November 5, 2014 Newsletter


SFIG Calendar

Advocacy Outlook

Issue Spotlight

Industry News Highlights


Many new regulations have been released within the past few weeks that have major implications for the financial sector. As the industry works towards harmonizing its understanding of these new rules, SFIG is committed to developing industry guides that establish consensus positions and best practices for critical elements of each new rule.

These guides include:

  1. Regulation AB II – Mike Mitchell, Partner at Chapman and Cutler, and Steve Kudenholdt, Partner at Dentons, will co-lead the effort on an industry guide for the final Regulation AB II rule.
  1. Nationally Recognized Statistical Rating Organizations (“NRSROs”) Due Diligence – Amanda Baker, Partner at Mayer Brown LLP and Jan Stewart, Partner at Mayer Brown LLP, will be leading the efforts on an industry guide for the due diligence elements of the final rule on NRSROs.
  1. Risk Retention – Julie Gillespie, Partner at Mayer Brown LLP, will help lead the development of an industry guide for the implementation of the final rule on Credit Risk Retention.

If you are interested in being involved in the development of the industry guides for Regulation AB II or Risk Retention, please contact If you are interested in the development of the NRSRO Due Diligence industry guide, please contact


SFIG will be launching the development of a comment letter on the proposed rules that remain outstanding from the final Regulation AB II rule. Mike Mitchell, Partner at Chapman and Cutler, will be serving as drafting counsel for this letter.

If you are interested in this comment letter effort, please contact

Michael Stegman

SFIG & IMN are proud to present the 1st Annual Private Label RMBS Reform Symposium, the first of its kind, aimed at addressing the major obstacles that remain in the revitalization of a private label RMBS market, as well as potential solutions. The featured keynote speaker for this event is Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy.

The Symposium’s main areas of focus will mirror SFIG’s RMBS 3.0 work streams, including:

  1. Representations, Warranties and Repurchase Enforcement
  2. Due Diligence/Loan Review, Data and Disclosure
  3. Role of Transaction Parties and Bondholder Communications

The Symposium will be attended by investors, issuers, servicers, trustees and other market participants, leading academics, government officials, renowned industry research analysts and economists to discuss initiatives and how to move the PLS market forward.

Please register and join us on November 12th in New York City to take part in this extraordinarily important gathering and be part of the rebuilding of a vitally essential private mortgage credit market.

On October 27th, SFIG held a call to walk through the key points of the final rule on Credit Risk Retention with nearly 400 people in attendance. Given the massive industry interest in this topic, SFIG opened the call to both members and non-members. Members who would like to listen to the recording of the call, please click here. If you are not a member and would like to access the recording, please email

For an initial detailed summary of the final rule, please see here, and for a blackline of the final Risk Retention Rule marked against the Re-proposed Rules, please see here, both of which were prepared by Mayer Brown LLP.

Additional member calls will be held at the Risk Retention Task Force level. If you are interested in joining this Task Force, please contact Alyssa Acevedo at


SFIG would like to remind its members to please take this opportunity and register for our new website, located at Our long-term goal is to create a website that provides the industry and the general public with a “one-stop shop” for content related to the securitization industry.

Highlights of SFIG’s new website include:

  1. Information and Education: The SFIG Library, Advocacy and Newsroom sections include a wealth of content on the securitization industry, including proposed and final rules, legislation, research papers, news stories, speeches, SFIG comment letters and more.

  2. Membership: The SFIG Membership area includes information about SFIG membership, dues and our membership application form.

  3. Events: The SFIG Events section lists upcoming conferences and symposiums covering the securitization and structured finance industry.

  4. Newsletter: Users can view and register for SFIG’s newsletter, which reaches over 7,000 readers each week.

THURSDAY, November 6, 2014
10:00 a.m. – 11:00 a.m. (EST)


THURSDAY, November 6, 2014
2:00 p.m. – 3:00 p.m. (EST)


WEDNESDAY, November 12, 2014
8:00 a.m. – 5:45 p.m. (EST)
New York Marriott Downtown
New York City, NY
Registration and agenda are available here.


FRIDAY, November 14, 2014
9:30 a.m. – 4:00 p.m. (PST)
Hyatt Regency Century Plaza
2025 Avenue of the Stars
Los Angeles, CA 90067

Sonny Abbasi will be speaking on the “Solutions for a Recovering Market: Housing Affordability and Financing Homeownership” panel.


MONDAY, November 17, 2014
2:00 p.m. – 3:00 p.m. (EST)


WEDNESDAY, November 19, 2014
2:00 p.m. – 3:00 p.m. (EST)


THURSDAY, November 20, 2014
10:00 a.m. – 11:00 a.m. (EST)


THURSDAY, November 20, 2014
2:00 p.m. – 3:00 p.m. (EST)


THURSDAY, November 20, 2014
5:00 p.m. – 8:00 p.m. (EST)
National Press Club
529 14th Street NW
Washington, DC
Registration is available here.

Richard Johns will be speaking to important questions affecting housing finance reform.


FRIDAY, November 21, 2014
9:00 a.m. – 10:00 a.m. (EST)


WEDNESDAY, December 3, 2014
11:00 a.m. (EST)
Note: Closed Meeting


THURSDAY, December 4, 2014
9:00 a.m. – 5:00 p.m. (EST)
PLI New York Center
1777 Avenue of the Americas
New York City, NY

Richard Johns will be speaking on the “Examining Key Regulations Through a Global Lens” panel.


WEDNESDAY, December 10, 2014
12:00 p.m. – 5:00 p.m. (EST)
1221 Avenue of the Americas
New York, NY 10020
Note: Closed Meeting


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.

The RMBS 3.0 Task Force continues to work towards completing its Second Edition RMBS 3.0 Green Paper. The Task Force continues to address issues specific to private label mortgage securities on 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. We encourage members to participate in any or all of the working groups to contribute towards the mission of RMBS 3.0. SFIG, along with IMN, is hosting a Private Label RMBS Reform Symposium on November 12, 2014. For additional information on RMBS 3.0, or to join the Task Force, please contact

The GSE Reform Task Force has been actively engaging the Federal Housing Finance Agency in recent months, including SFIG’s October 13th response to the proposed structure for a single agency security. SFIG has also recently submitted comments on guarantee fee pricing and FHFA’s Strategic Plan for 2015-2019. The Task Force previously reviewed various proposals in Congress including the Johnson-Crapo bill, with SFIG staff summarizing members’ recommendations in a briefing book, and the PATH Act. If you would like to learn more about SFIG’s activities in these areas, please contact

The Mortgage Loan-Level Disclosure Task Force is studying the recent Regulation AB II release of Schedule AL and comparing it to SFIG’s Schedule L submission in February of this year. SFIG also continues to have weekly Mortgage Industry Standards Maintenance Organization calls to go through data elements that lenders should deliver in securitizations. We will also be conducting an analysis of the data elements included in SFIG’s Schedule L submission in order to determine any privacy concerns. Please contact for additional information on SFIG’s work on this topic.

The Volcker Task Force has been working with SFIG’s various asset class and legal counsel committees to identify areas within the Volcker Rule in need of clarification, particularly questions regarding covered funds and the loan securitization exemption. Please contact to participate on the Volcker Task Force.

The Risk Retention Committee met on October 27th to discuss the newly released Credit Risk Retention final rule. SFIG will also be developing an industry guide for the implementation of the final rule. Please contact with any questions.

SFIG’s Chinese Market Committee continues to hold regular calls focusing on a high-level description of SFIG’s partnership with the Chinese Securitization Forum, potential upcoming educational discussions and a sharing of recent market developments in China. If you would like more information on SFIG’s work with respect to Chinese securitization, please contact

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

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

The Task Force will have its first full meeting in the coming weeks, and members from across asset classes are encouraged to participate. To register your interest in SFIG’s Shadow Banking Initiative, please contact

The Regulation AB II Task Force will focus on the disclosure and offering process requirements within the final rule. Two workstreams 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. Monthly task force calls will be held to identify and address key questions regarding the implementation of the final rule. We will also be holding bi-weekly calls for the asset-level committees. SFIG members who are interested in joining this task force or asset specific committees should contact

The Regulatory Capital and Liquidity Committee is forming a working group to address industry concerns related to the Federal Reserve Board’s Final Rule on the Liquidity Coverage Ratio (“LCR”). Another working group has also been formed in order to review the BCBS final standard for the Net Stable Funding Ratio (“NSFR”) and to develop a comment letter when U.S. regulators release their proposed NSFR. To become involved in SFIG’s advocacy on the Final LCR rule or NSFR, please contact

The Derivatives in Securitization Task Force will be commenting 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 submitted a comment letter at the end of June, advocating for asset-backed securities issuers to qualify for the “low-risk financial end user” designation proposed by prudential regulators in the original proposal. SFIG members who are interested in learning more about this initiative should email

The Credit Rating Reform Task Force has been discussing the SEC’s recent Final Rules with respect to Nationally Recognized Statistical Rating Organizations (“NRSROs”) and third party due diligence services for transactions involving registered and private asset-backed securities with assigned credit ratings. The rules are meant to enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and improve rating agency accountability according to the SEC, but will likely impact a broader range of industry participants than NRSROs. SFIG is also developing an industry guide for the due diligence elements of the final rule on NRSROs. Those interested in learning more should contact

The Money Market Fund Reform Working Group submitted a comment letter on October 13th regarding the Securities and Exchange Commission’s July 23rd proposal which includes, among other things, possibly amending rule 2a-7’s issuer diversification provisions to eliminate an exclusion that is currently available for securities subject to a guarantee issued by a non-controlled person. SFIG also submitted a comment letter in September 2013 on Money Market Fund Reform. If you are interested in joining this working group, please contact

The High Quality Securitization (“HQS”) Task Force will serve as the forum through which SFIG will respond to recent initiatives that seek to define “qualifying securitizations,” such as the European Banking Authority’s Discussion Paper on simple standard and transparent securitization. If you are interested in joining the HQS Task Force, please email

By Michael Flood, Director of Advocacy, SFIG
Michael Flood

As of this morning, Republicans are projected to hold one of their largest majorities in the House of Representatives since the 1928 with a margin of 246 to 189 seats. In the Senate, Republicans will replace the Democrats as the majority party, with a projected 53-46[1] seat advantage. Beginning in January, Republicans will control the agendas for both the Senate and the House. Democrats will control the White House through President Obama as well as the nominations to lead Federal agencies and regulators.

Last week’s Issue Spotlight analyzed potential outcomes for yesterday’s elections, and the high-level effect each scenario could have on securitization. Today, we will review the actual outcome in two parts. Part I will review the upcoming lame-duck session, potential Congressional and Administration priorities in the new Congress, and analyze headwinds both parties face in governing through 2016. Part II will provide insight into how the election results may impact the structured finance industry.

It is worth noting that this article errs on the side of over-defining Congressional terms. While this may seem remedial to many SFIG members, others have asked for a little refresher when it comes to the myriad of Congressional practices.

Let’s start with Part I and the lame-duck session, which is expected to begin next week when the current Congress returns to Washington, DC.

Part I: The Lame-Duck Session and Priorities for the 115th Congress

The Lame-Duck Session: The current Congress has five weeks left to legislate in 2014, when removing two-weeks for holidays. In theory, Congress could do nothing in the lame duck, and punt legislation to the next Congress. In reality, Congress cannot avoid legislating altogether, considering Federal government funding runs out in early December. Below are five policy issues important to the structured finance industry that may be addressed in the lame-duck session:

  1. Planning for Next Congress – While not legislative, it is important to note that Republicans in both parties will begin planning their legislative agendas for next Congress. While the Chair of each Committee will not be officially named until next year, likely candidates will be planning their agendas now. Therefore, it is important for SFIG to ensure that its voice is heard by Members of Congress on both the House Financial Services and Senate Banking Committees over the next few months.
  2. Government Funding – Earlier this year, Congress passed a continuing resolution (“CR”) to fund most government programs that expires December 11, 2014. This Congress must decide how long the fiscal year (“FY”) 2015 funding can be extended and would likely take one of three forms: (1) pass another short-term CR through March of 2015, pass a long-term CR for the remainder of the fiscal year, or (3) pass an Omnibus appropriations bill containing new spending levels for the entire fiscal year. Hal Rogers (R-KY), Chairman of the House Appropriations committee, has publicly indicated that his committee is already working on an omnibus bill. An omnibus bill agreement may be possible, as both the House and Senate appropriators must work off of the same $1,014 trillion spending cap agreed to last year. However, politics may also play a role in how long Congress funds the government. First, Republicans have to decide whether they want a long-term funding solution now, or whether they want to pass a short-term measure and tackle longer-term solutions when they are in charge of Congress. Second, Democrats and the White House have to determine whether striking a deal with Republicans now is in their best interest. Finally, and important to both parties, the debt ceiling will again be reached in March, 2015. Both parties will have to calculate whether tying government funding to a raise in the debt ceiling is a winning strategy. At the same time, both parties are loathe to face any government shut down.
  3. Terrorism Risk Insurance Act (“TRIA”) Reauthorization - The TRIA program expires on December 31, 2014. In July, the Senate passed S. 2444 to reauthorize the TRIA program for seven years by a vote of 93-4. The House Financial Services committee passed H.R. 4871 to reauthorize the TRIA program and is awaiting a vote by the full House of Representatives. The House could simply take up the Senate bill during the lame-duck session and if passed, would go directly to the President for signature. The House can also pass its own bill, and then conference with the Senate to iron out differences. The ensuing bill would then need to be passed by both houses of Congress before heading to the President for signature. Regardless of strategy, TRIA is expected to be addressed in the lame-duck session.
  4. Insurance Capital Standards and Dodd-Frank Corrections – Both the House and Senate passed bills with overwhelming bipartisan support that would allow the Federal Reserve to tailor capital standards for insurance companies designated as systemically important financial institutions (“SIFIs”). While the Senate passed a “clean” bill addressing the issue, the House passed a bill that contained not only the fix for insurance capital standards, but also a package of Dodd-Frank amendments Act.   Therefore, it is possible that either the Senate could also take up the House’s package bill and pass it, or the House could take up the Senate’s clean insurance capital standards bill and pass it. However, passing either bill may depend upon how long it takes Congress to work through any government funding solutions.
  5. Executive Branch Nominations – Senate Democrats may decide to expedite pending executive branch nominations while they retain the majority through December. Most notable would be any successor for departing Attorney General Eric Holder as well as any nominee to head the Federal Housing Administration. However, Republicans prefer that any new Attorney General be reviewed by the incoming Congress.

President Obama’s Lame-Duck Agenda: This afternoon, President Obama held a press conference to address the electoral outcomes, and voice his priorities for the lame-duck session as well as the new Congress. For the lame duck, President Obama would like to work with Congress on the following three issues:

  • Government Funding – He would like to work with Congress to find a long-term solution for FY 2015 government spending
  • Ebola Prevention – President Obama would also like to work through the appropriations process to approve funding to fight the spread of the Ebola virus
  • ISIL Funding – President Obama would like to work with Congress to receive authorization to use military force against the spread of the Islamic State of Iraq and the Levant (“ISIL”)

The lame duck will likely be telling about how well the White House and a Republican Congress will govern together over the next two years. If Congress and the President can come to a long-term agreement on FY 2015 funding levels for the government, it could portent to larger agreements on issues such as tax reform. However, if they cannot reach an agreement and Congress passes a short-term funding bill, then it could signal that larger fights loom with the more conservative new Congress.

There are other potential impediments that the new Republican-controlled Congress and the Administration will face in governing together. Let’s turn to reviewing last night’s results, the new Congress and the outlook for both macroeconomic and structured finance reforms.

The 115th Congress: Republicans will officially take over the majority in the Senate and continue as the majority in the House on January 3, 2015. Senator Mitch McConnell (R-KY) is expected to become Senate Majority Leader, with Senator John Cornyn (R-TX) as Majority Whip. John Boehner (R-OH) is expected to remain as House Speaker, Kevin McCarthy (R-CA) as Majority Leader and Steve Scalise (R-LA) as Majority Whip.

For the Democrats, it is possible that both Senator Harry Reid (D-NV) and Congresswoman Nancy Pelosi (D-CA) could either be challenged as the current party leaders in their respective legislative bodies or decide to step aside to allow for new leadership. Any challengers will likely identify themselves between now and December in order to garner support from fellow Congressmen. However, both are currently favored to lead their parties in the new Congress.

Congressional Priorities and Political Realities: Senator McConnell and House Majority Leader McCarthy have stated that they want to prove to the voters that Republicans can govern.

Senator McConnell believes he can govern the Senate by giving more power to committee chairmen to drive the legislative agenda while allowing for robust Senate floor debates by allowing for Senators to offer and debate more amendments to work out differences.

Majority Leader McCarthy has echoed these sentiments. He has called for an accountable government, to make sure that Federal agencies are efficient. He has even called for an audit of the Congressional Committee structure, and wants to give more power to committees to legislate.

As far as legislation, Republicans in both the House and Senate want to create a unified agenda and avoid any legislative cliffs. If they have their way, long-term spending bills would be addressed immediately in order to clear any hurdles early, leaving the remainder of the year to address larger issues.

However, there are a few large headwinds that will determine whether Republicans can be successful in the eyes of the American public:

  1. How Strong is the Pull of the 2016 Elections – The 2016 presidential election likely means Republicans have no more than six to twelve months in order to prove they can govern. However, the pull of the 2016 elections – both the physical pull to get re-elected and the political pull to draw legislative contrast between the parties, will increase as time passes. First, both parties will want to draw distinctions between each other before 2016. These distinctions will likely manifest themselves in differing legislative agendas that do not tend towards compromise. The question is when will this begin? Second, Senate Republicans face a similar landscape in 2016 that Democrats faced yesterday. In fact, a whopping 24 of 36 Senate seats up for re-election in 2016 are in Republican hands. Many of those seats are in states that President Obama carried in 2012, such as Senator Toomey (R-PA) and Senator Johnson (R-WI). The path for Republicans to maintain Congressional majorities in 2016 may be difficult, but each parties’ nomination for President will matter for control of Congress.
  2. Can Republicans Unite – House and Senate Republican’s ability for form a unified agenda will only be possible if divisions within the GOP can agree upon a supportable agenda. Some Republicans would like to begin the legislative session by passing bills that had bipartisan support last year (insurance capital standards) and the President is likely to sign. More conservative members of the party would likely rather begin the Congressional session by passing a bill to repeal healthcare reform and forcing the President to veto it.
  3. How Will Democrats Function in the Minority – Senate Democrats will have to adjust to being in the minority, and reacting to Republican agendas in lieu of setting them. It has been eight years since Republicans have held the majority, and only 17 current Senators served during that period. Furthermore, Republicans will not necessarily require Democratic support to pass bills, considering they control both chambers of Congress. Democrats will have no choice but to work with Republicans if they want to move legislation. At the same time, Democrats can choose to oppose most legislation, as they have the power of the veto in the White House.
  4. Will White House and Congressional Relations Improve – The big question will be whether President Obama and Republican leadership in Congress can get along. Remember, President Obama will likely have to work with Senator McConnell, who once famously proclaimed that his goal was to make President Obama a “one-term President.” At the same time the President may also be thinking about his own legacy, and whether he wants to simply defend his financial and healthcare reforms, or whether he is willing to make changes to each in order to garner goodwill to negotiate on larger ticket items. This, in turn, is also true of Congressional Republicans. They will also have to make decisions as to whether it is more important to send a bill to the President to sign into law, or to send him a bill he will likely veto in order to distinguish themselves in 2016. A second question will be whether the President will decide to act alone if he cannot find common ground with Congress. For example, the President has considered executive action on immigration reform and may take action as early as next week. Majority Leader McCarthy has called such a move a non-starter that would may further damage relationships.

President Obama’s Priorities for the 115th Congress: Today, the President outlined areas where he believes the new Republican controlled Congress and Democrats can find agreement next year, including:

  • Creating Jobs – through rebuilding America’s infrastructure and growing exports.
  • Tax Reform – both parties have expressed a desire to close corporate loopholes and lower the effective tax rate
  • Increasing the Minimum Wage – Obama remarked that five states had a minimum-wage increase on their ballots last night, and all five states voted for an increase
  • Expanding Early Childhood Education and College Affordability – the outcome of these four headwinds and the ability to negotiate on common agenda items will determine whether the next Congress and Administration will move major legislation, or whether we will see more of the same in the form of election positioning and minor movement on smaller bills.

Macroeconomic Issues: If these headwinds can be mitigated, then agreement on large macroeconomic issues can be found by a divided government. Specifically, the two parties have shown a willingness to negotiate in the following three areas:

  • Corporate Tax Reform – Both parties have called for a reduction of the corporate tax rate in order to make the U.S. more competitive, and have expressed a willingness to find bipartisan solutions.
  • Deficit Reduction – While the economy is improving and Federal receipts are up, a long-term solution for deficit reduction can be considered. President Obama and Majority Leader Boehner nearly reached agreement four years ago. With little political pressure in his last two years, President Obama likely has more room to negotiate with Congressional Republicans than at any other time in his Presidency.
  • Entitlement Reform – In his 2014 budget, President Obama proposed changing the measure of inflation used to calculate annual Social Security cost-of-living adjustments from the Consumer Price Index for Urban Wage Earners and Clerical Workers (“CPI”) to the chained CPI. This change would likely result in lower COLA adjustments for beneficiaries but would save up to $233 billion over 10 years, according to the Congressional Budget Office. Many Republicans have supported this change.

While many will be skeptical that any of these issues can be addressed, it is worth noting that large reforms have passed in prior divided governments. President Clinton worked with a Republican Congress to pass welfare reform and President Reagan worked with a Democratic Congress to pass tax reform.

Next Steps: This Friday, President Obama and Congressional leadership for both parties will have lunch to “chart a path forward for the next Congress.” As word from that meeting leaks into the public, and action begins to take place in the lame-duck session, we will start to understand whether Congress and the President will truly find common ground to move their priorities forward.

Part II: The Election Results and Impact to the Structured Finance Industry

Regardless of whether Congress has the will or ability to address big-ticket items, there are a number of issues important to the structured finance industry that Congress will likely address at the Committee level that will affect structured finance. Therefore, we want to turn your attention to the new makeup of Congress, the likely committee leadership and potential agenda items important to the securitization industry.

Structured Finance Issues: Most legislative issues that would affect our industry are addressed at the Committee level in both the House of Representatives and the Senate. The two main committees for structured finance are the House Financial Services Committee (“Financial Services”) and the Senate Committee on Banking, Housing, & Urban Affairs (“Banking”), and we expect each to be led by the following elected officials:

  1. House Financial Services –Though he will face a challenge from Congressman Frank Lucas (R-OK), Congressman Jeb Hensarling (R-TX) is favored to remain chair of the committee. Congressman Hensarling is allowed, under House rules, to serve three terms (six years) as chair, and can serve through 2018. Congresswoman Maxine Waters (D-CA) is expected to remain as Ranking Member.
  2. Senate Banking –Either Senator Crapo (R-ID) or Senator Shelby (R-AL) will become the next chair of Senate Banking. While Senator Crapo is the current ranking member on the committee, Senator Shelby has seniority. Shelby had been ranking member of Senate Banking for four years during Dodd-Frank. After Dodd-Frank, Shelby relinquished his position as ranking member on Senate Banking in order to be the ranking member on Appropriations. Shelby may reclaim his seniority over Senator Crapo in order to Chair Senate Banking for two years. Senator Sherrod Brown (D-OH) is the likely candidate to become Ranking Member of the committee. Senator Charles Schumer (D-NY) has seniority over Senator Brown, however, he is part of the Senate Democratic leadership and may not want (or be able) to serve in both capacities.

Legislative Priorities: Congressman Hensarling and either Senator Shelby or Senator Crapo would likely work together to set near unified agendas for their respective committees. Furthermore, the expected House and Senate leadership has stated that they want to put more legislative power in the hands of the committee, suggesting that Hensarling and Shelby will likely control whether any further securitization reforms are addressed next Congress. As such, which we would expect to include the following from both Committees:

  • Dodd Frank Reform and Oversight –Shelby, Hensarling and Crapo are all vocal critics of Dodd-Frank. We would expect both Senate Banking and House Financial Services to attempt to reform Dodd-Frank in two ways: (1) Rigorous oversight of regulatory implementation, and (2) Creation of a “Dodd-Frank” technical corrections bill. For oversight, the Republicans can exert more pressure on the regulators considering they have a lot more power to call hearings and pass legislation. Furthermore, Republicans will also control the Appropriations committees, and can affect the budgets for both the Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”). However, regulators such as the Fed and OCC do not receive appropriated funds, and may not feel as beholden to Congress. Finally, Democrats will still hold sway on how Dodd-Frank is interpreted, as regulators have shown a tendency to react to Congressmen who voted for the laws for which they are promulgating rules. As for legislative changes, any reforms to Dodd-Frank would likely be narrow fixes limited to those that the President would consider signing into law. Examples for our industry could include changes to how collateralized loan obligations are treated under the Volcker Rule, exploration of the divergent treatment of asset-backed securities under U.S. and European rules, and the relative treatment of residential private-label securities (“PLS”) under the qualified residential mortgage (“QRM”) standard as compared to government-sponsored enterprise securities (“GSE’s”).
  • Too-Big-To-Fail Institutions – If Senator Shelby returns as chairman of Senate Banking Committee, then large banks could come under enhanced scrutiny. Senator Shelby has been critical of big banks for years. In 1999, he voted against repealing Glass-Steagall and in 2008 he voted against the Troubled Asset Relief Program (“TARP.”) Furthermore, Senator Sherrod Brown, the likely Ranking Member, has also called for tougher capital requirements for large banks. If Senator Shelby is looking for bipartisan issues, large bank oversight may be one he can partner on with Senator Brown.
  • Consumer Financial Protection Bureau (“CFPB”) Reform – Republicans have bristled at the fact that the CFPB is led by one director who can only be removed by the President for cause and is funded by the Federal Reserve. They would likely rather see the CFPB run by a five-member commission, much like SEC and other financial regulators, with more budgetary accountability to Congress. Furthermore, Senator Shelby has spent the past four years as the Ranking Member of the Senate Appropriations Committee. He may choose to use that experience to address changes to the CFPB sooner rather than later.
  • Housing Finance Reform – Hensarling, Shelby and Crapo have all pinpointed housing finance reform as an issue that they believe should have been dealt with during Dodd-Frank negotiations in 2010. Crapo worked with Senator Johnson (D-SD) last year to produce a bipartisan housing bill, while Hensarling pushed the PATH Act through Financial Services. Neither Senator Shelby nor Senator Brown supported Johnson-Crapo. However, it may be difficult for Senator Shelby to produce and pass any major housing finance reform bill, considering (a) he is up for re-election in 2016, and (b) 2015 will begin the Presidential election cycle. The same is true for Chairman Hensarling. Furthermore, there is a policy divergence – that crosses party lines – about how large a government guarantee (footprint) should be maintained in the housing market. Therefore, both committees may focus their efforts on how large a footprint the GSEs should have while in conservatorship, including loan limits, guarantee fees and loan products (including low down payment products), particularly given the Federal Housing Finance Agency’s recent focus on these same topics.
  • Franken Amendment – The Franken Amendment, which passed the Senate 65-34, would attempt to mitigate potential conflicts of interest with the issuer pays model by allowing the SEC to assign NRSROs to complete initial credit ratings. However, there is no formal date by which the SEC must adopt it absent a viable alternative. Interestingly, Senate Banking Committee members Senator Brown supported the amendment while Senators Corker and Reed (D-RI) voted against. However, many have suggested changes to rule 17g-5 in order to encourage increased access to and use of ratings data. While Senate support is split, and there is lack of consensus on a viable option to replace the Franken Amendment, the SEC or Congress could explore enhancements to 17g-5 as a first step in any reform efforts.

If Republicans can govern and find ways to work with the President, then the next two years can produce laws to address large reforms such as social security, changes to the tax code and narrow Dodd-Frank reforms. However, as the 2016 elections become increasingly important to Congress and the Administration, the more difficult it will become to find compromise. The lame-duck session and the first 90 days of 2015 will indicate which direction the new Congress and the Administration are headed.

[1] This assumes that Senator Mark Warner (D-VA) wins and that Senator Mark Begich (D-AK) loses. The Louisiana Senate seat will not be decided until a run-off election is held on December 6, 2014, between Senator Landrieu (D) and challenger Congressman Bill Cassidy (R).


Freddie Mac and Fannie Mae have named David Applegate as the first chief executive officer of the Common Securitization Solutions LLC (“CSS”), a firm co-owned by Fannie Mae and Freddie Mac. CSS is slated to develop a common securitization platform for the secondary mortgage market. Applegate was most recently president and chief executive officer of Homeward Residential and previously spent 17 years in various positions at General Motors Acceptance Corp. 

Additionally, Fannie Mae and Freddie Mac also appointed two executives each to CSS’s board of managers:

  • Terry Edwards, Chief Operating Officer at Fannie Mae;
  • Rick Sorkin, Senior Vice President of Single-Family Pricing Strategy and Structured Transactions at Fannie Mae;
  • David Lowman, Executive Vice President of Single-Family Business at Freddie Mac; and
  • Jerry Weiss, Executive Vice President and Chief Administrative Officer at Freddie Mac.

On Friday, the Basel Committee on Banking Supervision (“BCBS”) issued a final standard for the Net Stable Funding Ratio (“NSFR”).  

According to the BCBS, the final NSFR standard retains the overall structure of the January 2014 consultative proposals. However, key changes introduced in the final standard include the required stable funding for:

  • Short-term exposures to banks and other financial institutions;
  • Derivatives exposures; and
  • Assets posted as initial margin for derivative contracts.

The NSFR will become a minimum standard by January 1, 2018. The Basel Committee is currently developing disclosure standards for the NSFR and expects to publish them for consultation around year end.

SFIG’s response to the January 2014 consultative proposal can be found here. SFIG’s Regulatory Capital and Liquidity Committee will review the final standard to understand the impact to the securitization industry and will develop a comment letter when U.S. regulators release their proposed NSFR. If you would like to participate, please contact


Last Wednesday, FinanceAsia and Standard & Poor’s co-published an article in which they reviewed the success of the Chinese securitization market this year. In the first nine months of 2014, the amount issued under the China Banking Regulatory Commission and People’s Bank of China program totaled roughly 170 billion yuan ($27.8 billion). This is significantly more than the 100 billion yuan ($163 million) issued between 2005 and 2013.

The article credits this growth with the Chinese government’s revamped economic policy initiatives, efforts to reduce the economy’s reliance on banks and better global flow of information regarding the securitization market and its associated risks.

FinanceAsia and Standard & Poor’s also expect this growth momentum to continue in terms of issuance volume and infrastructure buildup. They credit this to “ongoing government support for securitization initiatives, the accumulation of experience and knowledge through the country’s managed pilot program, and growing demand from originators and investors.”

The China Securitization Forum Executive Committee Chairman, Mr. Liu Borong is expected to provide an update on the current state of asset securitization finance in China at a conference in New York City on Sunday. Mr. Liu will also be meeting with SFIG leadership and staff as part of our continued long-term cooperative relationship.

SFIG is also continuing to track the developments and market trends concerning Chinese securitization through its Chinese Market Committee. If you are interested in joining this committee, please contact

On October 27th, the Financial Stability Board (“FSB”), in collaboration with the International Monetary Fund and the Organization for Economic Co-operation and Development, published a report assessing cross-border consistencies and the global financial stability implications of structural banking reforms. The likely positive and negative impacts on other jurisdictions’ financial systems and on global financial stability were examined in the report.

According to the report’s conclusions, “Structural banking reforms have recently been implemented or proposed in a number of jurisdictions.” These reforms are “designed to reduce risks to banking groups stemming from trading activities, limit the range of activities covered by the public safety net, and more generally to simplify legal and operational structures of complex banking groups, in order to enhance their supervisability and resolvability with a view to reducing systemic risk, enhancing depositor protection and limiting fiscal exposures.”

The FSB also found that jurisdictions promote global financial stability by reducing systemic risks and the implicit government guarantee to too-big-to-fail institutions, resulting in better market pricing of risk and better allocation of capital. It was also highlighted that regulatory restrictions to banking structures can have implications on the mobility of cross-border capital flows and that it will important to monitor the consequences of structural banking reforms as they are being implemented.


The shadow banking industry grew by $5 trillion in 2013 to reach a record $75 trillion in assets, the Financial Stability Board (“FSB”) concluded in its 4th annual Global Shadow Banking Monitoring Report released last week. The FSB’s broadest measure of the sector, referred to in the report as the Monitoring Universe of Non-Bank Financial Intermediation (“MUNFI”), is found to represent approximately 25 percent of total financial assets, or half the banking system assets, and 120 percent of global GDP. The growth in MUNFI assets has been driven in part by a general increase in valuation of financial markets and includes significant differences across jurisdictions and entities, according to the report. As part of the FSB’s efforts to refine their measurements to produce an estimate more tightly focused on the sectors’ risks, this year’s report narrows down the MUNFI estimates by filtering out entities that are not part of a credit intermediation chain and those that are prudentially consolidated into a banking group. Equity Real Estate Investment Trusts were excluded this year, for example.

The fastest growing subsectors of the shadow banking system in 2013 were Trust Companies and Other Investment Funds. The 18 percent growth rate shown by Other Investment Funds, the largest subsector, was sharply higher than previous years. The FSB notes that Hedge Funds continue to be underestimated due to the fact that most are domiciled in offshore financial centers not currently in the scope of the monitoring exercise. While most shadow banking activity continues to occur in developed economies, emerging economies are the largest source of its growth.


Following October meetings with the White House and ongoing discussions with the Federal Finance Housing Administration (“FHFA”) the FHFA proposed changes to the Fannie Mae and Freddie Mac (“GSEs”) guidelines on representations and warranties—changes that may be viewed as an administration concession that increased input from the mortgage lending industry is needed to help revitalize the weak housing recovery. Over the past several months, FHFA Director Mel Watt engaged with mortgage lenders to seek input on changes to housing policy that would make loan buy-back rules, and representation and warranty frameworks more industry friendly.

Last week, the FHFA announced proposed changes to those frameworks that would require that any fraud or errors in a mortgage loan file would have to be “significant” to trigger a loan repurchase. Many in the mortgage lending industry view the issues being addressed by the FHFA as an attempt to improve consumer access to credit. The proposed changes aim to encourage mortgage lenders to expand the credit box and reduce credit score overlays that exceed GSE requirements.

FHFA Deputy Director of the Division of Housing Mission and Goals, Sandra Thompson, said “[l]enders are doing more upfront quality control and we have more certainty in what they deliver.” The changes to the representation and warranty framework aim to provide clarity around representations and warranties and offer alternatives for repurchase in cases of potentially minor problems at the origination stage, according to Thompson.



SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry. Please email us for more information, including how to join.

SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community. To ensure that you receive future editions of the newsletter, please visit our website or email us to learn more about membership opportunities.

Contact Information

Richard Johns Executive Director

Kristi Leo Investor Relations

Sonny Abbasi Director of MBS Policy

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson Policy Manager

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration

1775 Pennsylvania Ave. NW
Suite 625
Washington, DC 20006

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