January 7, 2015 Newsletter
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January 7, 2015


SFIG Calendar

Advocacy Outlook

Industry News Highlights

The Structured Finance Industry Group (“SFIG”) is proud to announce our incoming Committee and Task Force Co-Chairs, effective January 1, 2015. With over 50 Committees and Task Forces, SFIG is set to continue its robust advocacy agenda over the coming year. SFIG thanks its Co-Chairs for the hard work completed to-date, as well as for continuing their efforts on behalf of the industry this year. Additional information on SFIG’s Committee’s and Task Forces is available online, and members may signup for committees and learn more by registering here.
This afternoon, the House of Representatives passed a 6-year reauthorization of the Terrorism Risk Insurance Act (“TRIA”), which expired on December 31, 2014 by a bipartisan vote of 416 to 5.

Yesterday, SFIG sent a letter to House Committee on Financial Services Chairman Jeb Hensarling (R-TX) and Ranking Member Maxine Waters (D-CA) encouraging the House of Representatives to immediately reauthorize TRIA. After the 9/11 terrorist attacks, the U.S. economy froze as commercial mortgage and commercial mortgage-backed securities lenders required terrorism insurance while businesses were unable to obtain it from insurers. TRIA provides this critical federal reinsurance backstop for property insurers in the case of a terrorist attack, while protecting U.S. taxpayers through mandatory repayment by insurers for any federal assistance received.  

The Senate is expected to consider the bill in the near future. Please contact Michael.Flood@sfindustry.org with any questions.
With comments to the European Banking Authority (“EBA”) due next week in response to its consultation on “simple, standard and transparent” securitizations, SFIG’s High Quality Securitization (“HQS”) Task Force is getting ready to begin work on its next advocacy initiative: responding to the Basel Committee on Banking Supervision (“BCBS”) and International Organization of Securities Commissions’ (“IOSCO”) proposed criteria for identifying “simple, transparent and comparable” securitizations. The BCBS-IOSCO proposal includes 14 criteria of securitizations which lend themselves to less complex analysis and therefore may contribute to the development of sustainable securitization markets. As stated in the consultation, this criteria is meant to assist in the financial industry’s development of simple and transparent securitizations and should in no way be viewed as a substitute for investor due diligence.

While the EBA consultation focuses more on issues specific to European markets, the BCBS-IOSCO criteria will have broader global implications and likely impact issuance in the U.S., Canada, and Australia as well. The BCBS has additionally noted that it will consider incorporating the finalized criteria into the revised securitization capital framework it released last month. Comments are due to the BCBS and IOSCO on February 13, 2015 and SFIG will begin its related work during the HQS Task Force weekly meeting on January 13, 2015 at 10:00 a.m. (EST).To join the HQS Task Force and participate in the effort, please contact Amanda.Bateman@sfindustry.org.

THURSDAY, January 8, 2015
3:00 p.m. – 4:00 p.m. (EST)


TUESDAY, January 13, 2015
10:00 a.m. – 11:00 a.m. (EST)


TUESDAY, January 13, 2015
11:00 a.m. – 12:00 p.m. (EST)


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 Gold Lounge at the Aria
Las Vegas, NV
Sign up for Women in Securitization here, invitation to follow


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.Batemand@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. Monthly task force calls will be held to identify and address key questions regarding the implementation of the final rule. We will also be holding biweekly calls for the asset-level committees. 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 review the BCBS final standard for the Net Stable Funding Ratio (“NSFR”) and develop a comment letter when U.S. regulators release their proposed 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, 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 13th regarding the Securities and Exchange Commission’s July 23rd 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 serves as the forum through which SFIG is responding to recent initiatives that seek to define “qualifying securitizations.” This Task Force is currently developing a response to the European Banking Authority’s Discussion Paper on simple standard and transparent securitization, with conference calls taking place every Tuesday at 10:00 am (EST). The Task Force will also comment on the BCBS/IOSCO HQS discussion paper and will begin this work with a call on January 13th at 10:00 a.m. (EST). The deadline to comment on the BCBS-IOSCO criteria is February 13, 2015, and members interested in contributing to the effort should please email Amanda.Bateman@sfindustry.org.

On December 22, 2014, the Basel Committee on Banking Supervision (“Committee”) released two consultative documents (see below). Comments on both are due on March 27, 2015. As noted in an earlier SFIG Alert, the Committee released its Revisions to the Basel Securitization Framework on December 11, 2014.

I. Capital floors: the design of a framework based on standardized approaches

The Capital Floors Consultative Document outlines the Committee's proposals to design a capital floor based on standardized, non-internal modelled approaches. The proposed floor would replace the existing transitional capital floor based on the Basel I framework. The floor would be based on revised standardized approaches for credit, market and operational risk, which are currently under consultation.

The floor is meant to mitigate model risk and measurement error stemming from internally-modelled approaches. It would enhance the comparability of capital outcomes across banks, and also ensure that the level of capital across the banking system does not fall below a certain level.

As noted in the Committee's November 2014 report to the G20 Leaders, the Committee is taking steps to reduce variation in capital ratios between banks. The proposed capital floor is part of a range of policy and supervisory measures that aim to enhance the reliability and comparability of risk-weighted capital ratios. The Committee will consider the calibration of the floor alongside its work on finalizing the revised standardized approaches.

II. Revisions to the standardized approach for credit risk

This proposal seeks to strengthen the existing regulatory capital standard in several ways, including:

  • reduced reliance on external credit ratings;
  • enhanced granularity and risk sensitivity;
  • updated risk weight calibrations, which for purposes of this consultation are indicative risk weights and will be further informed by the results of a quantitative impact study;
  • more comparability with the internal ratings-based (“IRB”) approach with respect to the definition and treatment of similar exposures; and
  • better clarity on the application of the standards.

The Committee is considering replacing references to external ratings, as used in the current standardized approach, with a limited number of risk drivers. These alternative risk drivers vary based on the particular type of exposure and have been selected on the basis that they are simple, intuitive, readily available and capable of explaining risk across jurisdictions.

Given the challenges associated with identifying risk drivers that can be applied globally but which also reflect the local nature of some exposures – such as retail credit and mortgages – the Committee recognizes that the proposals are still at an early stage of development. Thus, the Committee seeks respondents' comments and analysis with a view to enhancing the proposals set out in this consultative document.

The key aspects of the proposals are:

  • Bank exposures would no longer be risk-weighted by reference to the bank's external credit rating or that of its sovereign of incorporation, but would instead be based on two risk drivers: the bank's capital adequacy and its asset quality.
  • Corporate exposures would no longer be risk-weighted by reference to the borrowing firm's external credit rating, but would instead be based on the firm's revenue and leverage. Further, risk sensitivity and comparability with the IRB approach would be increased by introducing a specific treatment for specialized lending.
  • Retail category would be enhanced by tightening the criteria to qualify for a preferential risk weight, and by introducing an alternative treatment for exposures that do not meet the criteria.
  • Residential real estate would no longer receive a 35 percent risk weight. Instead, risk weights would be based on two commonly used loan underwriting ratios: the amount of the loan relative to the value of the real estate securing the loan (i.e., the loan-to-value ratio) and the borrower's indebtedness (i.e., a debt-service coverage ratio).
  • Commercial real estate: two options are currently under consideration: 1) treating the exposures as unsecured with national discretion for a preferential risk weight under certain conditions; or 2) determining the risk weight based on the loan-to-value ratio.
  • Credit risk mitigation: the framework would be amended by reducing the number of approaches, recalibrating supervisory haircuts and updating the corporate guarantor eligibility criteria.
Last year may have seen significant reforms to the securitization regulatory framework through the adoption of final rulemakings including Regulation AB II, NRSRO due diligence and credit risk retention, but the industry is bracing itself for another eventful year as 2015 gets underway. As highlighted in a recent Bloomberg article, banks may have taken some solace with the passage of a federal budget last month which included a provision easing requirements that they separate some swaps trading with U.S. backstops, and insurers may have earned some relief on how their capital requirements will be imposed, but a number of key challenges will have to be overcome in 2015 which securitization market watchers will be following closely. According to Bloomberg’s analysis, the top issues for financial services firms in 2015 should include 1) lowering the systemic risk threshold, which currently allows banks with more than $50 billion in assets to be designated as systemically important; 2) scrapping a fiduciary duty rule for broker dealers being mulled over by the Securities and Exchange Commission; 3) increasing transparency at the Financial Stability Oversight Council; 4) bringing the budget of the Consumer Financial Protection Bureau under Congressional oversight and restructuring the bureau so that it's led by a 5-member commission; and 5) continuing to water down provisions in the Volcker Rule, particularly with respect to its limitations on banks’ holdings of collateralized loan obligations (“CLOs”).

Despite the House’s adoption of a bill —H.R. 5461— at the end of last year that would give banks more freedom to trade CLOs, the Senate has yet to take up a similar vote. In October, SFIG sent a letter to then Senate Majority and Minority Leaders Harry Reid and Mitch McConnell urging their consideration of the bill, specifically language contained in Title II of H.R. 5461 addressing the “ownership interest” issue posed by the Volcker Rule, which would allow companies across the United States to access affordable financing from banks that invest in CLOs. SFIG also testified before the House Financial Services Capital Markets Subcommittee earlier last year, advocating for a fix for CLOs and will continue to work towards developing bipartisan support for a CLO solution in relation to the Volcker Rule.

After recently dropping to a seven-year low, the national delinquency rate reversed trajectory as the year came to a close, rising 12 percent since October to its highest level in 10 months, according to Black Knight Financial Services’ November “First Look” mortgage report. As reported by HousingWire magazine, delinquencies— or anything 30 days or more delinquent but not yet in foreclosure— have increased in six of the last seven Novembers, but there has not been an increase of this magnitude since 2008. In fact, the increase puts the national delinquency rate past 6 percent for the first time since February of last year. It is important to note, however, that while the month-over-month change is up, the year-over-year change in delinquency is still down and therefore this negative trend may be overstated.
On December 24, 2014, the final credit risk retention rule was published in the Federal Register, officially starting the clock for banks’ compliance with the sweeping rulemaking.Notably, the effective date to comply with the risk retention rule for RMBS is December 24, 2015, and for all other covered ABS is December 24, 2016.

The link to the final credit risk retention rule as published in the Federal Register can be accessed here.
President Obama will discuss the housing market’s recovery at an upcoming speech in Phoenix and, according to a recent report in the Arizona Central, is expected to announce a new plan to encourage more people to buy homes. The move comes five years after the President first announced his Making Home Affordable Program on February 18, 2009, which injected $75 billion in federal funds in an effort to turn around the soaring foreclosure rate. According to the Arizona Central, tougher lending restrictions have since made it more difficult for many to qualify for a loan and as a result, the President’s remarks on Thursday will likely touch on lending guidelines that would promote easier homeownership for first time buyers. Today, in advance of the speech, the President announced that he would reduce the Federal Housing Administration premium by 50 basis points to 0.85 percent.

According to a separate report by HousingWire magazine, however, whether the speech addresses reforming the government sponsored enterprises (“GSEs”), as has traditionally been the Obama Administration’s approach to housing finance reform, remains unclear as of now. As a result, one analyst quoted by the magazine alleges the President may be giving up on his plans to wind down the GSEs. While both Congress and the White House have both called for unwinding their conservatorship, the article states that the devil is in the details in light of the failure of bills such as Johnson-Crapo or the PATH Act to generate much traction through the legislative process.

Following President Obama’s speech in Phoenix, Vice President Biden is expected to reiterate the comments in his own speech in Tennessee on Friday, which will address job creation and paying for college in addition to affordable homeownership for first time buyers.

According to a Reuter’s article, the European Central Bank (“ECB”) purchases of covered bonds and asset-backed securities (“ABS”) shrank slightly last week as some assets matured and the ECB paused purchases at the turn of the year due to lower market volumes. In addition to offering banks ultralow interest rates, the ECB bought a total of €29.632 billion of covered bonds and €1.744 billion of ABS as part of a plan to loosen monetary policy. According to an ECB spokesman, the amounts were 28 million and 3 million euros lower than the previous week’s volumes due to assets maturing and accounting issues.

With concerns being raised as to whether current measures will be enough to boost the ECB’s balance sheet, the ECB is considering taking steps to adjust monetary policy to achieve its intention of adding €1 trillion ($1.25 trillion) to its balance-sheet. Despite German opposition, the Governing Council could make a decision by its January 22nd policy meeting to embark on quantitative easing to try to revive the euro-zone economy.


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

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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