October 8, 2014 Newsletter

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
SFIG URGES SENATE CONSIDERATION OF CLO FIX FOR VOLCKER RULE

Yesterday, SFIG sent a letter to Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) urging Senate consideration of H.R. 5461 which recently passed the House by a bipartisan vote of 327-97.  SFIG supports the bipartisan language contained in Title II of H.R. 5461 that creates a solution for the collateralized loan obligation (“CLO”) marketplace as it relates to the Volcker Rule.  Specifically, the language contained in Title II of H.R. 5461 addresses this “ownership interest” issue posed by the Volcker Rule, and will allow companies across the United States to access affordable financing from banks that invest in CLOs.

In February, Neil Weidner, Partner at Cadwalader, Wickersham and Taft, testified on behalf of SFIG at a House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises hearing entitled “The Dodd-Frank Act’s Impact on Asset-Backed Securities.”   Mr. Weidner testified to the consequences of not finding a solution for the CLO market for the Volcker Rule and on the proposed legislative fix proposed in Title II of H.R. 5461. 

SFIG will continue to work towards developing bipartisan support for a CLO solution in relation to the Volcker Rule.

 
 
AROUND THE SFIG WORLD IN 80 MINUTES – REGISTER NOW FOR THE FALL SYMPOSIUM!

SFIG encourages you to register for our 2014 Fall Symposium, Around the SFIG World in 80 Minutes, on October 21, 2014. Space is limited and registration is filling up quickly.  The event will feature industry experts speaking on topical securitization issues in which SFIG is involved.  Topics to be addressed include Risk Retention, Derivatives, Regulation AB II, RMBS 3.0, LCR implementation, the new NRSRO rules, and other current and impending issues.  The event will be followed by a cocktail reception.  Additional details are listed below.

TUESDAY, October 21, 2014
5:00 p.m. – 8:00 p.m. (EST)

Offices of Ernst & Young
5 Times Square
New York, NY 10036

We are unable to accommodate press at this event.

Registration is open to SFIG members and non-member industry participants. Please click here to register. 

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

THURSDAY, October 9, 2014
10:00 a.m. – 11:00 a.m. (EST)

 
 
CHINESE MARKET COMMITTEE CALL

MONDAY, October 20, 2014
9:00 a.m. – 10:00 a.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.

 
 
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)

 
 
SFIG & IMN PRIVATE LABEL RMBS REFORM SYMPOSIUM

WEDNESDAY, November 12, 2014
New York Marriott Downtown
New York City, NY
Registration 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 forthcoming.

Richard Johns will be answering 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, with SFIG submitting comments on guarantee fee pricing and FHFA’s Strategic Plan for 2015-2019. The Task Force is currently developing a response to its proposed structure for a single agency security, which must be submitted by October 13, 2014. 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 Mary.Robinson@sfindustry.org.

The Derivatives in Securitization Task Force met today to discuss the CFTC’s proposal on margin requirements for uncleared swaps, which SFIG will provide comments on. The Task Force will also be commenting on 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 recently reconvened to discuss 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 Reform Fund Working Group will be submitting a comment letter on 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
MEDCRAFT RE-ELECTED CHAIRMAN OF IOSCO

On Thursday, the International Organization of Securities Commissions (“IOSCO”) announced it has voted to re-elect Mr. Greg Medcraft as Chairman of the Board. Mr. Medcraft has served as IOSCO’s Chair since March 2013, one year after its first board was created due to a merger of the IOSCO Technical Committee, Executive Committee, and Emerging Markets Committee Advisory Board—a move meant to streamline IOSCO’s organizational structure over a two-year period. He is also Chairman of the Australian Securities & Investment Commission and has a strong record of achievement as a securities market participant.

The Board also re-elected Howard Wetson, Chair of the Ontario Securities Commission, as its Vice Chair, and Ranjit Ajit Singh of the Securities Commission Malaysia as Chair of the IOSCO Growth and Emerging Market Committee. The new Board constituted this week is comprised of 34 members and includes the Securities and Exchange Commission and Commodity Futures Trading Commission from the United States.

 
 
MARKET PARTICIPANTS UNDERWHELMED WITH ECB ABS BUYING PLAN

On Thursday, the European Central Bank (“ECB”) announced its new asset-backed securities (“ABS”) and covered bond purchase program. However, many market participants have been left underwhelmed, according to an International Financing Review article, as the ECB will not commit to how much it will buy.

The ECB did state that it will be buying bonds in both primary and secondary markets, starting with covered bonds this month and followed with ABS later this year. Some market participants have indicated that this announcement did not live up to their expectations and they would have liked a more detailed explanation as to how the purchase program would transmit to the economy.  

Industry players were also disappointed that the ECB did not elaborate on guaranteed mezzanine ABS bonds. The ECB indicated that the criteria for these will be elaborated on at a later stage. Technical aspects of the purchase schemes have been provided, however, with the ECB buying up to 70 percent of each covered and securitized bond, and relaxing its collateral framework rules for bonds below BBB.

 
 
SAN FRANCISCO TO CONSIDER JOINING RICHMOND IN EMINENT DOMAIN

The San Francisco Board of Supervisors delayed a 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 Board of Supervisors will now vote on the proposal on October 14, 2014. The joint powers agreement is being pushed by Richmond Mayor, Gayle McLaughlin, whose term as Mayor is coming to completion but who is running for a city council seat. McLaughlin has championed the use of eminent domain by municipalities to seize underwater mortgages from financial institutions and refinance them for homeowners.

Previously, the City of Richmond had passed legislation to use eminent domain to seize underwater mortgages but supporters did not obtain the requisite number of votes needed to pass the proposal. In Richmond, a super majority of the city council is needed to use eminent domain. Alternatively, the city must enter into a joint powers agreement with another city if only a simple majority of the city council approves the measure.

San Francisco City Supervisor John Alvalso introduced the proposal to enter into negotiations on the joint powers agreement saying, “[t]he issue of distressed mortgages is real in San Francisco.  Data shows that there are thousands more potentially at risk in the next few years.”  However, San Francisco Mayor Ed Lee voiced his opposition to the proposal and the potential impact it may have on the city’s availability to borrow from the financial institutions from which eminent domain would seize mortgages.

The director of the Mayor’s Office of Housing, Olson Lee, said the city would prefer to work directly with homeowners and that while the long term impacts of potential use of eminent domain is unknown a consequence could be “either we lose access to the borrowing or we actually just pay more to accomplish the same thing because we are no longer getting the San Francisco discount [on interest rates].” 

SFIG has strongly opposed the use of eminent domain to seize underwater mortgages, including filing an amicus curiae brief in a case against of Wells Fargo National Association v. City of Richmond, California.

 
 
IOSCO RELEASES SECOND SECURITIES MARKETS RISK OUTLOOK

On October 1st, the International Organization of Securities Commissions (“IOSCO”) published the Securities Market Risk Outlook for 2014-2015, its second such report focused on identifying potential risks in securities markets. According to IOSCO’s statement on the release, innovation re-entering the market and accommodative monetary policies have made the identification and analysis of the build-up of systemic risk increasingly important. Among the selected global trends and potential vulnerabilities in securities markets highlighted in the report includes IOSCO’s findings that:  1) asset price valuation is increasing, while volatility remains low and changes in monetary stance will create winners and losers while markets adjust to this new reality; 2) derivatives markets are growing and clearing is increasing; 3) some real estate markets and real estate investment trusts could still be vulnerable; and 4) capital flows into emerging markets have grown and are affecting securities prices.

According to IOSCO, the potential systemic risks arising from securities markets against such a backdrop include: 1) the search for yield and return of leverage in the financial system; 2) search for yield and volatility affecting emerging markets; 3) risks in central clearing; 4) the increased use of collateral and risk transfer; and 5) governance and culture of financial firms.

 
 
FSOC COULD TWEAK PROCESS OF IDENTIFYING SIFIs

On Monday, the Financial Stability Oversight Council (“FSOC”) met to discuss the way in which it identifies insurers and other non-bank companies as systemically important, according to a Reuters article. The FSOC also continued its discussion regarding the asset management industry.

"The council has received a number of suggestions regarding its process for evaluating non-bank financial companies for potential designation," Treasury Secretary Jack Lew stated during the meeting. "The council will begin to examine possible changes in the coming months."

Lew indicated that these suggestions pertained to the ways in which FSOC’s process of designations could be improved and that he has asked staff to continue talks with the industry and report back to him to see if changes were needed.

For more details, please see the FSOC’s October 6th meeting press release.

 
 
IMF REPORT FINDS GROWTH IN SHADOW BANKING SYSTEM RISKS

The world's $70 trillion shadow banking system is growing, and the International Monetary Fund ("IMF") warns that monitoring of the sector is inadequate in light of the risks it poses to financial stability in a recently updated report. The IMF released additional chapters to supplement its annual Global Financial Stability Report (originally released in April) describing how the sector is growing and with it, its risks. Shadow banking may take different forms across the globe, but the IMF found a number of key drivers tend to be common to all, including the search for yield, regulatory circumvention, and investor demand. Shadow banking as a source of systemic risk is a greater concern in the U.S. than in Europe, and growth in the shadow banking has been particularly strong in emerging markets, outpacing that of traditional banking.

The report notes that shadow banking can play a beneficial role as a complement to traditional banking by expanding access to credit or by supporting market liquidity maturity transformation, and risk sharing. According to the IMF, the challenge for policymakers is to maximize its benefits while minimizing systemic risk. Policymakers are therefore encouraged to address the continued expansion of finance outside the regulatory perimeter through a more encompassing approach to regulation and supervision that focuses both on activities and on entities and places a greater emphasis on systemic risk.

 
 
FANNIE MAE AND FREDDIE MAC TO EVALUATE ALTERNATIVE CREDIT-SCORING MODELS

Fannie Mae and Freddie Mac, the government sponsored enterprises (“GSEs”), have committed to evaluate alternative credit scoring models as an alternative to the current FICO standard employed by the GSEs.  Some housing advocates, such as the National Fair Housing Alliance, urged the GSEs to update their credit-scoring models, saying that “a failure to do so will result in lending that disadvantages protected groups.”

Fair-lending advocates have also argued that the current version of FICO doesn’t include data from some sources that minorities might be more likely to use, including small institutions such as credit unions or payday and subprime lenders.  The GSEs will study the costs and benefits associated with two recent models: VantageScore 3.0 and FICO Score 9.  While weighing the arguments from industry advocates, a Fannie Mae spokesman stated that “the costs for Fannie Mae, lenders and other market participants of incorporating new credit scores may be substantial.”

 
 
CHINA’S CENTRAL BANK CONTINUES WITH CAREFUL MONETARY POLICY

On Sunday, the People’s Bank of China (“PBOC”) held a monetary policy committee quarterly meeting, according to a Xinhua article. The PBOC ultimately vowed to continue its careful monetary policy, flexibly use monetary instruments, and maintain moderate liquidity to achieve reasonable loan and social financing growth. The central bank also specified that it will be closely watching any new developments in the domestic and international economy and finance as well as any changes in international capital flows.

Many committee participants indicated that Chinese economy prices remain stable but it is still facing complicated situations. The meeting, in general, pushed for improvements to the structure of financing and credit, financial system reform, and the financial sector’s capability to facilitate the real economy. They also urged for a market-oriented interest reform as well as a renminbi’s exchange rate formation reform. 

 
 
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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