May 28, 2014 Newsletter
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May 28, 2014
 

SFIG News

SFIG Calendar

Advocacy Outlook

Recent Developments

Upcoming Events in Washington

 
SFIG NEWS
SAVE THE DATE FOR SFIG’S FALL SYMPOSIUM
SFIG is pleased to announce its Fall Symposium on Tuesday, October 21, 2014 from 5:30 p.m. – 8:00 p.m. (EST) in New York, NY. The complimentary event will be open to SFIG members and non-members and will be followed by a cocktail reception.

Registration and agenda details will be forthcoming.

 
 
SFIG CALENDAR
PROJECT RMBS 3.0 DUE DILIGENCE, DATA AND DISCLOSURES WORKING GROUP CONFERENCE CALL (BI-WEEKLY)
WEDNESDAY, June 4, 2014
4:00 p.m. – 5:00 p.m. (EST)
 
 
PROJECT RMBS 3.0 ROLE OF THE TRUSTEE/BONDHOLDER COMMUNICATIONS WORKING GROUP CONFERENCE CALL (BI-WEEKLY)
THURSDAY, June 5, 2014
3:00 p.m. – 4:00 p.m. (EST)
 
 
PROJECT RMBS 3.0 REPRESENTATIONS, WARRANTIES, & REPURCHASE ENFORCEMENT CONFERENCE CALL (BI-WEEKLY)
THURSDAY, June 5 2014
4:00 p.m. – 5:00 p.m. (EST)
 
 
IMN 2014 GLOBAL ABS CONFERENCE
TUESDAY, June 10, 2014 – THURSDAY, June 12, 2014
Barcelona International Convention Centre
Barcelona, Spain
Registration available here
 
 
SFIG BOARD OF DIRECTORS MEETING Q2’14
TUESDAY, June 24, 2014
12:00 p.m. – 5:00 p.m. (EST)
New York, NY
Note: Closed Meeting
 
 
IMN ABS EAST 2014 CONFERENCE (SFIG-LEAD ASSOCIATION PARTNER)
SUNDAY, September 21, 2014 – TUESDAY, September 23, 2014
The Fontainebleau Hotel
Miami Beach, FL
Registration available here
 
 
SFIG FALL SYMPOSIUM
TUESDAY, October 21, 2014
5:30 p.m. – 8:00 p.m. (EST)
New York, NY
Registration and agenda will be forthcoming
 
 
SFIG & IMN ABS VEGAS 2015
SUNDAY, February 8, 2015 – WEDNESDAY, February 11, 2015
The Aria Resort and Casino
Las Vegas, NV
Registration 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.

Project RMBS 3.0 continues to work towards bringing private label securities back to the mortgage market. Working Groups conduct regular meetings via conference call to address issues specific to private label mortgage securities in the following categories: 1) Representations, Warranties and Repurchase Enforcement; 2) Due Diligence/Loan Review, Data and Disclosure; and 3) Role of Trustees and Bondholder Communications. We encourage members to participate in any or all of the Working Groups to contribute towards the mission of Project RMBS 3.0. Please contact Mary.Robinson@sfindustry.org to join a Working Group or with any additional questions on Project RMBS 3.0.

The GSE Reform Task Force recently finalized SFIG’s policy positions as they relate to the proposed Johnson-Crapo legislation for housing finance reform, which was recently approved by the Senate Committee on Banking, Housing, and Urban Affairs by a 13-9 vote. SFIG’s GSE Reform Task Force has met regularly since the bill was initially released and will reconvene in the event Senator Harry Reid brings the bill to a vote by the Senate. Until then, SFIG is currently reviewing the PATH Act in preparation for any action the House Financial Services Committee may take on housing finance reform. If you would like to learn more about SFIG’s activities with respect to GSE Reform, please contact Amanda.Bateman@sfindustry.org.

The Mortgage Loan-Level Disclosure Subcommittee has reviewed and developed additional data elements for potential disclosure. SFIG will use this work as a basis of discussions and correspondence with the Securities and Exchange Commission on the mortgage aspects of Regulation AB II. SFIG continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. Please contact Alyssa.Acevedo@sfindustry.org for additional information on SFIG’s work on this topic.

The Volcker Task Force is working with SFIG’s various asset class committees to develop potential FAQs to share with the regulatory agencies regarding the Volcker Rule. Please contact Amanda.Bateman@sfindustry.org for additional information on the Volcker Task Force.

The Risk Retention Committee is continuing to follow up with regulators on risk retention questions across asset classes. Topics under discussion include participations and representative sample approaches. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG is continuing to build membership for its Chinese Market Committee. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Alyssa.Acevedo@sfindustry.org.

SFIG has launched its initiative to provide input for the Financial Stability Board’s “Shadow Banking” project. For more information on SFIG’s work on Shadow Banking, please contact Amanda.Bateman@sfindustry.org.

The Derivatives in Securitization Task Force is developing a comment letter to advocate the need for an end-user exemption from the forthcoming reproposed margin rules for uncleared swaps entered into by special purpose vehicles (SPVs). SFIG members who are interested in participating in this initiative should email Amanda.Bateman@sfindustry.org.

 
 
RECENT DEVELOPMENTS
BANKS REACT TO BASEL TREATMENT OF MSRs, SUGGEST CHANGE IN REGULATORY APPROACH
A report recently released by the Financial Oversight Stability Council (FSOC) highlights the potential risk and increased regulatory concerns over the transfer of mortgage servicing rights (MSR) from banks to nonbanks. Members of the banking industry argue that the shift from banks to nonbank mortgage servicers is largely a result of Basel III capital requirements that would require institutions to hold more capital behind MSRs. The FSOC report highlights concern over the transfer of MSRs.

The Basel III requirements present a major change from the Basel II framework, which did not include a limitation on the amount of MSR assets that could count toward Tier 1 capital. The new rule would limit mortgage-servicing assets to 10 percent of a bank’s Tier 1 common equity and would deduct additional holdings from the Tier 1 capital account. The rules would eventually risk-weight assets under the 10 percent cap at 250 percent. Basel III rules enacted by regulators are already in effect for banks with more than 250 billion in assets, and would take effect for smaller institutions January 1st of next year.

 
 
OFFICIALS MAY DIFFER ON SIFI DESIGNATION FOR ASSET MANAGERS
As SFIG highlighted in last week’s newsletter, there is growing momentum for the idea that asset managers be categorized as “systemically important financial institutions” or SIFIs. Asset management firms have fought back against the SIFI designation, noting such a categorization is not only inappropriate given the nature of their role in intermediating credit, but also because of the significant economic impact SIFI designation can have. The Dodd-Frank Act empowered the Financial Stability Oversight Council (FSOC) to subject any nonbank financial company to stringent prudential supervision by the Federal Reserve Board (Fed) if it is found to pose a threat to the financial stability of the U.S. To date, FSOC has designated 8 financial market utilities (FMUs) and 3 insurance/capital providers as SIFIs. According to a recent report, the SIFI label can cut investor returns by 25 percent.

At the same time, BlackRock released a letter arguing that regulators should focus on systemic risk fostered by the structure of different funds rather than targeting a small group of large asset managers or a small group of large hedge funds. BlackRock’s letter came shortly after the FSOC hosted a conference on asset management and the risks associated with this form of financial intermediation. During the conference on May 19th, a top Treasury Department official, Mary Miller, claimed she was “a little bit surprised” by what she called an “overreaction to public statements made thus far”. As a former asset manager, Miller said she hoped the conference would clear up that understanding because the effort to examine the industry was Congress’ intent in creating the FSOC. 

Mary Jo White, Chair of the SEC, on the other hand, does not believe that the industry is overreacting, and has argued that unlike banks, money managers do not accumulate large risky positions on their own balance sheet. She also states that banking regulators constitute a plurality on the oversight council, while the SEC is better equipped to oversee the markets for stocks and bonds.

White has yet to indicate how she would vote on designating either of the two aforementioned firms as SIFIs were a vote to be held. Given FSOC’s composition as a 10-person board, it will not only be significant how she votes, but whether the 9 other members of the board agree with her assessment.

 
 
OBAMA NOMINATES SAN ANTONIO MAYOR TO LEAD HUD
On Friday, President Obama stated his intention to nominate San Antonio Mayor, Julian Castro, to be the next Secretary of the Department of Housing and Urban Development (HUD). This nomination will allow the current HUD Secretary, Shaun Donovan, to transfer over to the White House Office of Management and Budget. During his announcement, the President credited Castro with revitalizing San Antonio with his creation of thousands of housing units downtown and attracting hundreds of millions of dollars of investment.

"He has built relationships with mayors all across the country and has become a leader in housing and economic development," Obama said.

Industry groups have also praised Donovan, highlighting how he worked closely with them on some tough issues, such as getting banking regulators to agree on a workable qualified residential mortgage rule that would govern the issuance of private label mortgage securities.

There is the hope, among Democrats, that Castro will focus on affordable housing and making mortgage-credit more readily available to first-time homebuyers.

 
 
HENSARLING LETTER TO REGULATORS REGARDING REPUTATIONAL RISK
House Financial Services Committee Chairman, Jeb Hensarling (R-TX), is challenging the idea that regulators should restrict banks’ activities based upon the use of “reputational risk” for prudential supervision. In his letters to the federal regulators last Thursday, Hensarling highlighted that reputational risk is a “vague, subjective and unquantifiable” indicator and that it would be “an abuse of regulatory discretion” to use reputational risk in order to justify an outcome that could not otherwise be justified using objective criteria.

Hensarling’s letters were sent to Federal Reserve Board Chair Janet Yellen, Comptroller of the Currency Thomas Curry, Federal Deposit Insurance Corporation Chairman, Martin Gruenberg, and National Credit Union Administration Chairman, Debbie Matz. The letters also come in the midst of a controversial Department of Justice investigation in which regulators may be restricting certain businesses access to the payment system.

Hensarling states that reputation risk "could ostensibly be evoked to compel a depository institution to sever a customer relationship with a small business operating in accordance with all applicable laws and regulations but whose industry is deemed ‘reputationally risky' for no other reason than that it has been the subject of unflattering press coverage, or that certain executive branch agencies disapprove of its business model."

The Congressman is also asking the four agencies to respond to a series of questions about how they use the concept of reputational risk in their supervision of banks.

 
 
S&P ANALYSIS: WHAT IS HOLDING BACK EUROPEAN SECURITIZATION ISSUANCE
On May 20th, Standard and Poor’s (S&P) Credit Research released a paper analyzing why European securitization issuance is significantly down as compared to levels seen prior to the financial crisis. “Annual issuance has ranged between €60 billion and €80 billion since 2010 – down from a high of about €500 billion in 2006,” states S&P. “In our view, it is the wider macroeconomic and banking system backdrop that has held back issuance volumes in recent years, rather than any specific securitization industry issues. We include ongoing economic weakness, low underlying credit origination volumes, bank balance sheet retrenchment, and plentiful cheap alternative funding sources.”

At the same time, S&P notes that both the European Central Bank (ECB) and the Bank of England recently released a paper suggesting that the proposed regulatory changes for asset backed securities (ABS) may provide a roadblock for the return of securitization lending. “We agree with the ECB's and the Bank of England's conclusion that these changes are a roadblock to the future growth of securitization volumes. In fact, in our view, these pending regulatory changes are by far the largest structural threat to the future of the European securitization market, as they could deter banks and insurers from holding such securities, potentially switching off demand from a large portion of the investor base. That said, there might still be some scope for changes as the regulatory texts become reflected in law. For example, the European Commission is working to define what it considers to be "high quality" securitization, and could make some of the rules more lenient for these types of transactions,” stated S&P.

 
 
CFPB REPORT CALLS ATTENTION TO SYSTEMIC PROBLEMS AT NONBANKS
The Consumer Financial Protection Bureau (CFPB) recently concluded that some nonbanks are exhibiting “systemic flaws in their compliance management systems” with respect to debt collection and resolving consumer disputes. In its Supervisory Highlights released on May 22nd, the CFPB reported on the problems and violations identified by the agency between November 2013 and this February while examining payday lenders, debt collectors and consumer reporting agencies. The report found that some payday lenders were illegally threatening lawsuits, harassing borrowers, or getting a third party to do the same. Some debt collectors were accused of similar practices, as well as a) failing to investigate disputes and b) going beyond federal parameters for how many times and when they could call a debtor. Examiners also focused on the absence of good consumer management systems with respect to consumer reporting agencies such as credit bureaus. They highlighted, for example, numerous examples of the mishandling of complaints.

According to CFPB Director Richard Cordray, “The CFPB’s oversight of banks and nonbanks alike is exposing risky practices and getting results for consumers… Our supervisory program has been able to return more than $70 million to consumers in recent months.” He added, “A conscious focus on consumer compliance management is now tending to converge across the bank/nonbank divide. And that is the right way to look at things from the consumer perspective also — it should not and typically does not matter to individual consumers whether they are being mistreated by a chartered entity such as a bank, a credit union, or a thrift, or instead by any kind of nonbank corporation, partnership, or other type of venture," Cordray said in remarks before the Federal Reserve Bank of Chicago on May 9. "Without regard to these organizational niceties, we are now in position to hold any and all of these entities accountable for their conduct that harms consumers."

The CFPB conducted more than 100 supervisory activities last year, including full-scale reviews and follow-up exams. As noted in the Supervisory Highlights report, approximately 100 such examinations will be conducted this year based on areas where it sees the greatest risks of consumer harm. CFPB has stated its hope that other financial companies will use the study and anecdotes on violations as a cautionary tale to keep their financial systems in compliance, even if they only occur at a small number of companies.

 
 
CFPB RELEASES SPRING 2014 RULMAKING AGENDA
Last Friday, the Consumer Financial Protection Bureau (CFPB) released its spring 2014 rulemaking agenda in conjunction with a broader initiative led by the Office of Management and Budget (OMB) to publish a Unified Agenda of Regulatory and Deregulatory Actions for the federal government. Federal agencies are required to publish regulatory agendas twice a year under the Regulatory Flexibility Act. The CFPB’s regulatory agenda includes rulemaking actions within the pre-rule, proposed rule, final rule, long-term actions and completed actions stages. Their agenda also focused on five main areas:
  1. Mortgages - The CFPB rulemaking agenda accounts for a number of mandates from the Dodd-Frank Act, including a focus on potential amendments to the Home Mortgage Disclosure Act and streamlining federal mortgage disclosures required under both the Truth in Lending Act and Real Estate Settlement Procedures Act.
  1. Defining Larger Participants - The agency is also continuing to implement their supervisory program for certain nonbank entities by defining “larger participants” in various markets for consumer financial products and services. The CFPB spring agenda specifically calls out identifying “larger participants” for auto lending, while it will finalize rules for participants in the international money transfer market.
  1. Debt Collection- The largest source of complaints to the federal government by consumers focuses on debt collection. As such, the CFPB will continue research and outreach to the public on data and information about debt collection. The CFPB reports that it has received over 23,000 comments on its November 2013 advance notice of proposed rulemaking on debt collection.
  1. Payday Loans and Prepaid Cards – The CFPB will consider whether rulemaking should be considered in the areas of payday and deposit advance products. The CFPB plans on building upon their previously published Advance Notice of Proposed Rulemaking concerning prepaid cards to strengthen federal consumer protections for these types of products.
  1. Privacy Disclosures - The CFPB continues to seek comments regarding ways to streamline and modernize regulations inherited from other agencies. Specifically, they are hoping to issue a proposal regarding the notices that consumers receive every year from their financial institutions to explain the companies’ information sharing practices.

The CFPB reports that they are continuing to research, analyze, and outreach on a number of other financial services markets and will update their next semi-annual agenda to reflect the results.

 
 
UPCOMING EVENTS IN WASHINGTON
SEC INVESTOR ADVISORY COMMITTEE
THURSDAY, July 10, 2014
10:00 a.m. (EST)
SEC Headquarters, 100 F Street, NE, Washington, DC
Contact: WhiteF@sec.gov
 
 

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

Sonny Abbasi Director of MBS Policy

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson Senior Policy Analyst

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration


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Washington, DC 20006

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