March 11, 2015 Newsletter
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March 11, 2015

SFIG News 

Issue Spotlight

SFIG Calendar

Advocacy Outlook

Recent Developments


On Tuesday, SFIG staff and members of the High Quality Securitization (“HQS”) Task Force met with officials at the Federal Reserve Board (“FRB”) and Office of the Comptroller of the Currency (“OCC”) to discuss the implications of recent proposals by European and international policymakers to develop an HQS framework.

For questions about the meeting, please contact Members interested in contributing to SFIG’s advocacy on HQS, including its response to the European Commission’s ongoing consultation, should contact

By Alyssa Acevedo, SFIG Policy Analyst

In light of an SFIG delegation attending the Annual Conference of the Chinese Securitization Forum, taking place March 23rd through March 25th at the Crowne Plaza in Beijing, we thought it would be appropriate to provide a 2015 Chinese market outlook. This Issue Spotlight extracts relevant information from several recently released Moody’s reports.

Last month, Moody’s announced that the outlook for China’s securitization market was “robust, given the authorities' initiatives to develop the country's capital markets, as exemplified in the recent raft of reforms, the market's expansion and associated regulatory developments.”

China restarted its ABS program in 2012, gradually increasing its size, with most of the ABS backed by banking loans. "As the world's second largest economy and the largest auto market, [Collateralized Loan Obligations] (“CLOs”) backed by corporate loans to large and small enterprises as well as auto ABS will continue to dominate China's fledging securitization industry," said Jian Hu, Managing Director of Structured Finance at Moody’s, in May of 2014.

Since then, CLOs have expanded rapidly, composing more than 80 percent of China’s new issuance last year. Moody’s described the differences in Chinese CLOs versus U.S. CLOs in a recent report and indicated “future growth will depend largely on increasing Chinese loan market transparency and liquidity and awareness of the significant differences between Chinese and U.S. CLOs.”

In their “2015 Outlook – Asia (Ex-Japan) Securitization and Covered Bonds” report, Moody’s details how credit quality will remain strong overall, despite rising rates in some markets. Please see an excerpt from this report below.

Existing auto ABS pool performance will remain strong: [As of November 18, 2014,] a total of eight auto ABS transactions [had] been issued in China so far in 2014. Of these eight, five were sponsored by the captive finance companies of the major global auto manufacturers; two were by captive finance companies that are jointly-owned by local and overseas interests; and one was by China Merchant Bank (Baa1 stable). The loans in these Chinese auto ABS transactions have very low delinquency and charge-off rates, although [Moody’s] expect(s) them to increase slightly in 2015 for the reasons explained above.

More auto ABS transactions will be issued: [Moody’s] believe(s) more auto ABS transactions will be issued in 2015 to satisfy the growing funding needs of auto loan lenders in China’s fast-growing car market.

Car sales in China are growing by around 8% a year, and are expected to exceed 20 million units in 2014. In line with this trend, the auto loan penetration rate is gradually increasing. Key loan originators are banks and captive finance companies of auto manufacturers.

In 2015, [Moody’s] expect(s) new transactions will have larger securitized portfolio sizes with greater numbers of loans than existing transactions. Most of the deals issued in 2014 had portfolios worth around RMB800 million, representing a very small percentage of their originators’ total assets. As such, larger portfolios with greater portfolio amounts will be more cost effective for originators.

[Moody’s] also expect(s) new transactions to have slightly longer portfolio lives than is the case for existing transactions, thereby extending investors’ exposure to performance and operational risks over a longer period. [Moody’s] expect(s) quicker execution of new transactions, following the successful issuance in 2014. As a result, the securitized portfolios will have longer remaining tenors at closing. Originators have an incentive to securitize longer-tenor loans so that they can amortize the transaction costs over a longer period. Auto loans in China usually have two-to-five-year maturity periods. The weighted average original tenor of the securitized pools in 2014 ranged from about 30 months to 47 months, while their weighted average remaining tenor ranged from 15 months to 28 months.

Issuance will continue to grow: As China continues to search for alternative financing channels to fund its business growth, CLO issuance will remain robust in 2015. CLOs were the leading securitization asset class in China in 2014.

China CLO transactions are all local issuances, targeting domestic investors. Banks are sponsoring CLOs mainly for balance sheet management, including off-balance sheet treatment, and to rebalance their credit risk exposure. Although the banks do not heavily rely on CLOs for funding, they do offer an alternative funding source for the banking system.

Thank you to Jian Hu, Managing Director of Structured Finance at Moody’s, for his insight and contribution to this week’s Issue Spotlight.

THURSDAY, March 12, 2015
10:00 a.m. – 11:00 a.m. (EST)
THURSDAY, March 12, 2015
2:00 p.m. – 3:00 p.m. (EST)
THURSDAY, March 12, 2015
1:30 p.m. – 2:30 p.m. (EST)
THURSDAY, March 12, 2015
383 Madison Avenue
New York City, NY 10017
Richard Johns will be speaking on the “Housing Reform: Bringing private capital back to the mortgage market” panel.
FRIDAY, March 13, 2015
1:30 p.m. – 2:30 p.m. (EST)
Please note: This is a closed meeting.
MONDAY, March 16, 2015
11:00 a.m. – 12:00 p.m. (EST)
WEDNESDAY, March 18, 2015
10:00 a.m. – 11:00 a.m. (EST)
WEDNESDAY, March 18, 2015
12:00 p.m. – 5:00 p.m. (EST)
New York, NY
Please note: This is a closed meeting.
WEDNESDAY, March 18, 2015
2:00 p.m. – 3:00 p.m. (EST)
THURSDAY, March 19, 2015
3:00 p.m. – 4:00 p.m. (EST)
MONDAY, March 23, 2015 – WEDNESDAY, March 25, 2015
Crowne Plaza Beijing Lido
Beijing, China
Registration available here.
TUESDAY, March 24, 2015
11:00 a.m. – 12:00 p.m. (EST)
WEDNESDAY, March 25, 2015
11:00 a.m.—12:00 p.m. (EST)
THURSDAY, March 26, 2015
2:00 p.m.--3:00 p.m. (EST)
WEDNESDAY, April 8, 2015
10:00 a.m. – 4:00 p.m. (EST)
Willard InterContinental
Washington, D.C.

If you would like to participate in the work SFIG is undertaking through our committees as highlighted below, please e-mail 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

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

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 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 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 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

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

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

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

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 2014, 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

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

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

The High Quality Securitization Task Force submitted a response 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. The HQS Task Force is currently developing a response to the European Commission’s related proposal, announced in conjunction with its plans for a capital markets union. To join the High Quality Securitization Task Force, please contact


A plan by the Basel Committee on Banking Supervision (“BCBS”) to stiffen capital rules for asset-backed securities held in the trading book could result in banks being priced out of the European market. A recent story in Bloomberg cites a letter by the Joint Trade Associations, including SFIG, which argues that the ongoing fundamental review of the trading book by BCBS could “lead to a total capital charge which is significantly larger than the maximum possible loss” for securitizations. The standards could undermine any economic benefit of Mario Draghi’s ongoing asset purchasing program meant to revive sales of ABS in Europe, which plummeted to 180 billion euros in 2013 from its peak of 819 billion in 2009 according to the article.

The comment letter cited by Bloomberg responds to the BCBS’ consultation on standards for exposures that banks intend to hold to maturity, while the latest consultation on its trading-book rules looks at ABS that banks intend to trade. The draft proposal, which drew in comments from banks and industry groups around the world, include overhauling technical standards for how banks should measure risk and tougher rules on how lenders transfer assets between their banking and trading books. Banks would be banned under the proposal from using internal models to measure risk and instead have to use the standardized approach designed by regulators. One bank cited by Bloomberg argued the draft risk-measurement standards “overstate the underlying level of risk” and as a result “the inventory of certain business lines, such as corporate bond credit flow desks, may become uneconomic.”


Since the beginning of the year, issuance of European asset-backed securities (“ABS”) has been an average of less than $1 billion per week, according to a recent article in Reuters. This has been the slowest start for European ABS in six years.

Many recent consultations (all of which SFIG commented on or is currently commenting on) have sought to revive the securitization market, including those from the Basel Committee, the European Banking Authority, the Bank of England in conjunction with the European Central Bank (“ECB”), and the European Commission’s Capital Markets Union.

As previously reported by SFIG, the ECB launched its ABS pilot program (“ABSPP”) at the end of last year in an effort to encourage banks to lend and revive the economy. However, only two auto ABS deals have qualified so far for its ABSPP and the majority of the issuance is from the United Kingdom, which does not participate in the program. Thus far, Europe’s economy has not generated enough demand for loans to support an increase in issuance, according to the article.

Many in the industry believe that a reduction in capital requirements, more clarity and easing of risk transfer rules would help increase demand and, in turn, revive the European ABS market.


Last week, Federal Housing Finance Agency (“FHFA”) Director Mel Watt outlined his 2015 strategy for the agency’s Single Security initiative. Important to SFIG members, the FHFA plans to gather more feedback from the industry, and release further details in the second quarter. Director Watt stated:

In the feedback we received in response to our Request for Input and in our conversations with stakeholders, we heard the strong message that additional information and greater clarity is needed about security features and disclosure standards, about transitioning legacy securities to the Single Security, about the counterparty status of commingled re-securitizations, and about a range of other potential issues. We heard these concerns, and we will provide more details in an update report that we expect to release in the second quarter of 2015.

The FHFA will also gather feedback and input from market participants about how to implement the Single Security, which is expected to be a focus for Fannie Mae and Freddie Mac in the second half of 2015. To view SFIG’s response to the FHFA’s request for input on its Single Security Initiative, please click here. To view SFIG’s response to the FHFA’s strategic plan, please click here.  


Dr. Michael Stegman, Counselor to the Treasury Secretary for Housing Finance Policy, discussed government-sponsored enterprise (“GSE”) reform. While Dr. Stegman stated that the Administration believes that Congressional action is needed to reform the GSEs, he focused the majority of his comments on the Federal Housing Finance Agency’s (“FHFA’s”) efforts to make administrative changes in the absence of legislation. Dr. Stegman stated:

We believe that significant progress can be, and is being made, prior to legislation, to help move the housing finance system towards a more sustainable future. While this progress is not a substitute for legislative reform, it can, over time, reduce the challenges to achieving a desired legislative outcome that puts in place a durable and fair housing finance system by advancing us down the path of transition.

Important to SFIG’s members, Dr. Stegman highlighted the following actions being undertaken by the FHFA:

  • Private Capital: The Administration believes that a sustainable housing finance system must have private capital at its core, and will continue to transfer both legacy and new origination credit risk from the GSEs to private market participants.
  • Common Securitization Platform (“CSP”): In the near-term, the CSP will be narrowly focused on the guaranteed loan market.  However, the Administration supports the ability of the CSP to accommodate non-GSE users in the long term.

“The nation’s housing finance system is too critical to remain in a state of limbo without a clear, legislated vision for the future. However, the activities I outlined today are representative of the progress that can be made without legislation,” stated Dr. Stegman.  

To view SFIG’s positions on development of the CSP, please click here. To view SFIG’s response to the Treasury on the private-label securitization market, please click here


As the price of oil continues to fall, an estimated $16 billion in securitized commercial real estate debt is in danger of default, according to estimates by Nomura Holdings, Inc. and cited by Bloomberg News. The drop in crude prices may drive out oil workers that flocked to areas such as Williston, North Dakota, that experienced rapid increases in apartment and mobile home development. Increasing vacancies in commercial residential properties are likely to expose weaknesses in the underwriting standards of the loans underlying commercial mortgage backed securities (“CMBS”). One such example concerns a $20 million loan connected to two apartment complexes called the State Estate Suites in Williston that operated as long-term hotels rather than with leasing requirements. Strata Estates ceased to meet its monthly payment obligations on December 15th—a mere five months after the commercial loan was bundled and sold as part of a $1 billion CMBS offering.

Another compounding factor that may contribute to potential problems with loans issued to spur oil boom real estate developed and sold as CMBS is inflated rent. According to Bloomberg News, Moody’s reported on the related risks to CMBS buyers as early as March 2014 which noted that “valuations could implicitly assume that rents are sustainable or neglect to address the high level of volatility associated with rapid growth in small towns."


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

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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