March 25, 2015 Newsletter
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March 25, 2015
 

SFIG News

SFIG Calendar

Advocacy Outlook

Recent Developments

Upcoming Events in Washington

 
SFIG NEWS
SFIG DELEGATION PARTICIPATES IN ANNUAL CONFERENCE OF THE CHINA SECURITIZATION FORUM

This week, a delegation consisting of several SFIG members and staff attended the 2015 Annual Conference of the China Securitization Forum (“CSF”) at the Crowne Plaza, Beijing. The conference was well attended, with over 1,500 leading market participants, and covered topics important to the rapidly growing Chinese securitization marketplace. The theme of the conference was "Global Vision and Stable Development," and SFIG served as Lead Association Sponsor.

The SFIG delegation participated in various panels and discussions, including the following highlights:

  1. Richard Johns of SFIG gave the final day’s keynote address, covering the application of securitization to funding the real economy, key considerations in building new market liquidity, and the need for responsible and effective regulations.

  2. Reggie Imamura of PNC moderated a panel discussion entitled: “The Importance of Securitization Finance in the Real Economy.” Panel participants included: Li Ren of Orient Securities Asset Management, Richard Mertl of Shulte Roth & Zabel, Elen Callahan of Deutsche Bank, and Addison Everett of PricewaterhouseCoopers.

  3. Jason Kravitt of Mayer Brown spoke on an ABS 101 session entitled: “US Securitization Structures: An overview of the structural features, transaction counterparties and transaction documents that go into a plain vanilla US securitization deal.” He also moderated a panel discussion entitled: “Cross-border deals and international experience - U.S. Regulatory Reform: Lessons Learned for the Chinese Markets.” Panel participants included Sairah Burki of SFIG, Howard Kaplan of Deloitte & Touche LLP, Catherine McCarihan of Bank of America, Sam Pilcer of Credit Agricole CIB, and Ann Rutledge of R&R Consulting.

  4. Ted Breck of Bank of America gave a presentation entitled: “Key Components to Ensuring a New Market has Liquidity.”

In addition, SFIG helped in presenting various Chinese industry awards.

Yanxiu Wang (left), Director-General of the Innovation Regulatory Department at the China Banking Regulatory Commission, and Reggie Imamura (right), SFIG Chairman, present an award to Alexander Batchvarov, Managing Director at Bank of America Merrill Lynch.

SFIG and CSF also signed a memorandum of strategic cooperation last year, agreeing to promote comprehensive cooperation between Chinese and U.S. securitization markets, including organizing delegations to attend one another's annual conferences.

Throughout the conference, SFIG had several important regulatory meetings, including State Administration of Foreign Exchange, People’s Bank of China, Chinabond/Credit Asset Registration & Trading Center, National Association of Financial Market Institutional Investors, and Asset Management Association of China.

For questions regarding the conference, please contact Sairah.Burki@sfindustry.org. To join SFIG's Chinese Market Committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
SPRING SYMPOSIUM DETAILS ANNOUNCED

SFIG will hold its Spring Symposium, followed by a cocktail reception, on Wednesday, May 13, 2015. The event will be hosted by Wells Fargo at their Charlotte, NC office. The symposium will focus on High Quality Securitization and Derivatives, with a focus on the impending margin requirements for uncleared swaps final rulemaking. The full agenda and details will be forthcoming.

The event is open to both members and non-members, and is complimentary to attend. Please note, this event is closed to the press. Please click here to register. 

 
 
REMINDER TO SUBMIT YOUR 2015 SFIG BOARD OF DIRECTORS NOMINATIONS!

SFIG is accepting nominations for its Board of Directors in anticipation of the June 2015 Board rotations. Eligibility for a position on the SFIG Board of Directors is limited to individuals associated with SFIG’s primary members. Members may nominate themselves or another qualified industry participant.

SFIG’s Nominating Committee will review nomination submissions, consult with members and make recommendations to the current Board of Directors. The Nominating Committee is dedicated to selecting a balanced Board of Directors that is reflective of the membership and the industry at large, and is committed to working hard and advancing the principles of SFIG.

Board of Director terms are for two years. Nominations for the Board of Directors will be accepted until April 30, 2015.

If you have any questions or require any clarification around the nominating process, please email committees@sfindustry.org.

Click here to submit your nominations. Please note that the nomination form is open to registered members only. Members that have not yet registered can do so here.

 
 
SFIG CALENDAR
BIWEEKLY RESIDENTIAL MORTGAGE COMMITTEE CALL
THURSDAY, March 26, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
BIWEEKLY REGULATION AB II COMMENT LETTER CALL
WEDNESDAY, April 1, 2015
10:00 a.m. – 11:00 a.m. (ET)
 
 
BIWEEKLY AUTO ISSUER COMMITTEE CALL
WEDNESDAY, April 1, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
BIWEEKLY CREDIT CARD ISSUER COMMITTEE CALL
THURSDAY, April 2, 2015
10:00 a.m. – 11:00 p.m. (ET)
 
 
BIWEEKLY NRSRO DUE DILIGENCE INDUSTRY GUIDE WORKING GROUP CALL
THURSDAY, April 2, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
WEEKLY INVESTOR COMMITTEE CALL
FRIDAY, April 3, 2015
1:30 p.m. – 2:00 p.m. (ET)
Please note: This is a closed meeting.
 
 
ANDREW DAVIDSON & CO. ROUNDTABLE: SIMPLIFYING GSE REFORM
WEDNESDAY, April 8, 2015
10:00 a.m. – 4:00 p.m. (ET)
Willard InterContinental
Washington, D.C.
Richard Johns will participate in the roundtable discussion.
Please note: This event is invitation only.
 
 
RMBS 3.0 REPRESENTATIONS, WARRANTIES AND REPURCHASE ENFORCEMENT WORKING GROUP IN-PERSON MEETING
WEDNESDAY, April 15, 2015
9:00 a.m. – 5:00 p.m. (ET)
Mayer Brown LLP
1221 Avenue of the Americas
New York, NY
 
 
RMBS 3.0 ROLE OF TRANSACTION PARTIES & BONDHOLDER COMMUNICATION WORKING GROUP IN-PERSON MEETING
THURSDAY, April 16, 2015
9:00 a.m. – 5:00 p.m. (ET)
Seward & Kissel LLP
One Battery Park Plaza
New York, NY
 
 
2015 SFIG SPRING SYMPOSIUM
WEDNESDAY, May 13, 2015
5:00 p.m. – 8:00 p.m. (ET)
Wells Fargo
301 South College Street
Charlotte, NC 28202
The full agenda and details will be forthcoming.
To register, please click here. Please note, this event is closed to the press.
 
 
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 recently met to discuss the Carney-Delaney-Himes GSE Reform bill and will update its briefing book on the legislation to support its advocacy efforts. Upon its release, SFIG provided an in-depth analysis of the bill and updated its GSE Reform Legislative Comparison, which analyzes key provisions in the five most recent housing finance reform bills including the Johnson-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 (“FHFA”) on several fronts, with comments submitted on its 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 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. This week, an SFIG delegation, including one of the committee’s co-chairs, Catherine McCarihan, are attending the 2015 Annual Conference of the China Securitization Forum. 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 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 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. (ET) 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 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 Amanda.Bateman@sfindustry.org.

 
 
INDUSTRY NEWS HIGHLIGHTS
CHINESE REFORMS EXPECTED TO MAKE WAY FOR SECURITIZATION

Chinese Premier Li Keqiang announced earlier this month that Chinese authorities will be promoting credit asset securitization as part of their broader financial reforms, according to a recent Global Times article. This has encouraged those within the market that securitization will serve as an excellent source of opportunity in the near future.

Premier Kequiang stated in his report:

[Authorities] will strengthen the multilevel capital market and implement the reform to introduce a system of registration for issuing stocks. We will develop regional equity markets to serve small and medium-sized enterprises, carry out trials of equity crowdfunding, encourage the securitization of credit assets, prompt an expansion of the issuance of corporate bonds, and develop the financial derivatives market. We will launch insurance to cover major disasters and commercial pension schemes that allow for deferred payment of individual income tax.

According to recent Moody’s announcement, Chinese issuance jumped from 16 billion yuan ($2.57 billion) in 2013 to approximately 280 billion yuan ($44.77 billion) in 2014. Moody’s has also predicted that this figure could reach 500 billion yuan ($80.42 billion) in 2015.

To join SFIG's Chinese Market Committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
MOODY’S REPORT EVALUATES DIFFERENT REPRESENTATION AND WARRANTY FRAMEWORKS

As SFIG members continue to work towards achieving improved alignment of interest in the residential mortgage-backed securities (“RMBS”) market, a report from Moody’s Investors Services highlights the strengths and weaknesses of two predominant post-crisis representation and warranty frameworks. According to the report, cited by Housing Wire, transactions with open-ended loan reviews can be effective at identifying potential representation and warranty breaches if there is a controlling holder conducting the review.

Alternatively, a prescriptive representations and warranties framework that establishes clear pass/fail tests that ensure each loans receives the same review to identify potential breaches. According to Yehudah Forster, Moody’s Vice President and Senior Credit Officer, “Prescriptive frameworks are more transparent and don’t rely on a reviewer to decide what elements to examine. As a result, there is a lower likelihood of a misalignment of interests.” This framework may also reduce the need for arbitration and accordingly remediating breaches may be less costly. On the other hand, the clearly defined boundaries of the loan review may create the risk that elements of certain representations and warranties are not covered and related breaches are not caught.

To learn more about the work being undertaken by SFIG’s RMBS 3.0 Representations, Warranties, and Repurchase Enforcement Working Group, please email Mary.Robinson@sfindustry.org.

 
 
HOW FOREIGNERS BECAME AMERICA’S FINANCIAL REGULATORS

In an editorial published last week by the Wall Street Journal, U.S. Securities Exchange Commission (“SEC”) Commissioner Daniel Gallagher and Peter Wallison of the American Enterprise Institute discussed their concerns with policies adopted by the Financial Stability Board (“FSB”) that could change the U.S. financial system.

The authors highlight this importance of the FSB’s 2013 declaration that any financial intermediary not regulated as a bank is part of the “shadow banking system” and therefore warrants prudential regulation. The authors point out that the Treasury Department, Federal Reserve Board and SEC have all concurred with this analysis. Gallagher and Wallison argue the vague language used by the FSB to define shadow banks “suggests that routine transactions in the capital markets—like short-term financing of long-term assets—can be deemed to create systemic risks even when they are carried out by firms that are not themselves of sufficient size to threaten systemic effects.”

In a memorandum released last month, FSB Chairman Mark Carney stated that “full, consistent and prompt implementation” of its decisions by member nations “is essential to maintaining an open and resilient financial system.” Allowing the FSB’s decisions to dictate U.S. policy sets a dangerous precedent, the authors conclude.

To join SFIG's Shadow Banking Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
BOND MANAGERS TURN TO ASSET-BACKED SECURITIES AMID UNCERTAIN INTEREST RATE ENVIRONMENT

As reported in Barrons, bond fund managers faced with uncertainty on the prospect of a Federal Reserve rate hike later this year, are looking to add more short-term asset-backed securities (“ABS”) to protect returns and maintain attractive portfolios. An analyst from Moody’s Investors Service highlighted current economic conditions to favor a focus on ABS, “falling prices at the pump should put more money in consumer’s pockets, better equipping them to pay off the kinds of unsecured student loans and credit card debts that are packaged into asset-backed securities.” According to the article, bond managers are specifically using credit card and auto loan asset-backed securities with a floating rate to offer a lower degree of sensitivity to changes in interest rates.

 
 
ASSET-BACKED SECURITIES IMPACTED BY DECLINING OIL PRICES

Lower prices at the pump means more money in consumers’ pockets, and positive news for several asset classes in the U.S. asset-backed securities (“ABS”) market backed by unsecured consumer receivables according to an article in HousingWire. An analyst from Moody’s Investors Service said that, “cheaper gasoline puts more money in consumers’ pockets, providing a broad, if slight, uplift to securitizations backed by unsecured consumer receivables such as student loans and credit cards.” Other asset classes that could benefit from lower fuel costs include commercial and esoteric asset-backed securities. However, lower fuel costs will have a negative effect on rail car and fleet lease ABS due to exposure to the oil industry.

 
 
FITCH REPORTS INCREASE IN 2015 U.S. CREDIT CARD ABS MATURITIES

According to a recent Fitch Ratings’ report, both the amount of maturities coming due and the rate of new deals are in line for increases for U.S. credit card asset-backed securities (“ABS”) this year.

Fitch is predicting an increase of $48 billion in credit card ABS maturities in 2015, which is approximately $7 billion more than last year. “Credit card ABS maturities will likely see a reprieve in 2016 before ramping back up towards the $45 billion range in 2017,” said Fitch Ratings’ Director Herman Poon.

In terms of new credit card ABS, the rating agency has projected roughly $50 billion will come to market, a figure that is slightly higher than levels seen in recent years. “The projected decline in maturities for 2016 could also keep the amount of new credit card ABS deals slightly lower,” said Poon. 

 
 
LENDERS CROWD INTO THE CMBS SPACE, PUTTING LOAN STANDARDS AT RISK

According to an article by National Real Estate Investor, competition for commercial mortgage-backed securities (“CMBS”) is heating up, as more lenders fight for a piece of the current pie. Even with a wave of loan maturities expected to hit the market over the next three years, many in the CMBS industry believe the number of lenders vying for business in today’s market is far too many.

CMBS issuance volumes were higher than ever in 2005, 2006, and 2007, with a peak volume of about $230 billion in 2007. Over the next three years, nearly $300 billion in conduit CMBS loan balance will mature, which is more than 2.5 times the amount that matured from 2012 to 2014, according to research firm Trepp LLC.

Lenders are bidding more aggressively for deals, which is thinning their profit margins, according to the article. Ultimately, there is only so much business to go around, and this may be a disincentive for new lenders to enter the market.

 
 
UPCOMING EVENTS IN WASHINGTON
CFTC MARKET RISK ADVISORY COMMITTEE ("MRAC") PUBLIC MEETING

THURSDAY, April 2, 2015
10:00 a.m. – 1:30 p.m. (ET)
CFTC Headquarters lobby-level Hearing Room
1155 21st St, NW, Washington, DC 20581

The MRAC will discuss issues related to: Current risk management techniques employed by Derivatives Clearing Organizations to ensure that the appropriate measures are in place to address the potential default of a significant clearing member; and the evolving structure of the derivatives markets, particularly with respect to Swap Execution Facilities.

 
 
SEC INVESTOR ADVISORY QUARTERLY MEETING
THURSDAY, April 9, 2015
9:30 a.m. – 3:30 p.m. (ET)
SEC Headquarters, Multipurpose Room,
100 F Street, NE, Washington, DC 20549
Agenda available here.
 
 
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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