September 10, 2014 Newsletter

SFIG News

SFIG Calendar

Advocacy Outlook

Industry News Highlights

Upcoming Events in Washington

 
SFIG NEWS
SFIG ISSUES STATEMENT ON FINAL LIQUIDITY COVERAGE RATIO RULES

On Monday, SFIG issued a public statement in response to the final liquidity coverage ratio (“LCR”) rules approved by the Federal Reserve Board (“FRB”), Federal Deposit Insurance Corporation (“FDIC”) and the Office of the Comptroller of the Currency (“OCC”) on September 3rd

SFIG applauded the FRB, FDIC, and OCC for implementing the “look through” approach for unfunded commitments.  Such an approach to regulating direct bank securitized lending allows a critical source of funding for the real economy to remain open for business.  However, SFIG was disappointed by the final decision to treat other instruments that affect lending to the U.S. economy, including asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”), as illiquid under the definition of high-quality liquid assets (“HQLA”).

SFIG will continue to advocate that:

  • Denying liquidity credit for certain ABS classes, such as autos and credit cards, is inconsistent with their credit and liquidity performance during the financial crisis;
  • Denying any HQLA benefit for private label MBS runs contrary to the Administration’s goal of bringing back private capital to the U.S. housing finance system; and
  • Designating agency securities as level 2A assets does not reflect actual market liquidity, considering they are the third most liquid market in the world behind U.S. Treasuries and Japanese bonds.

To participate in SFIG’s ongoing education and advocacy activities relating to the final LCR rules, please contact Mary.Robinson@sfindustry.org.

 
 
SFIG SUBMITS COMMENTS ON FHFA’S REQUEST FOR INPUT ON GSE G-FEES

On Friday, September 5th, SFIG submitted comments to the Federal Housing Finance Agency (“FHFA”) regarding the appropriate level for guarantee fees (“G-fees”) charged by the Government Sponsored Enterprises Fannie Mae and Freddie Mac. FHFA had released the request on June 7th, which included 12 questions on how the G-fees are set and what the impact has been in the broader housing market. In its release, FHFA stated that it wants to ensure Fannie Mae and Freddie Mac set G-fees at a level to cover the cost of capital, administrative expenses, and expected credit losses, while still turning a profit.  To read SFIG’s response, please see our comment letter.

 
 
SFIG CALENDAR
REGULATORY CAPITAL AND LIQUIDITY COMMITTEE CALL ON LCR RULE

THURSDAY, September 11, 2014
2:00 p.m. – 3:00 p.m. (EST)

 
 
CHINESE MARKET COMMITTEE CALL

THURSDAY, September 12, 2014
9:00 a.m. – 10:00 a.m. (EST)

 
 
DERIVATIVES IN SECURITIZATION TASK FORCE CALL

MONDAY, September 15, 2014
11:00 a.m. – 12:00 p.m. (EST)

 
 
IMN ABS EAST 2014 CONFERENCE (SFIG—LEAD ASSOCIATION PARTNER)

SUNDAY, September 21, 2014 – TUESDAY, September 23, 2014
The Fontainebleau Hotel
Miami Beach, FL
Registration available here

Richard Johns will be speaking on the “General Session: Overview of the State of Mortgage Funding in the U.S.” panel and Sairah Burki will be participating on the “General Session: Assessing the Big Picture: What will be the Overall Impact of Emerging Legislation on ABS?” panel.

 
 
SFIG FALL SYMPOSIUM

TUESDAY, October 21, 2014
6:00 p.m. – 9:00 p.m. (EST)
Ernst & Young
5 Times Square
New York, NY  10036
Registration and agenda will be forthcoming 

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

 
 
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.

 
 
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 build upon the momentum of its recent release of its First Edition RMBS 3.0 Green Papers, and the submission of a response to Treasury’s request for input on Private Label Securities. The Task Force will continue 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  recently submitted comments in response to the FHFA’s request for input on guarantee fees. Next, SFIG will next comment on FHFA’s Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac and proposed structure for a single agency security. The Task Force previously reviewed the Johnson-Crapo proposal, with SFIG staff summarizing its recommendations in a briefing book on the legislation. SFIG has also reviewed the House Republicans’ proposal for GSE Reform, 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. 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, with proposed questions and answers reviewed by the task force via survey. 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 is launching its Chinese Market Committee and will be holding the first full committee call on September 12th. The agenda for this call includes: an introduction of the co-chairs, 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 held a call to walk through the key points of the Regulation AB II rules on Tuesday, September 2nd. Additional member calls may be held at the Regulation AB II Task Force level or within individual asset class committees. SFIG members who are interested in joining this task force or who have any questions 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 will be commenting on the reproposal regarding margin and capital requirements for uncleared swaps.  SFIG also 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 Alyssa.Acevedo@sfindustry.org.

SFIG’s Credit Rating Reform Task Force will reconvene shortly via conference call to discuss the Securities and Exchange Commission’s recent Final Rules for nationally recognized statistical rating organizations, which were approved August 27th. Members interested in joining this Task Force 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 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
FINANCIAL REFORM IMPLEMENTATION REVIEWED BY SENATE BANKING COMMITTEE

Yesterday, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to assess implementation of financial reforms by U.S. federal regulators.  Witnesses included Daniel Tarullo, Federal Reserve Board (“FRB”) Governor, Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation, Thomas Curry, Comptroller of the Currency, Mary Jo White, Chair of the Securities and Exchange Commission (“SEC”) and Timothy Massad, Chairman of the Commodity Futures Trading Commission (“CFTC”).

Important to SFIG members, the regulators conveyed the following timing for final rules:

  • Risk Retention – Regulators expect to finalize the joint rule by the end of the year
  • Margin Rules - The CFTC will re-propose margin rules on September 17th, and expects to finalize rules early next year
  • Bank Liability Concentration – The FRB expects to finalize a cap on bank liability concentration by the end of the year
  • Net Stable Funding Ratio – The FRB expects to finalize rules by the end of the year
  • Swaps and Derivatives – The SEC indicated that finalizing rules are at the “top of the list” of its priorities.

Senators at the hearing pressed the regulators to implement rules in a timely fashion, and work together to ensure that rulemaking is coordinated.

 
 
REGULATORS MUST DEFINE TERMS FOR SUCCESSFUL ABS REVIVAL IN EUROPE WHILE ECB CUTS INTEREST RATES AND IS EXPECTED TO START BUYING ASSETS

The European Central Bank (“ECB”) is getting ready to buy “simple, transparent and real” asset-backed securities (“ABS”).

Last month, ECB President Mario Draghi stated that ECB purchases of asset-backed securities “would lead to a reconstruction of a market that has disappeared with the crisis,” which is why they will focus on easy to price products. The ECB is also expected to start buying ABS as part of their quantitative-easing program. This program is intended to boost a euro-area economy that is teetering on deflation.

In terms of ABS, “simple means readable,” Draghi said. “Transparent means that you can actually go through and price them well. And real means that they are not going to be a sausage full of derivatives.”

European Union and international regulators are working on nearly 19 measures that may affect demand for securitized debt with many debuting next year. The ECB has “intensified preparatory work related to outright purchases” of ABS on what constitutes a high-quality, transparent product worthy of preferable regulatory treatment in the absence of clear European or international standards.

 
 
FRANCE AND GERMANY WILL NOT PARTICIPATE IN THE ECB ABS PROGRAM

Two of the largest economies in Europe, France and Germany, say that they are not interested in providing state guarantees for the recently announced European Central Bank (“ECB”) Asset-Backed Program (“ABS”), according to a Bloomberg article. The President of the ECB Mario Draghi previously asked governments to guarantee several elements of ABS so that the ECB may unlock funding in the region’s stalling economy.

However, the French and German governments believe that “(a)n intervention in the form of a public guarantee would be problematic” and that investors should be “incentivized to scrutinize the securitizations, and not to rely on a guarantee.” As a result, the German Finance Minister Wolfgang Schaeuble indicated that he is working with his French counterpart on ways to create an ABS market that is strong enough not to rely on the ECB as the main buyer, as reported by Bloomberg

“We’re working on the revitalization of a market for high-quality securitizations in Europe, which were discredited by the banking crisis,” Schaeuble said. “Creating securitization standards doesn’t mean that central banks have to be the main buyers of such securitizations. We want to make them marketable.”

European leaders are scheduled to meet on October 6th in order to discuss a joint proposal that will focus on measures to revive the region’s stalling economy.

 
 
CONGRESSMEN HENSARLING AND GARRETT CALL FOR REVIVAL OF PLS MARKET

On Monday, September 8th, House Committee on Financial Services Chairman Jeb Hensarling (R-TX) and Subcommittee on Capital Markets and Government-Sponsored Enterises Chairman Scott Garrett (R-NJ) sent a letter to Treasury Secretary Jacob Lew applauding the department’s initiative to revive the private label securities (“PLS”) mortgage market. 

At the same time, the Congressmen asked the Administration to change its current polices and level the playing field between the GSEs and the private market by increasing guarantee fees to more accurately price for risk and lowering conforming loan limits.  They also pointed out that the return of PLS will also hinge on the outcome and costs to implement the pending and final regulations required by Dodd-Frank Wall Street Reform, Consumer Protection Act and Basel III capital requirements.

The letter states that “f the Treasury Department and this Administration are serious about encouraging a multi-participant, well-functioning and sustainable PLS market recovery, the Administration must enact policies that shrink the GSEs’ share of the market, reduce their competitive advantages, and ensure that the cumulative effect of the new regulations does not hamper the ability of the private market to compete with the government-backed housing model.”

 
 
U.S. DEBT RELIEF LEGISLATION STALLED IN CONGRESS; COULD RESULT IN LOSSES FOR RMBS HOLDERS

An extension of the Mortgage Forgiveness Debt Relief Act of 2007 has stalled in Congress with midterm elections approaching in November. This past May, the Senate put together a procedural vote to pass the bill, but the final terms have yet to be agreed upon with partisan disagreement over prolonging the tax relief.

Reuters has reported that homeowners may face steep tax bills if the act is not extended before April 2015, thus causing some to walk away from their loans and putting pressure on legacy residential mortgage backed securities (“RMBS”). The act exempts up to $2 million of mortgage debt forgiven by a lender from being deemed U.S. federal taxable income. If homeowners who accept a forgiveness have to pay tax on that amount, this may change the collateral equation under RMBS bonds.

As Attorney General Eric Holder pointed out, "Until Congress acts, the hundreds of thousands of consumers we have sought to help through our settlements…may see a significant tax bill just as they are beginning to see the light at the end of a dark financial tunnel.”

 
 
SURGE IN CMBS MARKET THREATENS TO OVERWHELM BUYERS

Lenders are gearing up to sell approximately $15 billion of commercial-mortgage offerings this month. This rush threatens to overwhelm demand in the commercial-mortgage backed securities (“CMBS”) market, especially for those CMBS that are more vulnerable to landlord defaults.

Industry experts have been expecting this ramp up given that buyers held back last month amidst lingering concerns that geopolitical risk may deter people from riskier assets, forcing dealers to increase yields for securities on the bottom rung of investment-grade to entice investors.

These securities are becoming increasingly challenging to place given rating agencies’ tougher responses to looser loan terms.

 
 
SEC RUMORED TO PREPARE NEW RULES FOR MUTUAL FUNDS AND OTHER FIRMS

The U.S. Securities and Exchange Commission (“SEC”) is developing new rules to enhance its oversight of asset managers, including requirements that firms provide regulators more data about their mutual-fund portfolio holdings and undergo stress testing, the Wall Street Journal reported on Sunday. SEC Chair Mary Jo White has previously discussed her agency’s increased focus on risk monitoring of asset managers and other funds, telling audiences in a February speech that she had asked staff to develop an action plan for their oversight that would include more robust data reporting and closer monitoring of the largest firms. According to the Wall Street Journal, “SEC staff is developing the rules with the five-member commission but has yet to complete a formal proposal.” Since the rules would have to be voted on a second time before taking effect, the process could take months or years to complete.

Asset managers have come under intense scrutiny by the Financial Stability Oversight Council (“FSOC”) since the Treasury Department’s Office of Financial Research published a scathing report on the potential risks stemming from asset management and called for heightened regulation of the sector. That report is often cited as support for designating certain asset managers as systemically important financial institutions, thereby subjecting them to increased oversight by the Federal Reserve Board. As the primary regulator of mutual funds, hedge funds, and other firms in the asset management industry, the SEC has therefore come under pressure to issue its own rules, which appear to be imminent.

 
 
CFTC TO HOLD OPEN MEETING TO CONSIDER MARGIN REQUIREMENT PROPOSED RULE

On Wednesday, September 17th, at 2:00 p.m. (EST), the U.S. Commodity Futures Trading Commission (“CFTC”) will be holding a public meeting to consider the proposed rule on margin requirements for uncleared swaps for swap dealers and major swap participants. A live webcast of this meeting will be made available that day.

The prudential regulators have already released a proposal, which SFIG will be discussing during a call of the Derivatives in Securitization Task Force on Monday, September 15th. If you are interested in joining this task force, please contact Alyssa.Acevedo@sfindustry.org

 
 
CHINA TO CONSIDER LETTING CERTAIN DEVELOPERS SELL INTERBANK BONDS

On August 29th, the National Association of Financial Market Institutional Investors released a plan to allow listed developers to sell bonds in China’s interbank market. These bonds will be used to build houses thus providing a possible new source of financing to a sector that is facing decreasing prices and increasing debt levels.

Industry experts believe that China is pushing this new round of stimulus in order to reach its 7.5 percent growth target, especially after poor performances in July and August.

Opening up the domestic onshore note market will broaden financing options for Chinese developers. Bloomberg data shows that $10.4 billion in bonds and loans will be maturing before the end of 2014.

 
 
UPCOMING EVENTS IN WASHINGTON
CFPB AUTO FINANCE FIELD HEARING
THURSDAY, September 18, 2014
11:00 a.m. (EST)
Indianapolis, IN
Additional details available here
 
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 Senior Policy Analyst

Alyssa Acevedo Policy Analyst

Amanda Bateman Policy Analyst

Jennifer Serpas Office Manager

Allison Creswell Executive Administration


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