October 22, 2014 Newsletter

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
SFIG INVESTORS, SEC MEET TO DISCUSS REGULATION AB II

SFIG staff and several investor members met with the SEC’s Office of Structured Finance to discuss, ahead of the launch of the pilot program, investors’ initial reactions to the final Regulation AB II rule. Topics covered included, among others, operational aspects and scope of applicability of the final rule.

For more information, please contact Sairah.Burki@sfindustry.org. If you would like to join the Regulation AB II Task Force please contact Alyssa.Acevedo@sfindustry.org.

 
 
REGULATORS RELEASE FINAL CREDIT RISK RETENTION RULE, SFIG TO HOLD CALL NEXT WEEK

On Tuesday, the Federal Deposit Insurance Corporation held a Board Meeting and adopted the final Credit Risk Retention rule by a vote of 4-1. A memo from the meeting may be found here. The Securities and Exchange Commission and Board of Governors of the Federal Reserve held meetings today as well to approve the same rule.

SFIG will be holding a call on October 27th at 2:00 p.m. (EST) to walk 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.
 
 
SFIG HOLDS FALL SYMPOSIUM IN NYC

Last night, SFIG held its 2014 Fall Symposium at the offices of Ernst and Young in New York City.  The Around the SFIG World in 80 Minutes format featured updates on regulatory developments and other items on SFIG’s current and forthcoming advocacy agenda.  One of the highlights of the program was an overview of the new Risk Retention rules, released only hours before, by Julie Gillespie of Mayer Brown.  The featured panelists also discussed securitization implications arising from the NRSRO rules, LCR implementation, Volcker Rule, Derivatives, and Regulation AB II as well as SFIG’s work on initiatives relating to Chinese Securitization and RMBS 3.0.  The full agenda can be found here.

The Symposium also provided a glimpse into SFIG’s Women in Securitization initiative. The group of women on the panel reflected the tremendous thought leadership from which SFIG and the broader securitization industry benefits significantly. For more information on Women in Securitization, please contact Mary.Robinson@sfindustry.org.

SFIG thanks our members and other industry participants for helping make the 2014 Fall Symposium a success, and we look forward to seeing you again at future events.
 
 
SFIG CALENDAR
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)

 
 
ABCP COMMITTEE CALL re: NRSRO DISCLOSURE RULES

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

 
 
RMBS 3.0 ROLE OF TRANSACTION PARTIES/BONDHOLDER COMMUNICATION WORKING GROUP CALL

THURSDAY, October 23, 2014
3:00 p.m. – 4:00 p.m. (EST)

 
 
RMBS 3.0 DUE DILIGENCE, DATA, AND LOAN-LEVEL DISCLOSURE WORKING GROUP CALL

FRIDAY, October 24, 2013
3:00 p.m. – 4:00 p.m. (EST)

 
 
EXTERNAL COUNSEL SUBCOMMITTEE CALL

MONDAY, October 27, 2014
11:00 a.m. – 12:00 p.m. (EST)

 
 
RISK RETENTION TASK FORCE CALL

MONDAY, October 27, 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)

 
 
DERIVATIVES IN SECURITIZATION TASK FORCE CALL

WEDNESDAY, October 29, 2014
3:00 p.m. – 4:00 p.m. (EST)

 
 
CLO COMMITTEE CALL RE: RISK RETENTION

THURSDAY, October 30, 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. (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.
 
 
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
9:00 a.m. – 4:00 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.
 
 
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 will be meeting on October 27th to discuss the newly released Credit Risk Retention final rule. Please contact Alyssa.Acevedo@sfindustry.org with any questions.

SFIG’s Chinese Market Committee held its second full committee call this morning. 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 (“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 working to help our members better understand the rules and those interested in learning more 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 acomment 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
INDUSTRY PREPARES FOR IMPLICATIONS OF NEW RISK RETENTION RULE

The Federal Deposit Insurance Corporation ("FDIC") passed, by a margin of 4-1, the final Credit Risk Retention rule, as part of a joint rulemaking by six regulatory agencies. These final rules will require all securitizers to retain at least 5 percent of the risk when securitizing assets, unless otherwise exempt.

“This is an important milestone on the road to completing the rules implementing the Dodd-Frank Act,” said Comptroller of the Currency Thomas Curry in a statement during the Board Meeting. Curry voted for the rule as a member of the FDIC board. “This final rule will provide more certainty in the securitization markets, which will have a positive effect on our economy.”

Notably, for mortgages the rule aligns the Qualified Residential Mortgage ("QRM") definition with the Consumer Financial Protection Bureau’s Qualified Mortgage definition. Agencies will periodically review the QRM definition after the effective date. The final rule also states that the guarantee provided by Freddie Mac or Fannie Mae (the “GSEs”), when acting as a sponsor, would satisfy the risk retention requirements, provided that the GSEs are in Government conservatorship. According to a National Mortgage News article, industry observers stated that the rule would not necessarily be helpful in restoring the private-label securities market given that the secondary market remains dominated by the GSEs.

Additionally, the final rule also requires managers of collateralized loan obligations (“CLOs”) to hold at least 5 percent of the debt they package or sell, likely making them more expensive to put together. According to the rule, “requiring open market CLO managers or lead arrangers to retain economic exposure in the securitized assets will help ensure the quality of assets purchased by CLOs, promote discipline in the underwriting standards for such loans, and reduce the risk that such loans pose to financial stability.” However, many within the industry believe that this requirement is burdensome and will significantly reduce the CLO market.

 
 
FHFA DIRECTOR ANNOUNCES ACTIONS TO POTENTIALLY EXPAND FANNIE AND FREDDIE CREDIT BOX

On Monday, the Director of the Federal Housing and Finance Administration (“FHFA”), Mel Watt, gave a speech in which he clarified lenders’ liability in representations and warranties, announced changes to open Fannie Mae and Freddie Mac (“Enterprises”) credit boxes, and allowing an increase in loan-to-value ratios.

Clarifying lenders’ liability in representations and warranties:

  • Plan on “revising and clarifying the Representation and Warranty Framework under which lenders and the Enterprises operate;” and
  • Understand the importance of addressing concerns “in ways that are mutually satisfactory to [the public] and the Enterprises is critical to ensuring that there is liquidity in the housing finance market and to providing access to credit for borrowers.”

Opening Fannie Mae and Freddie Mac credit boxes:

  • Acknowledged that access to credit remains tight for many borrowers and FHFA and the Enterprises are working to address this issue in a “responsible and thoughtful manner;” and
  • Continuing “to evaluate ways to refine and improve the loss mitigation and foreclosure prevention policies at the Enterprises” because “many individuals and families are still facing the possibility of foreclosure and are looking for alternatives to stay in their homes.”

Increasing loan-to-value ratios:

  • Developing, with the Enterprises, “sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent” that the Enterprises may purchase; and
  • By doing so, the “Enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account ‘compensating factors’.”

Watt ended his speech by emphasizing the importance of getting input and feedback from stakeholders when the FHFA provides opportunities to do so on proposed rules and that he looks forward to continuing efforts to achieve shared goals within the housing finance market.

 
 
SAN FRANCISCO BOARD OF SUPERVISORS DID NOT HEAR EMINENT DOMAIN JOINT POWERS AGREEMENT PROPOSAL

As discussed in recent Industry News highlights, the San Francisco Board of Supervisors originally scheduled a vote on entry into negotiations regarding a Joint Powers Agreement with the City of Richmond to use eminent domain to seize underwater mortgages for October 7th.  The vote was postponed to October 14th and then to the 21st.  Yesterday, the vote did not occur and our best information indicates the resolution was sent back for committee review.  We will continue to update this story as more information becomes available.

The City of Richmond needs to enter into a Joint Powers Agreement with another municipality to move forward with eminent domain because it has been unable to muster the requisite number of votes—a “super majority”—to move forward on the proposal independently.

 
 
NEVADA HOA FORECLOSURE SALES TAKE PRECEDENCE OVER FIRST MORTGAGES

On October 14th, the Wall Street Journal reported that a dispute is stirring among mortgage lenders and housing investors in Nevada as a result of a Nevada Supreme Court ruling. The state is among 20 others that have laws allowing homeowner association ("HOA") liens to take priority over first mortgages. The decision has allowed thousands of foreclosed homes to be sold for pennies on the dollar. HOAs are foreclosing on homes to recoup delinquent dues, without the approval of the mortgage lender and thus extinguishing the first mortgage. Investors are then able to get title to the home for an amount equal to or slightly above the HOA dues in arrears.

In one specific example, a Las Vegas home with an $885,000 mortgage was foreclosed on by a HOA and sold at auction for $6,000, the amount owed to the HOA by the delinquent homeowner.

In a court filing last Tuesday, the Mortgage Bankers Association (“MBA”) stated that because of this decision, “mortgage lenders stand to lose millions—perhaps even billions—of dollars in security interests.”

Lenders argue that HOAs should not have the power to wipe away entire mortgages, but rather, foreclose through the court system. According to the MBA, if the decision stands, banks will have to account for resulting losses by raising mortgage rates in Nevada.

 
 
BANK OF CHINA ISSUES $6.5B TO BOLSTER BALANCE SHEET

On Thursday, the Bank of China sold $6.5 billion worth of contingent capital in an effort to strengthen its balance sheet. The aim is to meet the tough new Basel III global bank capital regulations.

According to a September Fitch Ratings article, China’s four biggest lenders are expected to issue $20 billion worth of additional Tier 1 and 2 capital by the end of the year. The country’s government has recently stepped up its enforcement of Basel III regulations in order to avoid a financial crisis following a weakened economy and increased debt since 2008.

The Bank of China’s newest contingent capital deal of $6.5 billion is the world’s largest ever and is the first time a Chinese bank has issued additional Tier 1 preference shares.

 
 
FRB RELEASES 2015 STRESS TEST INSTRUCTIONS FOR BANKS
On October 17th, the Federal Reserve Board (“FRB”) released a final rule modifying the regulations for capital planning and stress testing applicable to bank holding companies (“BHCs”) and released instructions for the 2015 capital planning cycle. The final rule requires banks to submit their capital plans on or before January 5, 2015 for the upcoming capital plan cycle. Beginning in 2016, however, participating banks will have an additional three months, until April 5th, to submit their capital plans and stress testing results to the FRB. In addition to the change in timing, the final rule adopts a proposed limitation on a BHC’s ability to make capital distributions to the extent that its actual capital issuances are less than the amount indicated in its capital plan. The instructions for Comprehensive Capital Analysis and Review 2015 provide details on the submission requirements, supervisory expectations for a capital adequacy process, and the supervisory assessments and disclosure, as well as a discussion of common strengths and shortcomings seen in the previous year’s submissions.
 
 
HUD SECRETARY CASTRO CHALLENGES LENDERS TO HELP BOOST ACCESS TO MORTGAGE LENDING

In a speech at the Mortgage Bankers Association annual conference Monday, Housing and Urban Development Secretary Julian Castro remarked that while credit and lending standards were overly loose in the years preceding the mortgage crisis “the pendulum has swung too far in the other direction.” He cited a March report from the Urban Institute that concluded that more than 1.2 additional mortgage loans would have been made in 2012 had pre-2001 credit standards been in place. Lack of access to credit and mortgage lending is contributing to record low homeownership rates for minorities and millennials, according to Castro. 

Calling on lenders to help increase access to credit, and potentially help grow the U.S. mortgage market, Castro stated “Where do you want to be?  On the front lines?  Or do you want to leave money on the table?”

 
 
UPCOMING EVENTS IN WASHINGTON
BIPARTISAN POLICY CENTER EVENT “THE BIG BANK THEORY: BREAKING DOWN THE BREAK-UP ARGUMENT”

TUESDAY, October 28, 2014
10:00 a.m. - 11:30 a.m. (EST)
Bipartisan Policy Center
1225 Eye St. NW, Suite 1000, 10th floor, Washington DC

Bipartisan Policy Center’s Financial Regulatory Reform Initiative and panel will highlight new research on consumer financial behavior in the wake of the crisis and draw upon the perspectives of economists, a lawmaker, a lawyer, a banker and other experts.

Registration is available here.

 

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


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Suite 625
Washington, DC 20006

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