June 10, 2015 Newsletter
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June 10, 2015
 

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
HOUSE PASSES THUD APPROPRIATIONS BILL; INCLUDES EMINENT DOMAIN LANGUAGE

Last night, June 9th, the House of Representatives passed H.R. 2577, the Transportation, Housing and Urban Development, and Related Agencies Appropriations Act, 2016 (“THUD”) by a vote of 216-210. As reported last week, THUD includes an SFIG-supported provision, Section 229, which would prevent the Federal Housing Administration, Government National Mortgage Administration, or Department of Housing and Urban Development from facilitating the use of eminent domain.

SFIG has consistently opposed the use of eminent domain to seize securitized mortgage loans for the purposes of modification, and signed a joint trade association letter endorsing the inclusion of Section 229 in the FY 2016 THUD Bill. 

“We thank the House for continuing this policy first implemented in the THUD Appropriations Act of 2015, passed by the Senate and signed into law by the President. We urge the Senate to take swift action on this important provision for fiscal year 2016,” stated Richard Johns, SFIG Executive Director.

For a detailed overview of SFIG’s policy on eminent domain, please see our Eminent Domain Position Paper.

 
 
SFIG SYMPOSIUM: LESS THAN 2 WEEKS AWAY!

Don’t forget to sign up for our Spring Symposium on June 23rd hosted by Societe Generale in their New York City office! Join your industry peers to engage with leading industry members as they give a market update across a wide variety of industry issues. The event, followed by a cocktail reception, will be held on Tuesday, June 23rd from 5:00 p.m. to 8:00 p.m. (ET). Full agenda details will follow.

Please click here to register. Registration is open to SFIG members and non-member industry participants. Please note, space is limited and filling up quickly. Due to security concerns, we will be unable to accommodate walk-ins. This event is closed to the press.

 
 
SFIG CALENDAR
CREDIT CARD ISSUER COMMITTEE CALLS
THURSDAY, June 11, 2015
10:00 a.m. – 11:00 a.m. (ET)
THURSDAY, June 18, 2015
10:00 a.m. – 11:00 a.m. (ET)
 
 
NRSRO DUE DILIGENCE INDUSTRY GUIDE CALL
THURSDAY, June 11, 2015
3:00 p.m. – 4:00 p.m. (ET)
 
 
REGULATORY CAPITAL & LIQUIDITY COMMITTEE CALL
THURSDAY, June 11, 2015
11:00 a.m. – 12:00 p.m. (ET)
 
 
REGULATION AB II TASK FORCE CALL
FRIDAY, June 12, 2015
11:00 a.m. – 12:00 p.m. (ET)
 
 
EQUIPMENT ISSUER COMMITTEE CALL
MONDAY, June 15, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
IMN’s GLOBAL ABS 2015 CONFERENCE
TUESDAY, June 16, 2015 – THURSDAY, June 18, 2015
The Barcelona International Convention Centre
Barcelona, Spain
Registration is available here.
 
 
SFIG SPRING SYMPOSIUM
TUESDAY, June 23, 2015
5:00 p.m. – 8:00 p.m. (ET)
Societe Generale
245 Park Avenue
New York, NY
Registration is available here.
 
 
SFIG BOARD OF DIRECTORS MEETING

WEDNESDAY, June 24, 2015
12:00 p.m. - 5:00 p.m. (ET)
Deloitte & Touche LLP
30 Rockefeller Plaza
New York, NY 10112
Note: Closed Meeting

 
 
IMN’s ABS EAST 2015 CONFERENCE
WEDNESDAY, September 16, 2015 – FRIDAY, September 18, 2015
The Fontainebleau
Miami Beach, FL
Registration is 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. Presently, the task force is working on (1) developing a comprehensive compilation of representations and warranties for release in the spring of 2015 and (2) a grid summarizing roles of transaction parties. 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 is reviewing the FHFA’s update to the single security initiative and will respond as necessary. The Task Force has also met to discuss the Carney-Delaney-Himes GSE Reform bill and has updated its briefing book on the legislation to support its advocacy efforts. With the release of the bill, SFIG staff also updated its GSE Reform Legislative Comparison, which analyzes key provisions in the five most recent housing finance reform bills including theJohnson-Crapo bill and the PATH Act. SFIG staff previously summarized members’ recommendations on the former in a briefing book, and plan to produce a similar book on the latter in the upcoming months. Additionally, the task force has been actively engaging the Federal Housing Finance Agency on several fronts, with comments submitted on its initial single security proposal, guarantee fee pricing and Strategic Plan for 2015-2019. To join SFIG’s GSE Reform Task Force and learn more, 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 discussions with a focus on SFIG’s partnership with the Chinese Securitization Forum, potential upcoming educational discussions and the sharing of 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 obtained no-action relief from the CFTC giving swap dealers comfort that the CFTC would not take enforcement action against swap dealers that did not comply with certain CFTC Regulations when taking actions in response to the credit ratings downgrade of a counterparty to a legacy swap. The relief applies to swaps with SPVs that were in existence prior to October 10, 2013. The task force also 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 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 will meet weekly on Tuesdays and Thursdays at 3:00 p.m. (ET) until June 11th 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 ("HQS”) Task Force responded to the European Commission’s consultation on an EU framework for simple, transparent and standardized securitization on May 12, 2015. The task force also previously responded 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 HQS Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
INDUSTRY NEWS HIGHLIGHTS
EC TO PROPOSE RELAXED CAPITAL REQUIREMENTS FOR SIMPLE SECURITIZATIONS

Speaking at a hearing in Brussels on Monday, June 8th, European financial services Commissioner Jonathan Hill told lawmakers that the European Commission (“EC”) will propose lighter capital requirements on simple pooled debt instruments as part of the EU’s Capital Markets Union proposal. According to a Reuters article, Hill said “This will enable us to put in place more appropriate capital and solvency requirements for investors, so that simple securitisation products do not end up being penalized.” These statements come as the EC concludes its consultation on simple, transparent and standardized securitization, the results of which should be published in September.

The Basel Committee on Banking Supervision (“BCBS”), which establishes global standards for capital rules, and the International Organization of Securities Commissions (“IOSCO”) recently suggested similar preferential treatment was possible for simple, transparent and comparable securitizations, but these statements by Hill suggest the EC may not wait for the BCBS to act and will instead take matters into its own hands.

SFIG commented on both the EC consultation (available here) and the BCBS-IOSCO consultation (available here) through its High Quality Securitization Task Force. To join the task force, please contact Amanda.Bateman@sfindustry.org.

 
 
SECURITIZATION TOUTED AS FIRST STEP OF EU CAPITAL-MARKETS UNION

According to an article in Reuters, Don Kohn, a member of the Bank of England’s (“BoE”) Financial Policy Committee (“FPC”) and former Vice-Chairman of the U.S. Federal Reserve, said British banks' reluctance to lend after the financial crisis demonstrated the need for alternative sources of funds. Kohn said improving access to finance was an area where the FPC should make progress over the next three years. A lack of access to finance is one reason BoE officials have given for Britain's slow recovery from the financial crisis and ongoing weak productivity, as entrepreneurs find it hard to start new businesses or retool existing ones. Kohn did not detail the steps the FPC could take, but he said it was essential to ensure that new sources of finance—including securitizing consumer loans—did not create the problems that led to the subprime crisis in the United States. "The risks we should be looking for could be quite different from the leverage or maturity mismatch or poor underwriting standards issues that we are used to dealing with in banks," he said.

 
 
CFPB PUBLISHES FINAL RULE AUTHORIZING SUPERVISION OF NONBANK AUTO FINANCE COMPANIES

Today, June 10th, the Consumer Financial Protection Bureau (“CFPB”) published a final rule authorizing the agency to begin supervising large, nonbank auto finance companies. Characterizing auto loans and leases “among the most significant and complex financial transactions in a typical consumer’s life,” CFPB Director Richard Cordray stated the rule was meant to ensure auto finance companies “treat consumers fairly.” Examination procedures for auto finance companies were also published along with the rule.

The CFPB currently supervises auto financing at the largest banks and credit unions, but this rule will extend that supervision to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more loans or leases in a year. As “larger participants,” those companies will have to comply with federal consumer protection laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices. The CFPB estimates the rule will apply to 34 nonbank auto finance companies.

 
 
SENATE BANKING COMMITTEE MEMBERS ENCOURAGE FHFA TO RELEASE PLAN ON CREDIT RISK TRANSFER

Earlier today, June 10th, both Democrat and Republican members of the Senate Banking Committee (“Committee”) submitted a letter to the Federal Housing Finance Agency (“FHFA”) urging expansion and better definition of the development of credit risk transfer programs. According to the Senators, the credit risk transfer programs would move mortgage related credit risk from Fannie Mae and Freddie Mac (“GSEs”) to the private sector. The letter, addressed to FHFA Director Mel Watt, said:

The credit risk transfers are a vehicle for moving the housing market forward by attracting private sector investors, improving access to credit, and reducing taxpayer risk.  As such, we ask that you prioritize work with the [GSEs] on transaction designed specifically to push out first loss credit risk to the market, and to encourage transparency for investors and the public so that we can all better judge how these transactions impact returns to the [GSEs], costs to the tax payer, and effects to the health of the broader housing finance system.

The letter was signed by a bipartisan group of Committee members including U.S. Senators Mark Warner (D-VA), Bob Corker (R-TN), Heidi Heitkamp (D-ND), Mike Crapo (R-ID), Jon Tester (D-MT), and Dean Heller (R-NV).

 
 
POTENTIAL RISK RETENTION EFFECTS ON PLS MARKET

Industry participants are growing increasingly worried that the new risk retention requirements could hinder efforts to expand the types of loans that are securitized through the private-label securities (“PLS”) market as implementation for the regulation nears, according to a recent National Mortgage News article.

The PLS market has grown since it shut down during the financial crisis, but annual issuance is at tens of billions of dollars as compared to the hundreds of billions before the crisis. The new risk retention rule, which is scheduled to take effect on December 24th of this year, challenges issuers' hope that certain loans can be securitized at a profit. With lenders required to retain at least 5 percent of a loan unless it is considered a qualified mortgage (“QM”) under the Consumer Financial Protection Bureau’s mortgage origination rules, issuers fear they will have difficulty securitizing any loans that fall outside of that definition, according to the article.

Some within the industry feel that there is a possibility non-QM lending will grow outside the securitized market through private whole loan funding and trades as nontraditional lenders, such as those in the peer-to-peer space, grow.

 
 
SOLAR INDUSTRY STANDARDS ADD CREDITWORTHINESS TO POOLED SOLAR ABS

The solar power industry and ABS financiers are aiming to structure securitizations that pool together the assets of small and midsize solar developers. Most U.S. solar developers are still too small to access the capital markets via a solo securitization. Pooled solar ABS could also lower the cost of capital for the developers, provide deal flow for the financiers and open up additional renewable energy opportunities for investors.

According to an Institutional Investor article, industry-wide moves to institute standards developed by a working group operating under the U.S. Department of Energy’s National Renewable Energy Laboratory (“NREL”) are helping investors gain a clearer idea of the creditworthiness of packaged solar ABS.

The NREL’s working group, named Solar Access to Public Capital, has developed standardized contracts for leases and power purchase agreements for both residential and commercial solar securitizations to help address concerns surrounding solar securitization. It also released standards for both photovoltaic system installation and operation, and maintenance this past March.

SFIG attended IMN’s 3rd annual Sunshine Backed Bonds conference at the beginning of May. The conference focused on the structural, regulatory, and legal challenges this unique asset class faces as it matures. SFIG’s Esoteric Committee will also be focusing on some of these issues with regard to the solar industry. If you would like to join the committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
AUSTRALIA LOBBIES SEC FOR MUTUAL RECOGNITION OF U.S., AUSTRALIAN DEBT MARKETS

According to a recent article in the Australian Financial Review, Greg Medcraft, Chairman of the Australian Securities and Investments Commission is encouraging the Securities Exchange Commission (“SEC”) to agree to a mutual recognition arrangement for the Australian and U.S. retail debt markets. Mr. Medcraft will be visiting Washington this month to discuss the opportunity to make it easier and cheaper for Australian firms to sell securities to U.S. investors. Mr. Medcraft called such an arrangement a “win-win” for the two countries, telling the news publication, “For borrowers, it gives them access to funds, and for investors it gives them diversity in their portfolio… And it strengthens further the ties between Australia and the U.S.”

The proposal is meant to overcome jurisdiction-specific disclosure and filing requirements by allowing Australian and U.S. companies to use their domestic prospectuses to offer debt securities. Under current laws, Australian companies must file a U.S.-compliant registration statement with the SEC, obtain approval of that filing, then use a U.S.-compliant prospectus to offer debt securities. Similar agreements currently exist between the U.S. and Canada, as well as Australia and New Zealand.

 
 
CHINA P2P MARKET CONTINUES EXPANSION

China’s peer-to-peer (“P2P”) market continues to develop in both advancement and efficiency through management innovations such as asset securitization, according to market experts and a recent China Daily article.

China’s P2P trading volume was 252.8 billion yuan ($40.78 billion) in 2014 as compared to $5.5 billion in U.S. P2P platform issuance the same year.

One of the greatest challenges for China’s P2P market is determining “how to build a stable and reliable risk control system to screen out qualified enterprises with repayment ability and willingness,” according to Hao Jianming, Chairman and CEO of the P2P financial market-focused Sino Mercury Acquisition Corporation.

 
 
U.S. SINGLE-BORROWER CMBS: CASH FLOWS SEE POSITIVE SEASONING, BUT TRUST LEVERAGE IS INCREASING

U.S. single-borrower CMBS issuance volumes have been rising over the past few years and will likely continue to in 2015, according to a Standard & Poor’s (“S&P”) research report. During the first-quarter of 2015, issuance volume was $12 billion, and is on pace to exceed 2014's full-year total of $26 billion. In addition, single-borrower offerings accounted for roughly 46 percent of CMBS market issuance through the first quarter, up from just under 30 percent in both 2013 and 2014. The higher volume resulted from several factors, including investor demand, the ability of CMBS originators to partner up more efficiently to compete with balance sheet lenders for loan assignments, relatively lower conduit CMBS deal sizes, and higher overall commercial real estate transaction volumes and prices, according to S&P. At the same time, the average loan-to-value ratio has increased in recent years, from 66 percent in 2012 to 86 percent in the first quarter of 2015, according to the report.

 
 
CMBS DELINQUENCIES DROP 

Delinquencies on CMBS loans fell across major property sectors by 17 basis points in May to 5.4 percent, according to an article in National Real Estate Investor. CMBS delinquencies fell the most in the hotel sector by 38 basis points, to 3.8 percent. Monthly CMBS issuance also increased in May compared to the previous year, totaling $7.7 billion. “The new issue pipeline is back in full swing,” said Meghan C. Kelleher of J.P. Morgan.

 
 
FITCH RATINGS NOTES IMPROVEMENTS, BUT ROOM FOR FURTHER GAINS IN RMBS RECOVERY

While the last two quarters have seen 25 RMBS deals—the greatest number over the same time frame post-crisis—Fitch Ratings notes that “issuance will remain limited and sensitive to interest rate movement.” According to a press release last week, Fitch Ratings Virtual Investor Meeting found that “despite notable sector-wide improvements” it is too early to say that the RMBS market has moved more towards a full recovery. The Fitch report sites improvements in loan-level disclosures and representation and warranties for gains in investor confidence and notes that inclusion of a deal manager may be another means of helping to align issuer and investor interests.

SFIG works to address many of the RMBS structural impediments through the RMBS 3.0 Task Force. To join the task force, email Mary.Robinson@sfindustry.org.

 
 
UPCOMING EVENTS IN WASHINGTON
HOUSE FINANCIAL SERVICES FULL COMMITTEE HEARING ENTITLED: “THE FUTURE OF HOUSING IN AMERICA: OVERSIGHT OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT”
THURSDAY, June 11, 2015
10:00 a.m. (ET)
2128 Rayburn House Office Building
 
 
HOUSE FINANCIAL SERVICES SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT HEARING ENTITLED: “EXAMINING LEGISLATIVE PROPOSALS TO PRESERVE CONSUMER CHOICE AND FINANCIAL INDEPENDENCE”
THURSDAY, June 11, 2015
2:00 p.m. (ET)
2128 Rayburn House Office Building
 
 
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

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson Policy Manager

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Daniel Tees Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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