on January 27 - and as proposed in the January 10 letter - Open Market CLOs that meet a series of criteria would qualify to satisfy the credit risk retention requirement through the 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 either Michael Flood Michael.Flood@sfindustry.org or Sairah Burki at Sairah.burki@sfindustry.org.

 
CAPITOL CORNER
Beginning this week SFIG will post notice of upcoming committee hearings, executive actions, and other events taking place on Capitol Hill that cover information of importance to our membership.

 
 
HOUSE FINANCIAL SERVICES COMMITTEE
Hearing on the Semi-Annual Report of the Consumer Financial Protection Bureau (CFPB)

Witness List: The Honorable Richard Cordray, Director of the Consumer Financial Protection Bureau
Date & Time: Tuesday, January 28, 2014, 10:00am EST
Location: Room 2128 of the Rayburn House Office Building

The House Committee on Financial Services held a hearing yesterday where CFPB Director Richard Cordray testified. An archived recording of the hearing can be found on the Committee website.

 
SENATE BANKING COMMITTEE
Hearing on the Annual Report and Oversight of the Office of Financial Research

Witness List: Dr. Richard Berner, Director, Office of Financial Research, U.S. Department of the Treasury
Date & Time: Wednesday, January 29, 2014, 3:30pm EST
Location: 538 Dirksen Senate Office Building

The Senate Banking Committee will hold a hearing on the 2013 Annual Report of the Office of Financial Research. A live webcast of the hearing will be available on the Senate Banking Committee hearing website when the hearing starts.

 
PRESIDENT ASKS CONGRESS TO PASS HOUSING REFORM DURING SOTU
"Send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans," stated President Obama during his 2014 State of the Union Address.

As many members know from the SFIG conference last week, Treasury Senior Advisor Michael Stegman publicly stated that the Administration is working "intensely" with Banking Chairman Johnson (D-ND), Ranking Member Crapo (R-ID), Senator Corker (R-TN) and Senator Warner (D-VA) to create a bi-partisan bill for housing finance reform. Specifically, the four Senators are working to enhance a bi-partisan bill that Corker and Warner released in July last year. They are rumored to be working to release the bill in the first quarter of this year.

The President's comments were extremely helpful to this effort, and were sufficiently general as to allow Congress wide berth to negotiate a bi-partisan bill without drawing a hard line in the sand.

However, the question remains, will President Obama's remarks last night give enough of a boost to housing reform to pass legislation this year?

While much progress will be made and Congressional positions will form in 2014, it still remains unlikely that we will see a bill passed into law this year for the following reasons: (1) The President outlined higher priorities this year than housing, including immigration reform, minimum wage increases, tax reform and retirement savings. All of these issues are big and hairy, and may suck the air out of the room that would be necessary for housing reform; (2) The President has promised to work with Congress but also said he would use executive power to move the nation forward where there were impasses. If Congress and the President cannot find common ground on the aforementioned issues, it will not breed the type of culture necessary to move bi-partisan housing reform forward; (3) It is an election year, which does not tend to create bipartisanship past June; and (4) Even if bills get through both the Senate and House, are there enough commonalities between the Corker-Warner bill and the PATH Act to reach an agreement?

Regardless, 2014 is the year that Congressional and Administration positions will form on housing finance, and SFIG members are working hard to establish a position in the debate.

If you have questions on legislation, please contact Mike Flood (Michael.Flood@sfindustry.org). If you have questions on SFIG's housing policy positions, please contact Sonny Abbasi (Sonny.Abbasi@sfindustry.org).

 
RECENT DEVELOPMENTS
KEVIN P. WALSH NAMED BY THE OFFICE OF THE COMPTROLLER OF THE CURRENCY AS DEPUTY COMPTROLLER FOR MARKET RISK
On January 24, 2014, the Office of the Comptroller of the Currency (OCC) named Kevin P. Walsh as Deputy Comptroller for Market Risk. Mr. Walsh has been with the OCC since 2012, most recently as Group Leader in the Chief National Bank Examiner’s Financial Market Risk unit. Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner John Lyons said of Mr. Walsh, “Kevin brings more than 25 years of capital markets and banking experience to his new responsibilities, and the OCC is fortunate to have him assume this important leadership position." Mr. Walsh succeeds Martin Pfinsgraff in the role, and will concentrate on direct market risk activities including policy formulation and risk monitoring for trading activities, derivatives, structured products, liquidity, interest rate risk, and asset management. More information on Mr. Walsh can be found in the OCC Press Release.

 
 
U.S. RULES FRAGMENT TRANS-ATLANTIC RATE-SWAPS MARKET
On January 21, 2014 the International Swaps and Derivatives Association (ISDA) issued a Research Note on the Cross-Border Fragmentation of Global Over the Counter (OTC) Derivatives. The empirical analysis finds that implementation of various U.S. rules has had a clearly “disruptive impact on OTC trading volumes.” The research findings specifically cite the October 2, 2013 effective date for Swap Execution Facility compliance, the definition of ta US person and the Footnote 88 interpretation as contributing to a 77 percent decline of cleared interest rate swaps between the U.S. dollar and Euro.

For a full analysis of the impact on Global OTC Derivatives please see the ISDA Research Note.

 
CFTC PLANS FOR PACKAGED TRADES
The Commodity Futures Trading Commission (CFTC) announced an initial set of interest rate swaps on January 16 that must be traded on regulated platforms under the 2010 Dodd-Frank Act. One week following this, the CFTC announced that a public roundtable will be held, explaining how the requirement applies to packaged transactions. The CFTC Commissioner, Scott O'Malia, has said other commissioners should play a more pivotal role when it comes to decision-making on the trade execution mandate. During his speech, O’Malia noted that "the Commission must encourage trading on SEF platforms, while, at the same time, protecting the efficiency of trading various combination products."

The complete Keynote address by O'Malia is available online.

 
LEHMAN OFFERS $2.15 BILLION SETTLEMENT TO FANNIE MAE
Lehman Brothers Holdings Inc. filed for bankruptcy in September of 2008 and has recently asked the bankruptcy court to approve a $2.15 billion settlement to Fannie Mae. The original claim against the obsolete bank was for $18.9 billion but Fannie Mae has agreed that the reserve for its claim would be $5 billion. The agreement would involve a sign off among Lehman, Aurora Commercial Corp., Aurora Loan Services and Fannie Mae. As part of this agreement, Fannie Mae would also be required to provide documents and information allowing for administrators to pursue breaches of representation/warranty claims against third-party mortgage originators.

Additional general case information concerning the Lehman bankruptcy filing is available online.

 
DECEMBER DATA SHOWS MONTHLY DROP IN RESIDENTIAL SALES
The U.S. Census Bureau and Department of Housing and Urban Development (HUD) reported that new single-family homes sold at a seasonally adjusted annual rate of 414,000 in December 2013. That number reflects a 7.0 percent drop from November’s rate of 445,000 homes but an increase of 4.5 percent from December 2012 estimates.

The median sales price of the new houses was $270,200 and the average price was $311,400. There was a 5.0 month supply of 171,000 new homes for sale at the end of December.

 
HAMP MODS DOWN ONLY TWENTY PERCENT IN NOVEMBER
Despite an upward turn in the housing market, Home Affordable Modification Program (HAMP) modifications (mods) remains steady at 13-16,000 per month. This figure is in alignment with the 15,400 HAMP mods in November of 2012. However, there has been a decrease in initiated foreclosures as well as short sales, according to November 2013 report by Hope Now.

The Hope Now report contains additional details regarding recent HAMP Metrics.

 
FEDERAL HOUSING ADMINISTRATION MAKES USE OF RESIDUAL INCOME TEST TO QUALIFY BORROWERS
The Federal Housing Administration (FHA) will make use of the Department of Veterans Affairs' (VA) residual income test as a new compensating factor to qualify borrowers with high debt-to-income (DTI) ratios. The FHA currently allows borrowers to exceed the standard 31/43 DTI ratio if they make a down payment of 10% or more, but announced it would eliminate that compensating factor in the most recent Mortgagee Letter.

Under the new manual underwriting guidelines, applicants that pass the VA residual income test can have DTI ratios of up to 37% on the front end and 47% on the back end. The revised underwriting guidelines go into effect on April 21, 2014 and will identify four compensating factors, including the VA residual income test, as part of its calculations.

 
CFTC SETS OUT TO IMPROVE SWAPS TRANSACTION DATABASES
The Commodity Futures Trading Commission (CFTC) is seeking to revamp its oversight of swap-market data so that major losses can be more easily detected. In a January 21 press release, Acting Chairman Mark Wetjen announced the formation of an interdivisional working group that will review compliance with recordkeeping and reporting requirements under the Dodd-Frank Act. Calling it “an appropriate review”, Wetjen gave the group until March 15, 2014 to post their request for comment in the Federal Register.
 
 

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 to learn about membership opportunities.

 

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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