June 29, 2016 Newsletter
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June 29, 2016

Industry Jobs

SFIG Calendar



Advocacy Outlook

Industry News Highlights


Yesterday, June 28th, the United States Bankruptcy Court, Southern District New York (“the Court”), issued its decision in Lehman Brothers Special Financing Inc. v. Bank of America, et al, granting the defendants’ motion to dismiss. While all of Lehman’s claims were dismissed, two points are of particular note to the defendants and the structured finance community.

First, the Court rejected the so-called “singular event” theory. One of the earlier decisions in this case held that the bankruptcy of Lehman Brothers Holding Inc., the parent, was sufficient to trigger ipso facto protection for contracts with other Lehman entities, even when those entities did not themselves file for bankruptcy protection. At the time, this theory was heavily criticized, particularly given the instability it injected into the market for structured products. The Court rejected this argument, holding that the ipso facto provisions of the Bankruptcy Code apply only once an entity files for bankruptcy protections, notwithstanding that its affiliates may have sought bankruptcy protections earlier. 

The second key aspect of the decision is its broad reading of the Bankruptcy Code safe harbors of Section 560, which protects the ability of a party to a swap agreement to exercise its contractual rights to “terminate, accelerate, and liquidate” a swap agreement. Relying on the broad reading of the safe harbors of Section 546, which protects certain transfers received by a debtor’s counterparty prior to bankruptcy from avoidance, the Court held that the safe harbor of Section 560 should be interpreted broadly. In particular, the right to “liquidate” the collateral underlying the safe harbor includes within it the right for the proceeds of that collateral to be distributed. Importantly, this decision was based partly on the fact that the swap schedules in question either contained the priority of payment provision, or incorporated it expressly.

This decision will likely be appealed by Lehman to the District Court and SFIG will keep you apprised.

In December 2015, SFIG submitted an amicus brief to the Court regarding this proceeding. In January 2016, SFIG also filed a reply in support of filing its amicus brief, following Lehman’s objection to SFIG’s motion for leave to file the brief, and successfully argued the motion for leave before the Bankruptcy Court. Freshfields Bruckhaus Deringer US LLP filed the briefs and appeared for the argument on behalf of SFIG. If you are interested in joining SFIG’s Legal Counsel Committee, please contact Alyssa.Acevedo@sfindustry.org.

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Monday, June 27, 2016, the Supreme Court denied certiorari in Madden vs. Midland Funding. As a result, the Second Court's decision still stands in its covered states of New York, Vermont and Connecticut.

“The Supreme Court’s decision today not to review the Second Circuit's decision in Madden v. Midland Funding lets stand a flawed decision that ignores plain legal precedent and straightforward common sense. Delivering credit to consumers is a system that relies on clarity and predictability. The Second Circuit's decision overlooks a core legal tenet that anchors a multi-trillion dollar market and will result in significant challenges for every day consumers of credit cards, mortgages, auto loans and many other common forms of credit in the real economy. Even the Administration agreed, in its brief to the Supreme Court, that the Second Circuit had failed to apply binding legal precedent and had wrongly decided the case. By refusing to grant review now, the Supreme Court is prolonging the uncertainty over whether and when the Madden decision will be overruled or limited to its facts. The market is already moving quickly to respond to this uncertainty and evaluating or putting in motion plans that may include exiting products and markets. The end result is clear. This action will reduce the overall availability of credit to consumers, particularly low income consumers. The injection of uncertainty into the credit markets will ultimately increase the cost of credit for all and directly impact the real economy.”  - Richard Johns, Executive Director, SFIG

Last month, on May 24th, the U.S. Office of the Solicitor General filed its brief to the Supreme Court, in response to the Court’s request for the views of the United States on whether the case should be heard. The Solicitor General recommended that the petition for a writ of certiorari be denied. However, the brief indicated that the Second Circuit decision was decided incorrectly, and that under the National Bank Act an assignee of a loan from a national bank can continue to charge the interest rate on the loan.

The Supreme Court's denial of certiorari has far reaching implications for the securitization of consumer loans, especially those funded through marketplace lending channels. Industry participants will need to evaluate the applicability of state usury laws for loans included in a securitization. Additionally, demand in the secondary market for marketplace loans above state interest rate caps in the Second Circuit is expected to remain modest given potential legal risks.

SFIG previously submitted an amicus curiae brief in support of the petitioners in the case.

If you are interested in learning more about SFIG’s advocacy on this matter, or if you would like to join the Marketplace Lending Committee, please contact Jennifer.Wolfe@sfindustry.org or Alyssa.Acevedo@sfindustry.org.

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Get your shades and straw boaters, ladies (and men!), and join us poolside at Eden Roc for SFIG’s WiS event at ABS East…the MIAMI REGATTA!!!

This promises to be an afternoon of great networking and lots of fun in the sun, including “competitive” boat races up and down the pool and many other “garden” games.

Save the date now. More details and race sign-up sheets will be coming to you shortly. Open to ladies and gentlemen.

SUNDAY, September 18, 2016
3:00 p.m. – 5:00 p.m. (ET)
Eden Roc Hotel, Ocean Garden
Miami Beach, FL

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Fitch Ratings has determined that the proposed representations and warranties included in SFIG’s RMBS 3.0 Third Edition Green Papers would be an improvement to current practices if accepted by the U.S. RMBS market, according to a recent press release. As reported by SFIG last November, the latest edition of the Green Papers series included the addition of 39 model representations and warranties, as well as a range of proposed standardized constructs. That release completed the full framework of 47 representations and warranties.

According to Fitch:

After completing a comparison of the language in each proposed variation to the reps listed in Fitch's current criteria, Fitch views all proposed categories for every rep as consistent with its criteria or credit positive. A notable proposed improvement is fewer 'knowledge' qualifiers, which Fitch believes will result in a stronger R&W framework. Fitch recognizes that the presence of a knowledge "clawback" is a potential mitigant for a knowledge qualifier.

Fitch has indicated it does not plan to revise its existing criteria per its U.S. RMBS Master Rating Criteria until SFIG’s framework becomes more widely adopted, but would deem it acceptable if the proposed reps were included in a transaction.

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SFIG Positions

With SFIG continuing to expand its reach across new conferences and additional policy challenges, we are looking for additional talent.

If you are smart, hard-working, enthusiastic, and want to be part of a growing organization in a fun and supportive environment, please contact us at jobs@sfindustry.org or visit our website at www.sfindustry.org/jobs.

Opportunities exist for a variety of experience sets, ranging from Policy Analyst to Advocacy Manager. We look forward to hearing from you!

Industry Positions

Some of the latest industry positions available include:

Senior Manager, Securitization Platform: Liquidity and Funding Manager – 126543BR TD Bank 06-24-2016
Principal - Structured Product Group (RMBS) PGIM 05-04-2016
Director/Senior Director - Data and Operations Leader Fitch Ratings 05-03-2016
Director/Senior Director - Research and Criteria Leader Fitch Ratings 05-03-2016
Director/Senior Director - Asset Manager Leader Fitch Ratings 05-03-2016

Please visit our Jobs page for a full listing of available positions.

For questions about positions at SFIG, please contact Jobs@sfindustry.org. For questions about the website jobs portal, please contact Website@sfindustry.org.

Current members are encouraged to advertise open positions within their company on SFIG's website by filling out the form here.

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  • THURSDAY, June 30, 2016
    10:00 a.m. – 11:00 a.m. (ET)
  • THURSDAY, July 7, 2016
    10:00 a.m. – 11:00 a.m. (ET)

THURSDAY, June 30, 2016
2:00 p.m. – 3:00 p.m. (ET)


WEDNESDAY, July 6, 2016
9:00 a.m. – 10:00 a.m. (ET)


WEDNESDAY, July 13, 2016
2:00 p.m. – 3:00 p.m. (ET)

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MONDAY, August 1, 2016 – FRIDAY, August 5, 2016
Registration forthcoming

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SUNDAY, September 18, 2016
3:00 p.m. – 5:00 p.m. (ET)
Eden Roc Hotel, Ocean Garden
Miami Beach, FL

Registration forthcoming

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SUNDAY, September 18, 2016 – TUESDAY, September 20, 2016
The Fontainebleau
Miami Beach, FL
Registration available here.

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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.

SFIG’s Marketplace Lending Committee was established in August 2015, as an SFIG participant committee and is open to all SFIG members who have a legitimate interest in marketplace lending. The committee was formed with two primary intentions: 1) to work with members involved in marketplace lending to educate the industry as a whole, with a particular focus on the securitization of assets generated through that lending channel; and 2) to determine appropriate securitization-specific policy and engage in related advocacy, leveraging SFIG’s prominence and experience across all asset classes to support the continued responsible growth of securitization in marketplace lending.

The committee recently launched its “Best Practices” initiative to establish industry consensus and provide recommendations around one or multiple accepted approaches. The five established Best Practices work streams are 1) Data & Reporting 2) Representations & Warranties 3) Regulatory 4) Operational Considerations and 5) Enforcement.

The committee previously commented on the Treasury Department's Request for Input on Online Marketplace Lending on September 30th.

SFIG’s Student Loan Committee responded to Fitch’s proposed amendments to FFELP student loan ABS rating methodology earlier this year. The committee also submitted a response to the Proposed Changes to Moody’s Approach to Rating Securities Backed by FFELP Student Loans this past October.

To join SFIG’s Student Loan Committee and learn more, please contact Alyssa.Acevedo@sfindustry.org.

The RMBS 3.0 Task Force released its Third Edition RMBS 3.0 Green Papers in November 2015. The task force has continued 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; 3) Role of Transaction Parties; and 4) 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 its 2016 agenda, the task force will address topics including the inclusion of an independent Deal Agent in transactions, Bondholder Communications, Data and Loan-Level Disclosure, Repurchase Enforcement, and Settlements, as well as undertake a review of the previously published Green Papers.

For additional information on RMBS 3.0, please contact Amanda.Bateman@sfindustry.org.

SFIG, through its GSE Reform Task Force, along with several other trade associations, recently met with the FHFA, Fannie Mae and Freddie Mac to get an update on the transition to a Single Security issuance. The transition was characterized as moving ahead on schedule but with a lot of work still to do. The task force has formed policy positions on the Carney-Delaney-Himes GSE Reform bill, the PATH Act, and other GSE reform proposals. Please see the GSE Reform Legislative Comparison, which analyzes key provisions in the five most recent housing finance reform bills.

To join SFIG’s GSE Reform Task Force and learn more, please contact Amanda.Bateman@sfindustry.org.

The Mortgage Loan Level Disclosure Task Force will soon begin its review of the Mortgage Industry Standards Maintenance Organization’s (“MISMO”) work to map the data elements that lenders should deliver in securitizations per the recent Regulation AB II release of Schedule AL. The requirements will come into effect in November 2016, and SFIG has participated in weekly conference calls with MISMO for the last 18 months in an effort to standardize disclosure by that time. SFIG encourages subject-matter experts from member organizations to participate in its review—which will be conducted jointly by this task force and the RMBS 3.0 Due Diligence, Data and Disclosure Working Group—so the work can be adopted as an industry-wide standard.

Members interested in participating should contact Amanda.Bateman@sfindustry.org.

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 Alyssa.Acevedo@sfindustry.org to participate on the Task Force.

The Risk Retention Industry Guide Working Group launched its interim Industry Guide, ahead of the RMBS compliance date, focused on issues either relevant to all asset classes or specific to RMBS. The Working Group continues to work on a final guide focused on 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 completed their White Paper, A Comprehensive Guide to U.S. Securitization, in April for Chinese regulators and the Chinese Securitization Forum to educate them on the U.S. securitization landscape. The committee also continues to hold discussions with a focus on SFIG’s partnership with the CSF, 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.

The Regulation AB II Task Force has been focused on the disclosure and offering process requirements within the final rule. Asset specific work streams have been formed to develop comment letters on the outstanding proposals within the final rule and the Task Force submitted the first part of its comment letter in June of 2015. SFIG submitted a supplemental comment letter covering credit card and equipment floorplan asset classes on January 12, 2016 and another supplemental comment letter regarding asset-level information for student loans on June 15, 2016.  Future discussions across asset class committees and the Regulation AB II Task Force will focus on the remaining outstanding proposed rules, including potentially requiring issuers to provide the same disclosure for Rule 144A offerings as required for registered offerings.

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 will be developing a comment letter to the U.S. proposed net stable funding ratio (“NSFR”) requirements. The committee also recently submitted comments to the Federal Reserve Board’s (“FRB”) proposal regarding Single-Counterparty Credit Limits, and before that, submitted a response to Basel’s Consultative Document regarding Capital Treatment for STC Securitisations. The committee and will be addressing industry concerns related to the FRB’s Final Rule on the Liquidity Coverage Ratio (“LCR”). SFIG recently testified before Congress, focusing on global regulatory issues, including LCR, that affect lending across all asset classes.

To become involved in SFIG’s advocacy on the final LCR or NSFR rules, please contact Alyssa.Acevedo@sfindustry.org.

The Derivatives in Securitization Task Force 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. In October 2015, the prudential regulators approved a Joint Final Rule on Swap Margin Requirements. In November 2015, the CFTC issued their final rule regarding margin requirements for uncleared swaps for swap dealers and major swap participants.

The High Quality Securitization ("HQS”) Task Force recently submitted a response to Basel’s Consultative Document regarding Capital Treatment for STC Securitisations. The task force previously 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. SFIG recently testified before Congress, focusing on global regulatory issues, including HQS, which affect lending across all asset classes.

To join the HQS Task Force, please contact Alyssa.Acevedo@sfindustry.org.

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A new survey from Greenwich Associates has estimated that financial service firms and technology providers across the globe will spend over $1 billion in 2016 in order to bring blockchain to capital markets, according to a Bloomberg article.

Among firms that have some ongoing blockchain initiatives, 32 percent have an annual budget in excess of $5 million per year, and a further 15 percent have budgets in excess of $2 million. "Projected across the entire financial services industry, that level of spending will likely top $1 billion in 2016," Greenwich says.

Of 134 market participants interviewed by Greenwich, including executives at banks, exchanges, asset managers and blockchain technology companies, most think that blockchain technology has the potential to transform global capital markets within the next five years. Richard Johnson, Vice President for Greenwich’s Market Structure and Technology group, said the financial sector will continue putting its weight behind the technology in 2016 because "blockchain is beginning to prove itself fit for purpose in capital markets."

A majority of the study participants believe blockchain has significant potential to reduce operational costs and shorten settlement times and rank payments as the most promising area for blockchain application. In addition, they see "vested interests" in legacy technology systems as the primary obstacle hindering blockchain adoption.

If you would like to join SFIG’s Blockchain Task Force, please contact Alyssa.Acevedo@sfindustry.org.

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On Monday, June 27th, Fitch Ratings announced new loan level due diligence grading methodology including a realignment of items driving “C” and “D” grades and compliance grading for Truth in Lending Act (“TILA”) – Real Estate Settlement Procedures Act (“RESPA”) Integrated Disclosure (“TRID”) rule errors and exceptions. Fitch has requested that third party review ("TPR") firms use 'A' through 'D' grades when reporting diligence findings on credit, property, and compliance reviews for RMBS transactions. Details of the grading scale can be found in its press release.

According to the release, when reviewing loans for specifically for TRID compliance, Fitch expects TPR firms to determine whether the loans were originated and closed in compliance with TRID. TPR firms should detail their findings and assessments consistent with SFIG’s RMBS 3.0 TRID Compliance Review Scope©, published earlier this month. In its criteria update Fitch requests that TPR firms determine whether any findings are deemed more likely to carry 1) statutory damages and assignee liability or 2) assignee liability only.

The underlying premise of SFIG’s TRID documentation was to establish a best practices approach to pre-securitization testing logic that will drive the due diligence conducted by TPRs. Given the interest in this work, SFIG has subsequently made the document available for purchase by non-members, which can be ordered here.

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According to a recent Asset Securitization Report article, the recent vote by the U.K. to leave the E.U. (“Brexit”) took financial markets by surprise, prompting spikes in volatility. The article also highlighted a recent report by Bank of America Merrill Lynch, which explained “the surge in volatility and near-term market overshooting will depend on policy responses, which is likely to be mainly monetary in the U.K. and a combination of monetary and fiscal in the Eurozone.”

“Specific to U.S. CLOs, we believe a risk-off move could produce increased loan fund outflows, leading to lower loan prices. We also believe the uncertainty could lead to even less new net loan issuance, if corporations postpone acquisitions, mergers and buyouts,” the report stated. It goes on to explain, “increased quantitative easing efforts may drive increased demand for higher yielding assets such as AAA CLOs. Overseas investors may seek out U.S. assets, although currency fluctuations could influence Asian investors’ view of U.S. and Euro CLO purchases.”

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According to a recent article in National Mortgage News, mortgage lenders have begun to reap the benefits of the U.K.’s decision to leave the European Union, referred to as “Brexit.” The Brexit vote may have caused turmoil in other markets, but for the mortgage market, already-falling interest rates are expected to boost home purchases and refinancing. According to the article, the drop in rates comes as investors flee towards the 10-year Treasury note which serves as the benchmark for mortgage rates. This has created a “Brexit benefit” for lenders and borrowers.

10-year Treasury yields fell more than 30 basis points on Friday, June 24th, in the immediate aftermath of the vote, though it recovered about half of the drop-off by midday. "It should spur further purchase demand and strengthen the opportunity for first-time homebuyers to be able to get in," said Mark Fleming, Chief Economist of First American Financial. "First-time homebuyers are busy trying to snap up what little inventory they can find right now in the housing market and this only helps."

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According to researchers at the Urban Institute, Ginnie Mae surpassed Freddie Mac for the first time in total outstanding securities backed by single-family loans according to May issuance data. Ginnie Mae had a total outstanding balance of $1.624 trillion as of May 31st, whereas Freddie Mac had $1.623 trillion in outstanding MBS. Ginnie Mae also issued more in single family MBS than Freddie Mac in May, with the former totaling $41.6 billion compared to the latter’s $29.9 billion issuance. According to an American Banker article on the matter, Freddie Mac participation certificate issuance has been declining since 2010, while Ginnie Mae issuance has been rising since mid-2008.

According to Ginnie Mae's President, Ted Tozer, “what’s most important about this milestone is not that we have passed Freddie Mac in outstanding MBS, but that Ginnie Mae’s public-private partnership model assured credit access would continue for borrowers and supported the housing recovery.”

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In a paper published today by the Milken Institute, former Federal Housing Finance Agency (“FHFA”) Director Ed DeMarco examines how the housing finance system failed in the recent crisis and reminds readers why reform is still necessary. The paper, “Why Housing Reform Still Matters”, is the first in what will be a four-part series of papers meant to help policymakers end the conservatorship of Fannie Mae and Freddie Mac (the “GSEs”) and put the housing finance system on a path that ensures stability.

According to DeMarco, “sensible reforms should seek to preserve the aspects of the old system that worked while ridding the system of its flaws.” Maintaining a liquid market for MBS, along with the ability for lenders to lock in a future mortgage rate through the TBA market, is one aspect of the housing system that should be saved according to the paper. Among the flaws that should be changed is that the GSEs need to be taken out of conservatorship to prevent a future taxpayer funded bailout. Rather than the federal government, lender-owned institutions should manage Fannie and Freddie.

Preserving a liquid TBA market, including the ability to lock in future mortgage rates, has been a tenant of SFIG’s policy position on housing finance reform. As SFIG Executive Director Richard Johns stated in his related testimony before the Senate Banking Committee, “An integral part of any reform will be to ensure the continued liquidity of the TBA Market, which is the most efficient and cheapest mechanism to enable a mortgage consumer to “lock in” the interest rate at the time when a mortgage loan is approved and thereby minimize the cost of borrowing. The TBA Market also creates efficiencies and cost savings for lenders that are passed on to borrowers in the form of lower rates.”

SFIG will continue to engage regulators and Capitol Hill on housing finance reform. For questions about this work, please contact Thomas.McCrocklin@sfindustry.org or Daniel.Goodwin@sfindustry.org. To join SFIG’s GSE Reform Task Force and contribute to its work, please contact Amanda.Bateman@sfindustry.org.

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On Thursday, June 23rd, House Financial Services Committee (“Committee”) Chairman Jeb Hensarling (R-TX) publicly released a discussion draft of the Financial CHOICE Act, the Republican plan to replace the Dodd-Frank Act and promote economic growth. According to Chairman Hensarling, “Dodd-Frank has failed. It has contributed to the slowest, smallest, weakest and worst economic recovery of our lifetimes. We must instead offer all Americans greater opportunities to raise their standards of living and achieve financial independence by replacing Dodd-Frank with real reforms that work.”

As initially reported by SFIG on June 8th, the bill aims to “end taxpayer-funded bailouts of large financial institutions; relieve banks that elect to be strongly capitalized from ‘growth-strangling regulation’ that slows the economy and harms consumers; and impose tougher penalties on those who commit fraud as well as greater accountability on Washington regulators.” The discussion draft text was accompanied with a Comprehensive Summary, which provides a detailed narrative of the legislative language.

Of particular note, the bill would repeal risk retention requirements for non-mortgage ABS, the Volcker Rule, and other sections of Dodd-Frank; repeal the Securities and Exchange Commission’s authority to both prospectively and, possibly, retroactively eliminate or restrict securities arbitration; and repeal non-material specialized disclosures.

SFIG is examining the discussion draft and will determine how to best to engage with the Committee and interested lawmakers to provide constructive feedback. For questions about SFIG’s engagement with Capitol Hill, please contact Thomas.McCrocklin@sfindustry.org.

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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 Senior Director, ABS Policy

Dan Goodwin Director, Mortgage Policy

Tom McCrocklin Director, Advocacy

Jennifer Wolfe Manager, ABS Policy

Hua Liu Communications & Social Media Manager

Alyssa Acevedo Senior Analyst, ABS Policy

Amanda Bateman Senior Analyst, MBS Policy

Jennifer Serpas Office Manager

Sarah Clarke Events Coordinator

Dani Hernandez Executive Administration

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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