May 7, 2014 Newsletter
To ensure receipt of this newsletter, please add to your address book. 
Problem viewing this email? Click here for our online version.
May 7, 2014


SFIG Calendar

Advocacy Outlook

Recent Developments

Next Week in Washington



SFIG has announced the full agenda for its upcoming Spring Symposium. The symposium will focus on the Regulation AB II reform, including asset-level data, privacy concerns and outlook. Stephen Gallagher, Head of Research at Societe Generale will provide insight on the economic outlook. Panelists will include investors, issuers and data and analytic experts and will be moderated by Stephen Kudenholdt, Partner at Dentons LLP. The symposium will be hosted by Societe Generale’s at their New York office on May 14, 2014. A cocktail reception will follow the symposium. The event is open to both members and non-members, and is complimentary to attend. Please note, this event is closed to the press and due to security concerns, walk-ins are not permitted.

To register for the event, click here. Please be aware, there are only few seats remaining. Registration will close when the limit is reached. For the full agenda and participant listing please click here.

SFIG is now accepting nominations for its Board of Directors and for Committee Chairs until Monday, May 19th. Eligibility for these positions 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, and Committee Chair terms are for one year. There are two types of committees, those which are open to all industry participants (“open committees”) and those which are only open to specific industry participants (“closed committees”). Click here for a list of SFIG Committees. If you have any questions or require any clarification around the nominating process, please email

Click here to submit your nominations. Please note, this is open to members only.

WEDNESDAY, May 7, 2014
4:00 p.m. – 5:00 p.m. (EST)
3:00 p.m. – 4:00 p.m. (EST)
4:00 p.m. – 5:00 p.m. (EST)
WEDNESDAY, May 14, 2014
5:00 p.m. – 8:00 p.m. (EST)
Offices of Société Générale
245 Park Avenue
New York, New York 10167

Click here for a full agenda. To register for the Spring Symposium, please click here. Please note, there are few seats remaining. Registration will close when the limit is reached. Please be aware, this event is closed to the press and due to security concerns, walk-ins are not permitted.

Government-issued ID is required.

TUESDAY, June 10, 2014 – THURSDAY, June 12, 2014
Barcelona International Convention Centre
Barcelona, Spain
Registration available here
TUESDAY, June 24, 2014
12:00 p.m. – 5:00 p.m. (EST)
New York, NY
Note: Closed Meeting
SUNDAY, September 21, 2014 – TUESDAY, September 23, 2014
The Fontainebleau Hotel
Miami Beach, FL
Registration available here
SUNDAY, February 8, 2015 – WEDNESDAY, February 11, 2015
The Aria Resort and Casino
Las Vegas, NV
Registration available here
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.

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 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. The Task Force has met regularly since the bill was initially released on March 16, 2014 and will likely reconvene once the markup has been rescheduled to review any new amendments that might be offered by the Senate Committee on Banking, Housing, and Urban Affairs when it ultimately votes on the proposal. If you would like to learn more about SFIG’s activities with respect to GSE Reform, please contact

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 for additional information on SFIG’s work on this topic.

The Volcker Task Force is working with SFIG’s various asset class committees to determine key issues and the need for interpretative guidance regarding the Volcker Rule. Please contact 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 currently under discussion include participations and representative sample approaches. Please contact 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

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

The Derivatives in Securitization Task Force will resume its work on a No-Action Request of the Commodity Futures Trading Commission regarding enforcement against a registered swap dealer for failing to comply with regulations that may become applicable to legacy SPV swaps pursuant to a credit rating downgrade of a swap dealer. SFIG members who are interested in participating in this initiative should email

Speaking at the Reuters Financial Regulation Summit in New York on May 1st, International Organization of Securities Commissions (IOSCO) Secretary General David Wright seemed to urge caution on the topic of efforts currently underway to reform the shadow banking sector. According to Wright, “In general we don’t fully understand how the financial system functions and I don’t think you can unless you have the data you need… I think we have a long way to go to fully understand all the connectivities and subtleties of the financial system.” Steven Maijoor, chairman of the European Union’s European Securities and Markets Authority echoed Wright’s emphasis on better information as a prerequisite to more effective solutions. He told audiences at the summit, “We need to become better in identifying risks in securities markets but that is less about more regulation, and more about supervision of the non-banking sector,” Reuters reports. Both gentlemen emphasized the need to better understand not only the size of the market but how potential regulation might affect it. First and foremost this requires better data, and regulators are increasingly recognizing that significant work in that area needs to be undertaken to ensure any policy responses are appropriately implemented.

These words may provide some comfort to the shadow banking industry, which can include a whole range of entities including money market mutual funds, broker-dealers, entities trading commercial paper, real estate investment trusts and even banks already subject to prudential regulation. Since the global credit crisis has been at least partly attributed to activities engaged in by so-called shadow banks, regulators are increasingly focused on reigning in the diverse risks to the broader financial system the sector is perceived to threaten. While those at the Reuters Financial Regulation Summit urged caution, reforming shadow banking is an issue that is gaining significant momentum with the Financial Stability Board, leaders of the G20 and a diverse array of global financial regulators.

SFIG plans on actively engaging in the debate on shadow banking and has subsequently formed a Shadow Banking Task Force. Members of the task force will meet in the upcoming weeks to begin working on an industry response to the issue. If you are interested in being part of this initiative, please email

Last week, the Consumer Financial Protection Bureau (CFPB) proposed several changes to their “Qualified Mortgage” (QM) rule that would allow lenders to declare more loans as “qualified mortgages.” Specifically, these proposals focus on giving more flexibility for loans to meet QM status despite its cap on points and fees and its restrictions on debt-to-income ratios. The CFPB also plans to allow more nonprofit organizations to write QM loans and qualify for exemption from its rule governing mortgage servicing.

While the CFPB considers the changes "minor," those in the industry say these proposals could have a major impact and also show that the agency is willing to work with lenders to clarify certain issues that have arisen with its regulations.

The CFPB also says that it is looking to increase its ability-to-repay rule so that larger nonprofits can still offer interest-free, forgivable loans even if they do not meet the current exemption of making less than 200 mortgages per year.

Another important proposed amendment that could affect all lenders is a change to the points-and-fees cap of 3 percent in order for a loan to be a qualified mortgage. The CFPB is considering an exception to the rule that allows a lender to refund a borrower within a certain timeframe and still keep QM status, even if it is later discovered that the points and fees were higher than the cap when it first wrote the loan as a QM.

While these proposals are promising, many within the industry agree that not every concern about complying with the rules and potential legal risk have been addressed and all the questions surrounding points and fees have not been resolved. The CFPB did not clarify how affiliated fees that are passed through to a third party should be treated under the points and fees test. However, it is suspected that the agency is not done looking at additional areas in which rules can be amended, especially for larger lenders.

In a recent interview with Investment Advisor (IA), Securities and Exchange Commission (SEC) Chair Mary Jo White revealed that she has directed SEC staff to compile a list of all the potential options available to her agency to implement a uniform fiduciary duty requirement. White made similar comments during a speech in March, when she said staff were looking at a variety of approaches so that it may provide guidance on how client complaints should be handled, including a uniform fiduciary standard for broker-dealer and investment advisors who deal with retail customers, among other measures.

White called the initiative “a very high priority issue for investors” and, although declining to provide a specific timeframe for the rulemaking, stressed that a uniform fiduciary duty “is a priority for 2014.” Complicating the matter further is a provision in Section 913 of the Dodd-Frank Act authorizing the SEC to harmonize its rules for broker-dealers and advisors, which would be a separate rule to any fiduciary rulemaking. Another priority issue White discussed with IA was increasing the number of advisor exams. She told the publication that she is therefore pushing for Congress to fund her agency so it can conduct examinations more frequently than last year, when only 9 percent of advisors and 25 percent of assets under management were reviewed.

The final priority that White cited as a focus for the SEC in 2014 was continuing its investigations of abuses and misconduct in the space of high-frequency trading. Although she noted that while high-frequency traders “added liquidity and some price advantages… there are also concerns about the level playing field.” On that matter, White concluded by asking, “Is there any unfairness and ultimately do high-frequency traders or a subset of them add or detract from market quality?”

Foreign banks have been granted two years of light enforcement of new tax rules according to new guidance published by the Internal Revenue Service. This light enforcement will only apply to those foreign banks that are making a good faith effort to comply with the new tax rules. Those banks that are continuing to prepare their systems for the Foreign Account Tax Compliance Act (FATCA) will not face rigid enforcement and 30 percent withholding taxes until 2016. However, for those banks that are not complying, consequences will start on July 1st of this year.

The U.S. Treasury Department has announced this new guidance as part of an effort to prepare for the start of FATCA, a law passed in 2010 that is designed to prevent the avoidance of taxes by U.S. citizens through the use of overseas bank accounts. Under this new law, payments from the U.S. to other countries are subject to 30 percent withholding. This penalty may be waived if information regarding the U.S. account holder is provided by the overseas bank.

As a result, this law has prompted some banks to refuse Americans’ accounts, causing complications for those U.S. citizens living abroad. In order to allow for the exchange of information between governments, the U.S. has negotiated agreements with over 50 foreign bank jurisdictions. Many of these negotiations are continuing although the U.S. has recently halted FATCA discussions with Russia, which could result in a 30 percent penalty for cross-border transactions starting on July 1st.

Last week, a group of lawmakers introduced a bill that would clarify a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to say that the Federal Reserve Board (Fed) does not have to apply bank-like capital requirements to systemically important nonbank firms. The financial services industry has previously argued the Fed has the ability to tailor these capital rules for nonbank financial firms, such as insurance companies, but Fed officials have thus far been reluctant to do so.

The source of the debate in the context of Dodd-Frank relates to a provision authored by Senator Susan Collins (R-ME), which says there must be universal minimum capital requirements for all systemically important institutions. The amendment was designed to ensure larger firms subject to oversight by the Fed were held to the same standards as banks regarding the amount of capital they are required to hold. However, a number of lawmakers have since argued that such capital floors may not necessarily be applicable to other types of firms. As a result, Senators Sherrod Brown (D-OH), Susan Collins and Mike Johanns (R-NE) introduced legislation last Tuesday in an attempt to address the issue by clarifying the Fed’s authority to distinguish its application of stringent capital rules between banks and insurance companies. Under current law, the Financial Stability Oversight Council can designate nonbank firms as systemically risky, but how exactly those firms should be regulated upon receiving such a designation falls under the purview of the Fed.

Whether the bill gains any momentum in Congress remains to be seen, but at the very least, it could serve as an impetus for the Fed to initiate its own response to the question of capital requirements for nonbanks.

On Tuesday, the House Appropriations Committee released the fiscal year 2015 Transportation, Housing and Urban Development funding bill which will be considered in subcommittee today. The legislation provides for the funding of the Department of Transportation, Department of Housing and Urban Development and other related agencies, which must be appropriated annually. However, of notable significance is that for the first time, this year the bill includes a provision that would prevent the Federal Housing Administration, Government National Mortgage Administration or Department of Housing and Urban Development from facilitating the use of eminent domain. As set forth in Section 233, those agencies shall not be permitted to use funds made available pursuant to the bill in order to, “insure, securitize, or establish a Federal guarantee of any mortgage or mortgage backed security that refinances or otherwise replaces a mortgage that has been subject to eminent domain condemnation or seizure, by a state, municipality, or any other political subdivision of a state.”

SFIG has consistently and strongly opposed the use of eminent domain to seize securitized mortgage loans for the purposes of modification. On August 30, 2013, SFIG filed an amicus curiae brief in support of a preliminary injunction against the City of Richmond, California and Mortgage Resolution Partners LLC (MRP), arguing that efforts by Richmond and MRP to seize loans held in securitization trusts is unconstitutional and could do permanent damage to the U.S. home mortgage system. SFIG also stated in the brief that eminent domain would “harm prospective homeowners across the country by imposing new, unanticipated and unquantifiable risks upon investors in mortgages, depressing the value of mortgage-based investments, and impeding the return of private capital to the residential mortgage market.” These views were also expressed in SFIG’s Eminent Domain Position Paper and a recent Joint Trade Associations letter signed by SFIG supporting an amendment to the Johnson-Crapo bill from Senators Pat Toomey (R-PA) and Tom Coburn (R-OK) that would prohibit its use.

Representative Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises,  stated in an opinion piece in Investor’s Business Daily that the release of several housing finance proposals was a “welcome development”.  Representative Garrett along with Representative Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee, and other co-sponsors put forth the Protecting Taxpayers and Homeowners Act or PATH Act to wind down Fannie Mae and Freddie Mac and replace them with a new housing finance system.  Senator Tim Johnson (D-SD), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs (Senate Banking Committee), and Senator Mike Crapo (R-ID), the Senate Banking Committee’s Ranking Member introduced the Johnson-Crapo legislation in March to also wind down Fannie Mae and Freddie Mac and replace them with a new housing finance system.  Senators Johnson and Crapo based their proposal on earlier legislation introduced by Senator Bob Corker (R-TN) and Senator Mark Warner (D-VA).  A fourth proposal was recently introduced by Representative Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee.   

Representative Garrett called the “Johnson-Crapo bill…a particularly positive development” stating that while the legislation he supports, the PATH Act, and Johnson Crapo may differ, “there is enough common ground that I am confident [the Senate and the House] could reach an agreement if members of both chambers are committed to tackling the difficult work of housing finance reform.”  

Media accounts indicate that the GSE Reform Markup on Johnson-Crapo will be most likely held next week though a specific date and time has not been independently confirmed.  These same reports indicate that the Senate Banking Committee has 13 of 22 members supporting the current Johnson-Crapo proposal.  The 12 likely Senators are Senator Tim Johnson and Senator Mike Crapo and the original core of 10 Senators that originally supported the earlier version of the legislation introduced by Senator Mark Warner and Senator Bob Corker.  It is unclear whom the 13th Senator is at this point according to these media reports. 

The media reports also indicate that Senators continue to work on finding compromise solutions to try to add an additional 3 Senators.  Supporters are trying to secure additional votes in an attempt to get Senate floor consideration from the Senate Majority Leader Harry Reid (D-NV).  The conventional wisdom in the media reports is if the legislation passes the Senate Banking Committee by a wider margin, Senator Reid may give the Johnson-Crapo legislation floor time. 

SFIG has prepared a comparison of the four major legislative proposals and a briefing book on the Johnson-Crapo legislation.  SFIG staff is closely following any and all developments and will alert SFIG members as soon as we are aware of confirmed information regarding the timing of a rescheduled markup or any additional confirmed details regarding the status of the legislation as soon as they become available.  Please contact to join SFIG’s GSE Reform Task Force.

In its 2014 China Financial Stability Report released on April 29th, the People’s Bank of China (PBOC) made it clear that the growing trend for securities companies to engage in “directional asset management plans” would not go unchecked much longer. Directional asset management plans are essentially contracts banks enter into with securities companies which have been entrusted by the banks to provide loans to borrowers. Those deals are secured by guarantees or by collateral. According to a report by the Wall Street Journal last week, these deals have stoked the ire of the PBOC for allowing banks to circumvent regulatory requirements and spread risk around the broader financial system.

The first major issue with directional asset management plans cited by the central bank is how they allow banks to make off-balance sheet loans. They achieve this by transferring funds to a securities company, which then repackages the loan as an investment. The PBOC also found that banks have been using securities companies to turn interbank deposits into ordinary deposits. For example, banks may use deposits from other banks and financial institutions that trade in the interbank market to purchase wealth management products issued by insurance companies. As a result, these directional asset management plans have allowed banks to circumvent certain regulatory requirements, such as a limit on their loan-to-deposit ratio of 75 percent or a ban on direct purchases of trust products backed by a loan to a company.

The focus on securities companies’ directional asset management plans in the report indicates that the Chinese central bank has at least some inclination to cooperate with global financial regulators in their efforts to reform the shadow banking sector. That issue has become a growing focus for a broad range of national banking supervisors and macroprudential authorities. The PBOC found that by the end of 2013, the outstanding amount of the deals had grown 186 percent from the previous year to reach 4.83 trillion Yuan ($790 billion), which may explain why China has particularly become synonymous with the topic of shadow banking. The report made it clear that the PBOC agrees in principal with the Financial Stability Board, International Organization of Securities Commissions and Basel Committee on Banking Supervision, among others, that checks are needed on the sector increasingly targeted by global banking authorities.

If you are interested in participating in SFIG’s advocacy on structured finance and securitization issues in China, please email to join our Chinese Market Committee. To sign up for SFIG’s Shadow Banking Task Force, please email

Last week, the Senate Banking Committee voted to advance three nominations to the Federal Reserve Board. By voice vote, the panel approved the nominations of Stanley Fischer, former Governor of the Bank of Israel, Lael Brainard, the U.S. Treasury Department’s former Undersecretary for International Affairs, and current Federal Reserve Governor Jerome Powell. All three of these nominees have stressed the importance of financial stability concerns among the central bank’s mandates of employment and price stability.

Stanley Fischer has been nominated to fill the spot of Vice Chair Janet Yellen, who now chairs the board. Fischer previously served as the First Deputy Managing Director of the International Monetary Fund.

Lael Brainard has been nominated for a 12-year term and has been in charge of currency policy while working with G20 central banks and finance ministers during the European financial crisis.

Jerome Powell has been nominated for a second term that would expire in 2028 and has served on the board since 2012.

The confirmation of these three nominees is considered critical as the Federal Reserve looks to fill a number of vacant seats and Yellen continues to unwind the central bank’s unique easy-money policies.

In a widely-reported study, the Urban Institute stated that lending standards are not lessening; the market is shifting. Market changes explain the decrease in credit scores according to the authors, which included Laurie Goodman. The cost of mortgages insured by the Federal Housing Administration (FHA) compared to loans purchased by the Government Sponsored Enterprises (GSEs) with private mortgage insurance have caused more borrowers to choose the GSEs instead of FHA. The study found that credit scores on conventional mortgages sold to the GSEs dropped to 752 from 758 a year earlier. Credit scores on loans backed by FHA declined to 686 from 697 during the same time period. However, looking at both deliveries on an aggregated basis yielded an average credit score of 730, the same result as a year earlier. The allocation shifted to the GSEs from FHA. This, the study suggests, indicates only a shift to the GSEs but no real reduction in credit profile of borrowers and therefore no lessening of underwriting standards. The study used FICO scores when assessing credit.
On April 30th, the Federal Housing Finance Agency (FHFA) released a report, Projections of the Enterprises Financial Performance, containing updated projections on the financial performance of Fannie Mae and Freddie Mac (the GSEs) through possible future periods of economic stress. The report details the potential performance of Fannie Mae and Freddie Mac given specified economic conditions and reflects both the application of stress test modeling required by the Dodd-Frank Act and FHFA forward-looking projections. This year is the first for the implementation of the Dodd-Frank stress tests, while the FHFA has published its financial projections since 2010. The FHFA report indicates that the projections “are not expected outcomes. They are modeled projections in response to ‘what if’ exercised based on assumptions about [GSE] operations, loan performance, macroeconomic and financial market conditions, and house prices.”

According to the Dodd-Frank stress test Severely Adverse Scenario, incremental Treasury draw would fall between $84.4 billion and $190 billion, with a remaining funding commitment under Senior Preferred Stock Purchase Agreements between $173.7 billion and $68 billion. The FHFA scenarios do not project any additional Treasury draws and thus project that figure unchanged at $187.5 billion as of 2015. The three FHFA models show the GSEs paying between $54.0 billion and $36.3 billion to Treasury in senior preferred dividends. The differences in the figures between the Dodd-Frank and FHFA projections is largely due to a bleaker outlook in future housing prices under the Dodd-Frank scenario, as well as a decline in the value of non-agency securities. The Dodd-Frank Severely Adverse Scenario also accounts for the default of a large counterparty—a scenario not included in the FHFA projections.

Additional information about the projections, including a full overview of scenario assumptions and instructions, can be found here.

TUESDAY, May 13, 2014
9:30 a.m. – 11:00 a.m. (EST)
The Brookings Institution, Falk Auditorium
1775 Massachusetts Ave. NW

The Economic Studies program at Brookings will host a conversation with Mel Watt, the new director of the Federal Housing Finance Agency, on managing Fannie Mae and Freddie Mac in the present and the 2014 strategic plan for the conservatorship of Fannie and Freddie.

Registration for this event is available here.



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

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

Structured Finance Industry Group
WebsiteEmail Us | Web Archive

To unsubscribe from this email listing, please click here.

Sign Up for Our Newsletter


Connect with SFIG
LinkedIn logo
Join us on LinkedIn >
Twitter logo
Follow us on Twitter >
Wilmington ad

Quick Search

Advanced Search
Terms and Conditions | Privacy Policy