October 15, 2014 Newsletter

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
FRB TO VOTE ON FINAL CREDIT RISK RETENTION RULES

On October 22, 2014 at 3:30pm, the Board of Governors of the Federal Reserve (“FRB”)  will consider whether to adopt final Credit Risk Retention rules. According to the FRB, the specific subject of the Open Meeting will be:

  • Final Credit Risk Retention Rule under Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SFIG will provide an update following the open meeting. We will then hold a call within a few days of the meeting to walk the membership through the key elements of the final rule.

If you would like to participate in SFIG’s Risk Retention Task Force, please contact Alyssa.Acevedo@sfindustry.org.

The Securities and Exchange Commission, Office of the Comptroller of the Currency, the Treasury Department, the FRB, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Department of Housing and Urban Development Notice of Proposed Rulemaking regarding credit risk retention can be found here and SFIG’s response can be found here.

SFIG also released a joint response with LSTA and SIFMA last year that focused on Open Market CLO’s, which can be found here.

 
 
SFIG SUBMITS COMMENTS ON FHFA’S REQUEST FOR INPUT ON A SINGLE GSE SECURITY

On Monday, SFIG submitted comments to the Federal Housing Finance Agency (“FHFA”) in response to its proposal for a single security. FHFA requested input on all aspects of the security’s structure and how the transition away from the current system might work, with specific questions relating to TBA eligibility, legacy securities, the potential industry impact of the initiative, and the risk of market disruption from issuance. 

SFIG’s comments were developed through its GSE Reform Task Force and drafted by counsel at Katten Muchin and Rosenman LLP.

If you are interested in joining SFIG’s GSE Reform Task Force, please contact Amanda.Bateman@sfindustry.org.

 
 
MONEY MARKET FUND REFORM COMMENT LETTER SUBMISSION

On Tuesday, SFIG submitted a comment letter to the U.S. Securities and Exchange Commission (“SEC”) regarding the SEC’s July 23rd proposal. This proposal includes, among other things, the possible amendment of 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’s comments were developed through its Money Market Fund Reform Task Force and ABCP Committee, and drafted by counsel at Chapman and Cutler LLP.

If you would like to participate in SFIG’s Money Market Fund Reform Task Force, please contact Alyssa.Acevedo@sfindustry.org.

 
 
REGISTER NOW FOR THE FALL SYMPOSIUM

On October 21, 2014, SFIG will host our Fall Symposium, Around the SFIG World in 80 Minutes. The Fall Symposium will provide a comprehensive outlook for SFIG’s major initiatives to preview our 2015 education and advocacy agenda. Moderated by Sairah Burki, SFIG Director of Policy, Around the SFIG World in 80 Minutes will feature the following topics and speakers:

NRSRO: Alberta Knowles, Ernst & Young
Regulation AB II Susan Thomas, Ford Motor Credit Company
Derivatives: Preetha Gist, Chapman and Cutler
Volcker Rule:  Carol Hitselberger, Mayer Brown
LCR/NSFR:  Rachel George, Chapman and Cutler
Risk Retention: Julie Gillespie, Mayer Brown
China: Xiaowei Luan, GE Capital
RMBS 3.0:  Mary Robinson, SFIG

For a full agenda, please click here. To register, please click here. Additional details below:

TUESDAY, October 21, 2014
5:00 p.m. – 8:00 p.m. (EST)
Ernst & Young
5 Times Square
New York, NY  10036

Registration is open to SFIG members and non-member industry participants. This event is closed to the press. The symposium will be followed by a cocktail reception.

 
 
SFIG CALENDAR
RMBS 3.0 REPRESENTATIONS, WARRANTIES AND REPURCHASE ENFORCEMENT CALL

THURSDAY, October 16, 2014
4:00 p.m. – 5:00 p.m. (EST)

 
 
EQUIPMENT ISSUER COMMITTEE REGULAR BIWEEKLY CALL RE: REGULATION AB II

MONDAY, October 20, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
SFIG FALL SYMPOSIUM

TUESDAY, October 21, 2014
5:00 p.m. – 8:00 p.m. (EST)
Ernst & Young
5 Times Square
New York, NY  10036
Registration available here

*Please note, this event is closed to the press.

 
 
CHINESE MARKET COMMITTEE CALL

WEDNESDAY, October 22, 2014
9:00 a.m. – 10:00 a.m. (EST)

 
 
AUTO ISSUER COMMITTEE REGULAR BIWEEKLY CALL RE: REGULATION AB II

WEDNESDAY, October 22, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
CREDIT CARD ISSUER COMMITTEE REGULAR BIWEEKLY CALL RE: REGULATION AB II

THURSDAY, October 23, 2014
10:00 a.m. – 11:00 a.m. (EST)

 
 
RESIDENTIAL MORTGAGE COMMITTEE REGULAR BIWEEKLY CALL RE: REGULATION AB II

THURSDAY, October 23, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
MONTHLY REGULATION AB II TASK FORCE CALL

WEDNESDAY, October 29, 2014
11:00 a.m. – 12:00 p.m. (EST)

 
 
SFIG & IMN PRIVATE LABEL RMBS REFORM SYMPOSIUM

WEDNESDAY, November 12, 2014
New York Marriott Downtown
New York City, NY
Registration and agenda are available here.

 
 
REAL ESTATE SUMMIT 2014: PARTNERING FOR CHANGE IN CALIFORNIA

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

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

 
 
ANDREW DAVIDSON & CO., INC.’S HOUSING FINANCE BEFORE AND AFTER THE CRISIS: ANALYTICAL CONCLUSIONS THAT IMPACT PUBLIC POLICY

THURSDAY, November 20, 2014
5:30 p.m. – 8:30 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.

 
 
PLI SEMINAR: NEW DEVELOPMENTS IN SECURITIZATION 2014

THURSDAY, December 4, 2014
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.

 
 
SFIG & IMN ABS VEGAS 2015

SUNDAY, February 8, 2015 – WEDNESDAY, February 11, 2015
The Aria Resort and Casino
Las Vegas, NV
Registration available here

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

The RMBS 3.0 Task Force continues to work towards completing its Second Edition RMBS 3.0 Green Papers. 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. For additional information on RMBS 3.0, or to join the Task Force, please contact Mary.Robinson@sfindustry.org.

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 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 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 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 Volcker Task Force.

The Risk Retention Committee is continuing to follow up with regulators on risk retention questions across asset classes. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG’s Chinese Market Committee held its first full committee call on September 12th. Future calls will continue to focus 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 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. 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 Alyssa.Acevedo@sfindustry.org.

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”). To become involved in SFIG’s advocacy on the Final LCR rule, please contact Alyssa.Acevedo@sfindustry.org.

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 Amanda.Bateman@sfindustry.org.

The Credit Rating Reform Task Force has been discussing the SEC’s recent Final Rules with respect to Nationally Recognized Statistical Rating Organizations 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 will continue to work with our members to better understand the rules and those interested in participating should contact Amanda.Bateman@sfindustry.org.

The Money Market Fund Reform Working Group submitted a comment letter on Tuesday 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 Alyssa.Acevedo@sfindustry.org.

 
 
INDUSTRY NEWS HIGHLIGHTS
EUROPEAN BANKS ALLOWED TO HOLD ABS AS LIQUID ASSETS UNDER FINAL LCR RULES

On Friday, the European Commission (“EC”) announced that European banks will be able to use packaged auto and consumer loans and other types of securitized debt to meet requirements that they hold a certain proportion of assets that can easily be converted into cash. Specifically, the EC, the European Union’s executive arm, said that high-quality securitizations could count for up to 15 percent of banks’ liquidity buffers.  

It also outlined the qualification criteria for securitized financial instruments that could be used to fulfill the liquidity requirements. This is a larger group than listed by the Basel Committee on Banking Supervision, the Switzerland-based body that sets global banking rules, which allows only residential mortgage-backed securities to count toward banks’ liquidity buffers.  According to the EC’s rules, which will take effect next October, eligible securities could be backed by debt such as car loans, residential loans, credit-card receivables and small-business loans. They would also have to be backed by the most creditworthy assets, and in packages of at least €100 million.

EU policy makers have said high-quality securitization would encourage companies to seek funding from financial markets instead of banks. The new rules “show that Europe is serious about creating a framework to support investment in the economy, particularly through promoting safe and transparent securitization and encouraging insurers to invest for the long term,” said Michel Barnier, the EU financial-services commissioner.

An EC Memo detailing the delegation and eligibility requirements as well as the delegated regulation itself can be found here and here. If you would like to participate in SFIG’s Regulatory Capital & Liquidity Committee, please contact Alyssa.Acevedo@sfindustry.org.

 
 
EBA LAUNCHES CONSULTATION ON HIGH QUALITY SECURITIZATION

Yesterday, the European Banking Authority (“EBA”) launched a public consultation on its discussion paper regarding simple, standard and transparent securitizations. According to the EBA, these three pillars, simplicity, standardization and transparency, are expected to shape a new class of securitization products that are prudentially sound and may become subject to specific regulatory recognition. This paper follows a formal request by the European Commission to the EBA for advice pertaining to this issue. The EBA is inviting stakeholders to provide their input and views through the consultation period, which ends on January 14, 2015.

 
 
WHITE TELLS INVESTOR ADVISORY COMMITTEE DERIVATIVES, RISK RETENTION ARE NEXT

The Securities and Exchange Commission (“SEC”) has been quite active in recent months, and according to Chair Mary Jo White, Money Market Fund Reform, Regulation AB II and rules for Nationally Recognized Statistical Rating Organizations (“NRSROs”) are only a few of the ways her agency is working to reduce risks for securities market investors. Speaking to the Investor Advisory Committee meeting on October 9th, White told audiences that the rulemakings issued since July make significant progress towards that goal, but the SEC plans to do more in the coming months, with a particular focus on issuing rules for OTC derivatives trades and credit risk retention. Finally, of note to SFIG members, White stated the SEC Division of Corporation Finance is developing specific recommendations for updating the disclosure requirements for companies.

 
 
SAN FRANCISCO BOARD OF SUPERVISORS AGAIN POSTPONES VOTE ON EMINENT DOMAIN JOINT POWERS AGREEMENT

As discussed in last week’s SFIG newsletter, the San Francisco Board of Supervisors is set to vote on whether to enter into negotiations on a joint powers agreement with the city of Richmond, CA to use eminent domain to seize underwater mortgages. The vote was initially rescheduled to October 14th but has again been rescheduled to Tuesday, October 21st.

 
 
FRB, TOP BANKING EXECUTIVES PROPOSE SWAPS TERMINATION PROCEDURES FOR “TOO-BIG-TO-FAIL” FIRMS

A meeting on Saturday between the Federal Reserve Board (“FRB”) and top executives from U.S., European and Japanese banks has reportedly resulted in new procedures for swaps transactions, the latest move in regulators’ efforts to reign in risks from “too-big-to-fail” institutions. According to a report in the Wall Street Journal, leaders at the FRB meeting “agreed in principle to wait up to 48 hours before seeking to terminate derivatives contracts and collect associated payments from a troubled institution.” Authorities hope the delay will give them time to transfer a failing firm’s assets and other obligations into a new “bridge” company, which would remove the need to unwind derivatives contracts and could prevent fire sales of assets during times of crisis.

Scott O’Malia, a former Commissioner at the Commodity Futures Trading Commission who now serves as chief executive of the International Swaps and Derivatives Association, explained that when it comes to making the system safer, “It’s the easiest way to do it quickly.” Mr. O’Malia’s sentiment is being echoed by others at the Federal Deposit Insurance Corporation and the Financial Stability Board (“FSB”), where U.S. and global regulators have been working on proposals designed to facilitate the orderly liquidation of too-big-to-fail firms in a way that does not cost billions of dollars in swap-termination payments as seen when Lehman Brothers filed for bankruptcy. 

Reforming derivatives markets and ending “too-big-to-fail” has been a central component of the G20’s financial reform program in the wake of the crisis after Lehman Brothers’ tens of thousands of derivatives contracts took years to unwind. Bank of England Governor Mark Carny, who also heads the FSB, has sped up the timetable for regulators and industry stakeholders to reach an agreement, indicating in recent weeks the FSB hopes to officially announce its recommendations next month at the G20’s annual summit in Brisbane, Australia. However, asset managers and others have been slow to embrace any agreement that infringes on their existing rights due to fiduciary obligations to investors.

In the U.S., banking regulators are formulating their own margin and capital proposals, and SFIG has reconvened the Derivatives in Securitization Task Force to help the industry understand the securitization market impact. To join this task force, please contact Amanda.Bateman@sfindustry.org.

 
 
MARKET OUTLOOK FOR U.S. CMBS SLOWLY IMPROVING ACCORDING TO FITCH STUDY

The U.S. commercial mortgage-backed securities (“CMBS”) market has seen some improvements since the 2008 financial crisis, but underwriting standards continue to be an area of concern, according to a report released by Fitch Ratings last week. While Fitch determined the decision-making involved in underwriting has improved, standards are being driven lower due to lender competition, conflicts of interest among mortgage providers and excessively leveraged loans. Fitch remains optimistic about the market prospects of CMBS though, noting how ratings are nearly double their pre-crisis levels and in fact, there have been no downgrades since 2008.

Despite improving conditions in the commercial real estate market, the report emphasizes the need for improvement in the sector and continued scrutiny of the burgeoning CMBS sector.

 
 
FSB SETS NEW REGULATIONS TO ADDRESS SHADOW BANKING RISKS IN SECURITIES FINANCING

The Financial Stability Board (“FSB”), which coordinates the work of national financial authorities and international standard setting bodies, has announced a new regulatory framework to address shadow banking risks related to securities financing of transactions. Securities financing involves short-term lending and borrowing of shares between banks and financial institutions. It has an estimated market of $3.9 trillion across the globe.

The new framework aims to limit the build-up of excessive leverage outside the banking system and to help reduce the pro-cyclicality of that leverage. It brings in the first global minimum "haircut" or discount on collateral used to back securities financing transactions. The new framework consists of "qualitative standards for methodologies used by market participants to calculate haircuts on the collateral received," and "numerical haircut floors that will apply to non-centrally cleared securities financing transactions," according to the FSB. Per the new rule, banks must impose a haircut of at least 6 percent on the collateral they receive from non-banks as "insurance" on the value of securities being loaned from 2017-end. The FSB had originally proposed a minimum haircut of 4 percent.

"The implementation of the numerical haircut floors on securities financing transactions will reduce the build-up of excessive leverage and liquidity risk by non-banks during peaks in the credit and economic cycle," said Daniel Tarullo, chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation. Tarullo added that the FSB will be monitoring the impact of the new framework to ensure that it achieves these objectives.

 
 
HELOCS AT HIGHEST LEVEL SINCE JUNE 2009

Home Equity Lines of Credit (“HELOCS”) are up nearly 20.6 percent from a year ago according to a recent HousingWire article. This total of 797,865 is the highest level since June of 2009. Industry experts believe that this rise in HELOC originations indicates more confidence among homeowners with 19 percent of those with a mortgage having at least 50 percent equity in their homes.

Meanwhile, the percentage of those homeowners with severe negative equity has decreased from 29 percent to 17 percent during the second quarter of this year.

As Darren Blomquist of RealtyTrac explains in the HousingWire article, “A HELOC enables homeowners to leverage additional equity they may have gained since refinancing while still preserving the rock-bottom interest rate on their first position loan.”

 
 
UPCOMING EVENTS IN WASHINGTON
FEDERAL DEPOSIT INSURANCE CORPORATION 4TH ANNUAL CONSUMER RESEARCH SYMPOSIUM

THURSDAY, October 16, 2014 – FRIDAY, October 17, 2014
FDIC L. William Seidman Center
Hove Auditorium
3501 Fairfax Drive
Arlington, VA 22226
Registration is available here

This symposium will focus on the recent research on consumers’ capabilities, knowledge, preferences, and experiences in the market for financial products and services, as well as the effects of public policy interventions and new regulations on consumers, households, communities, and financial institutions.

 

SFIG COMMITTEES AND TASK FORCES

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

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

Contact Information

Richard Johns Executive Director

Kristi Leo Investor Relations

Sonny Abbasi Director of MBS Policy

Sairah Burki Director of ABS Policy

Michael Flood Director of Advocacy

Mary Robinson 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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