May 6, 2015 Newsletter
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May 6, 2015
 

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
ABS EAST REGISTRATION AND SPONSORSHIP NOW AVAILABLE!

SFIG is excited to continue its role as Lead Association Partner of IMN's 21st Annual ABS East conference. Taking place September 16-18 at the Fontainebleau in Miami Beach, ABS East 2015 is one of the most important structured finance industry conferences, hosting a delegation of over 3,500 structured finance professionals annually. Of this total, more than 1,500 registrants represent a diverse cross section of issuers and investors in the ABS market. The program is developed by investors to ensure a timely and objective program. To register for the event, please click here. For more details on sponsorship, contact Chris Keeping at ckeeping@imn.org or 1 (212) 901-0533.

 
 
SFIG DISCUSSES HAMP WITH TREASURY

Yesterday, May 5th, SFIG staff and members of the Investor Committee met with the Department of Treasury to discuss the Making Home Affordable program. The call provided an opportunity for members of the committee to learn more about the Home Affordable Modification Program’s (“HAMP”) performance relative to non-HAMP modifications. Members also discussed Treasury’s base net present value model used by servicers participating in the HAMP program to decide whether to modify a troubled mortgage that is eligible for subsidies.

To join SFIG’s Investor Committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
A TOTAL RMBS REBOOT

The private-label residential mortgage-backed securities market has been slow to rebound, according to an article entitled A Total RMBS Reboot by Robert Stowe England. Investor confidence in RMBS has remained low since the 2007 subprime mortgage collapse. “There’s a general reluctance of investors overall to embrace any residential mortgage-backed securities that don’t have a government guarantee,” said Guy Cecala. In addition to a lack of economic incentive for banks to securitize mortgages, “the jumbo RMBS needs a higher yield to attract investors who will otherwise prefer the government-guaranteed securities.” Other factors contributing to lower investor confidence include a lack of transparency, numerous market practices and a conflict of interests.

In order to provide improvements to the integrity of information and in standardization, the Structured Finance Industry Group launched an initiative called RMBS 3.0. “There’s been significant improvement in the data integrity of information being provided for loans being securitized,” said Grant Bailey, head of RMBS at Fitch Ratings. Overall optimism about the RMBS market is increasing as the industry makes progress in addressing investor concerns with new concepts and improved transparency.

To join SFIG’s RMBS 3.0 Task Force, please contact Mary.Robinson@sfindustry.org.

 
 
SFIG CALENDAR
CHINESE MARKET COMMITTEE CALL
THURSDAY, May 7, 2015
9:00 a.m. – 10:00 a.m. (ET)
 
 
BIWEEKLY NRSRO DUE DILIGENCE INDUSTRY GUIDE CALL
THURSDAY, May 7, 2015
3:00 p.m. – 4:00 p.m. (ET)
 
 
AUTO FLOORPLAN CALL
THURSDAY, May 7, 2015
4:00 p.m. – 5:00 p.m. (ET)
 
 
INVESTOR COMMITTEE CALL
FRIDAY, May 8, 2015
1:30 p.m. – 3:00 p.m. (ET)
 
 
BIWEEKLY AUTO ISSUER COMMITTEE CALL
WEDNESDAY, May 13, 2015
2:00 p.m. – 3:00 p.m. (ET)
 
 
CREDIT CARD ISSUER COMMITTEE CALL
THURSDAY, May 14, 2015
10:00 a.m. – 11:00 a.m. (ET)
 
 
BIWEEKLY NRSRO DUE DILIGENCE INDUSTRY GUIDE CALL
THURSDAY, May 14, 2015
3:00 p.m. – 4:00 p.m. (ET)
 
 
IMN’s GLOBAL ABS 2015 CONFERENCE
TUESDAY, June 16, 2015 – THURSDAY, June 18, 2015
The Barcelona International Convention Centre
Barcelona, Spain
Registration is available here.
 
 
IMN’s ABS EAST CONFERENCE
WEDNESDAY, September 16, 2015 – FRIDAY, September 18, 2015
The Fontainebleau
Miami Beach, FL
Registration is available here.
 
 
ADVOCACY OUTLOOK

If you would like to participate in the work SFIG is undertaking through our committees as highlighted below, please e-mail Committees@sfindustry.org. For specific inquiries on any of SFIG’s advocacy efforts, please contact the staff member listed for the related project.

The RMBS 3.0 Task Force released its Second Edition RMBS 3.0 Green Paper in November. Following the successful SFIG/IMN Private Label RMBS Symposium, the Task Force will continue its efforts to address key issues specific to private label mortgage securities through work streams relating to (1) Representations, Warranties, and Repurchase Enforcement; (2) Due Diligence, Data, and Loan-Level Disclosure; and (3) Role of Transaction Parties and Bondholder Communications. Presently, the Task Force is working on (1) developing a comprehensive compilation of representations and warranties for release in the spring of 2015 and (2) a grid summarizing roles of transaction parties. We encourage members to participate in any or all of the working groups to contribute towards the mission of RMBS 3.0. For additional information on RMBS 3.0, or to join the Task Force, please contact Mary.Robinson@sfindustry.org.

The GSE Reform Task Force met to discuss the Carney-Delaney-Himes GSE Reform bill and has updated its briefing book on the legislation to support its advocacy efforts. With the release of the bill, SFIG staff also updated its GSE Reform Legislative Comparison, which analyzes key provisions in the five most recent housing finance reform bills including 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 will hold its next call on Thursday, May 7th 2015 at 9:00 a.m. (ET). These calls continue to focus on a high-level description of SFIG’s partnership with the Chinese Securitization Forum, potential upcoming educational discussions and the sharing of recent market developments in China. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact Alyssa.Acevedo@sfindustry.org.

SFIG’s Shadow Banking Task Force has established the following agenda:

  • Leverage the predictive powers of the G20’s shadow banking initiative to determine future SFIG advocacy initiatives;
  • Assess the level of regulation to which our members are already subject;
  • Measure the full impact of those regulations on lending decisions and business models; and
  • Provide input into IOSCO, BCBS and IAIS on the revitalization of securitization markets.

The task force will have its first full meeting in the coming weeks, and members from across asset classes are encouraged to participate. To register your interest in SFIG’s Shadow Banking Initiative, please contact Amanda.Bateman@sfindustry.org.

The Regulation AB II Task Force will focus on the disclosure and offering process requirements within the final rule. Two work streams have been formed to develop a comment letter on the proposed rules that remain outstanding and to produce an industry guide for critical elements of the final rule. SFIG members who are interested in joining this task force or asset specific committees should contact Alyssa.Acevedo@sfindustry.org.

The Regulatory Capital and Liquidity Committee is addressing industry concerns related to the Federal Reserve Board’s Final Rule on the Liquidity Coverage Ratio (“LCR”). This committee will also develop a comment letter when U.S. regulators release their proposed Net Stable Funding Ratio (“NSFR”). To become involved in SFIG’s advocacy on the Final LCR rule or NSFR, please contact Alyssa.Acevedo@sfindustry.org.

The Derivatives in Securitization Task Force recently obtained no-action relief from the CFTC giving swap dealers comfort that the CFTC would not take enforcement action against swap dealers that did not comply with certain CFTC Regulations when taking actions in response to the credit ratings downgrade of a counterparty to a legacy swap. The relief applies to swaps with SPVs that were in existence prior to October 10, 2013. The Task Force also commented on the CFTC’s proposal on margin requirements for uncleared swaps, as well as the prudential regulators’ proposal regarding margin and capital requirements for covered swap entities. SFIG members who are interested in learning more about this initiative should email Amanda.Bateman@sfindustry.org.

The NRSRO Due Diligence Industry Guide Work stream is continuing to review the due diligence elements of the Final Rules on NRSROs. The working group 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 ("HQS”) 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. Comments are due by May 13, 2015. To join the HQS Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
INDUSTRY NEWS HIGHLIGHTS
CFTC STAFF ISSUES INTERPRETIVE LETTER CLARIFYING EXEMPTION FROM SWAPS CLEARING APPLIES TO SECURITIZATION SPVs OWNED BY CAPTIVE FINANCE COMPANIES

On Monday, May 4th, the U.S. Commodity Futures Trading Commission (“CFTC”) published a letter providing clarification of Section 2(h)(7)(C)(iii) of the Commodity Exchange Act (“CEA”), as modified by Dodd-Frank.

Section 2(h)(7)(A) of the CEA permits certain qualifying entities to elect not to clear a swap that is otherwise subject to a Clearing Determination (“End-User Exception”). The End-User Exception is limited to entities that (i) are not “financial entities” (as defined in Section 2(h)(7)(C)(i) of the CEA), (ii) use the swap to hedge or mitigate commercial risk, and (iii) report certain information to the CFTC about the swap and its counterparties. Captive finance companies were specifically excluded from the definition of financial entity.

In this letter, the CFTC determined that when a Special Purpose Vehicle ("SPV") is wholly-owned by, and consolidated with, a captive finance entity, as defined in Section 2(h)(7)(C)(iii) of the CEA, the SPV itself qualifies as a captive finance company and, therefore, is eligible to elect the end-user exception from clearing.

 
 
CFTC HOPEFUL TO FINALIZE MARGIN RULE FOR UNCLEARED SWAPS BY SUMMER

Yesterday, May 5th, the U.S. Commodity Futures Trading Commission (“CFTC”) and the U.S. Securities and Exchange Commission (“SEC”) testified before the Senate Appropriations Committee Subcommittee on Financial Services and General Government regarding their Fiscal Year 2016 budget requests.

The CFTC’s testimony identified finishing remaining rules as one of its top priorities. This includes the rule on margin for uncleared swaps, “which plays a key role in the new regulatory framework because uncleared transactions will always be an important part of the market.” The agency stated, “We are also working closely with the domestic bank regulators, who are also responsible for issuing rules on margin, to harmonize the rules as much as possible. [We are] hopeful that we can finalize these rules by the summer."

The SEC highlighted the significant achievements it has accomplished thus far in terms of finalizing regulations in its testimony. Some of these include new regulations related to ABS, Money Market Funds, Security-Based Swaps and Risk Retention. The agency stated that future progress should focus on: further implementing mandated rulemakings; continuing the initiatives outlined above; strengthening its economic and risk analysis functions; hiring additional market and quantitative experts to address further its expanded responsibilities; and continuing to improve technology and operations to make the SEC more agile and effective.

 
 
GAINS FROM ECB ABS BUYING PROGRAM DISAPPEAR

According to a recent Bloomberg article, gains from the European Central Bank’s (“ECB”) ABS program vanished from the euro-area’s sovereign market. Quantitative easing (“QE”) started on March 9th, after which Portugal and the Mediterranean area underperformed the euro-area as a whole and eventually gave up the last of their QE gains.

Bloomberg states that certain market participants do not favor Portugal seeking to lock in lower borrowing costs by selling longer-dated bonds. The article also warns future investors about the danger of the ECB reducing asset purchases as the outlook for growth and inflation improves. Mario Draghi, President of the ECB, said that the program would not be curtailed before the ECB’s target date.

 
 
MOODY’S REPORTS STRONG 2015 AUTO LEASE ABS PERFORMANCE

A recent Moody’s Investor Service announcement stated that auto lease “ABS continued to perform strongly in the first quarter of 2015, and while floorplan ABS performance improved modestly from the previous quarter, auto loan ABS credit metrics continued to slightly deteriorate.”

Moody’s Investor Service highlighted that the “strong performance by auto ABS lease transactions continued with monthly residual value gains increasing slightly, driven largely by strong light duty truck and SUV residual value performance.”

For auto floorplan, first-quarter 2015 issuance totaled $4 billion from seven transactions, compared with $4 billion from five transactions in first-quarter of last year. New issuance in 2015 should result in comparable issuance to the $11 billion from 15 transactions last year, according to the announcement.

Performance of auto ABS loans “remained within a strong historical range as collateral characteristics of the securitized pools are only slightly worse than the strong characteristics of post-financial-crisis pools.”

 
 
CMBS MARKET EXPECTED TO GROW UP TO $200 BILLION

Future growth between $150 billion and $200 billion in the CMBS market is expected over the next three years as a large amount of CMBS originating from before the financial crisis are coming due and will need to be refinanced or restructured, according to an article in Pensions & Investments. After years of low issuances, CMBS debt increased 9.2 percent to $94 billion in 2014 from $86.1 billion in 2013. Once the securities originating from before the financial crisis are restructured or refinanced, the CMBS market is expected to pull back, “the CMBS market should normally be between $50 billion and $75 billion.” A first-quarter CMBS issuance update from Trepp and a report issued from Moody’s Investor Service both warn of riskier loans in CMBS pools yet to be rated and also an increase in the proportion of riskier full-term interest-only loans.

 
 
GSEs WOULD REQUIRE BAILOUT IN SEVERE DOWNTURN, STRESS TESTS SHOW

Last Thursday, April 29th, the Federal Housing Finance Agency (“FHFA”) announced the results of this year’s stress tests for Fannie Mae and Freddie Mac (“GSEs”), which found the GSEs would require a government bailout of as much as $157.3 billion in the event of a severe economic downturn. The stress tests are required under the Dodd-Frank Act for certain financial institutions with more than $10 billion in assets in order to determine whether they have sufficient capital to absorb losses as a result of adverse economic conditions. The Federal Reserve Board uses the same assumptions when testing the ability of the United States’ largest banks to endure a recession, including large reductions in asset prices, significant widening of corporate bond spreads and a sharp increase in volatility for equity markets.

According to FHFA’s report, as of September 30, 2014, the GSEs had drawn and paid back a combined $187.5 billion from Treasury Department’s Senior Preferred Stock Purchase Agreements and had a remaining funding commitment of $258.1 billion. Under the Severely Adverse scenario projected under the stress test, incremental Treasury draws ranged between $68.6 billion and $157.3 billion depending on the treatment of deferred tax assets.

 
 
SENATE BANKING SCHEDULED TO VOTE ON CHANGES TO QM RULE

Efforts to guard on-balance sheet mortgage loans from exclusion by the Qualified Mortgage (“QM”) rule have expanded beyond the community banks that initiated action to provide such a safe harbor to include large banks, leading consumer protection advocates and some mortgage lenders to voice concern, according to an article in Origination News. The Senate Banking Committee is scheduled to vote on a regulatory relief bill that could affect the application of the QM rule on May 14th, and one proposed change would consider expanding the QM definition to include all loans held on-balance sheet. The QM designation would apply for the life of the loan, but may be removed if such a loan was sold out of the bank’s portfolio.

 
 
FEDERAL RESERVE RELEASES RESULTS OF SURVEY ON BANK LENDING PRACTICES

On Monday, May 4th, the Board of Governors of the Federal Reserve System released the results of its latest Senior Loan Officer Opinion Survey on Bank Lending Practices. The survey addressed changes in the standards and terms on, and demand for, bank loans to businesses and households during the first quarter of 2015 and was responded to by 76 domestic banks and 23 U.S. branches and agencies of foreign banks.

Respondents reported little change in their standards on commercial and industrial loans during this period, though banks, on net, have eased some price terms. Those that reported easing their standards or terms cited increased competition from other banks or non-bank lenders as an important cause for doing so. Demand for these loans was largely unchanged. Regarding commercial real estate lending, banks reported easing standards on loans secured by nonfarm nonresidential properties. Some large banks also responded that they had eased standards on loans secured by multifamily residences. For commercial real estate lending as a whole, banks reported easing loan terms during the past year.

With respect to loans to households, certain categories of residential mortgage loans—including those eligible for purchase by the government sponsored enterprises as well as government and qualified mortgage jumbo loans—saw lending standards ease during the three months covered by the survey. For consumer loans, most banks reported no change in standards or terms. Demand slightly increased for most categories of home loans, as well as for auto and credit card loans.

 
 
UPCOMING EVENTS IN WASHINGTON
SENATE BANKING FULL COMMITTEE MARK-UP: LEGISLATION ON REGULATORY RELIEF AND OTHER MATTERS
THURSDAY, MAY 14, 2015
10:00 a.m. (ET)
Dirksen Senate Office Building, Room 538
 
 
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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