September 11, 2013 Newsletter
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September 11, 2013


Issue Spotlight

Recent Developments


Representatives of SFIG’s Money Market Reform working group met with staff members of the Securities and Exchange Commission (SEC) on September 10, 2013, to discuss proposed changes to the issuer and guarantor diversification rules under SEC Rule 2a-7. These rules were proposed by the SEC on June 5, 2013, and the comment deadline is September 17, 2013. The discussion at the meeting centered around the impact of the proposed rule changes on asset-backed securities, with a particular emphasis on ABCP. SFIG’s goal in the meeting was to describe the impact that the proposed rule changes would have on the ABCP market and to set the stage for advocacy in SFIG’s comment letter on this issue.

Click here for SFIG’s presentation materials from the SEC meeting. Click for a discussion of the proposed money market rule changes from the June 11, 2013 edition of the SFIG Newsletter.


The U.S. Senate Committee on Banking, Housing and Urban Affairs has invited SFIG Executive Director Richard Johns to testify on behalf of SFIG at a full Banking Committee hearing to be held on September 12, 2013. The purpose of the hearing is to receive testimony on GSE reform issues, including the provisions of the “Secondary Mortgage Market Reform and Taxpayer Protection Act of 2013” (Corker-Warner Bill). The hearing will commence at 10 am in the Banking Committee’s main hearing room.

SFIG has been asked to present its views generally on the Corker-Warner Bill, and in particular to help identify and resolve operational issues related to the framework contained in the bill. The Banking Committee is also very interested in testimony on how to ensure a smooth transition to a new framework, and ensure the preservation of key aspects of the current mortgage market, such as the TBA market.

The invitation to testify followed a meeting on September 5, 2013, during which representatives of SFIG met with over a dozen staff members from the Senate Banking Committee, together with several members of individual Senators’ staffs.

During the two-hour session, SFIG presented the staff members with a memorandum (Memorandum) outlining SFIG’s high-level observations on the Corker-Warner Bill and on other aspects of housing finance reform.

Click here for the Memorandum.


SFIG’s Credit Risk Retention Task Force has begun to hold meetings in order to formulate views for SFIG’s comment letter to be submitted in connection with the Credit Risk Retention Re-Proposal. The Credit Risk Retention Task Force has set up product specific sub-groups in order to facilitate discussions and ensure that all opinions have a forum. Those sub-groups are: RMBS, CMBS, Credit Card/Revolving Master Trust, Auto, Equipment & Floorplan, Student Loans, Resecuritization, Muni Bond Repackaging/Tender Option Bonds, Corporate Debt Repacking, CLO; Synthetic/Structured Notes, ABCP, and International.

If you are interested in participating in the working group, please contact SFIG at, or Paul Kurzeja at Paul.Kurzeja@bankofamerica and




Congress returned to Washington this past Monday after a five-week recess. The returning Members faced an already crowded agenda that has changed materially due to foreign policy developments. These developments remain unpredictable, and have the potential to alter completely the legislative agenda between now and the end of the year.

Of the items that Congress may address between now and the end of the year, only two arguably impact the securitization industry directly. The first item is making progress on reform of the housing finance markets, and in particular the re-constitution, replacement or dismantling without replacement of the two government-sponsored entities (GSEs), Fannie Mae and Freddie Mac. The second item is the U.S. Senate’s confirmation of Representative Mel Watt (D-NC) to be the Director of the Federal Housing Finance Agency (FHFA).

Other items on Washington’s agenda have less direct impacts on the securitization industry, although those impacts may be quite large. Three items of particular importance are: (i) the nomination and subsequent confirmation of a replacement for Ben Bernanke as Chair of the Board of Governors of the Federal Reserve System (Federal Reserve); (ii) the funding of the federal government’s budget for the 2014 federal fiscal year that commences on October 1, 2013; and (iii) the need to increase the federal debt limit. These three items are ones – and probably the only ones, apart from foreign policy matters – that the President and Congress must deal with in the short term.

Finally, the Federal Reserve will meet on September 17 and 18, 2013 to continue discussions concerning the winding down, or “tapering” of the current program of quantitative easing. Indications are that such a tapering is likely to commence at a modest level, and that any reduction in the Federal Reserve’s bond buying will affect only the volume of Treasury securities being purchased by the Federal Reserve, with the volume of agency MBS being purchased expected to remain unchanged.

GSE Reform and Watt Nomination

With respect to GSE reform, there are two distinct legislative initiatives, one in each chamber.

In the Senate, the “Housing Finance Reform and Taxpayer Protection Act of 2013” (Corker-Warner Bill) has received bi-partisan support in terms of its co-sponsors (Senators Bob Corker (R-TN) and Mark Warner (D-VA)).

The Corker-Warner Bill would eliminate Fannie Mae and Freddie Mac, but would replace them with an entity modeled after the Federal Deposit Insurance Corporation that would be able to issue explicit federal guarantees of mortgage-backed securities. Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID), while both supportive of Senators Corker’s and Warner’s effort, have made it clear that the Senate Banking Committee’s first priority with respect to housing is to address funding issues at the Federal Housing Administration (FHA). Senator Johnson said that the Committee will turn to “broader housing finance reform” after moving FHA legislation. The Committee did advance the FHA legislation on July 31, 2013 (S.1376) but the bill has yet to be taken up by the full Senate.

The Senate Banking Committee has scheduled a hearing on the Corker-Warner Bill and other aspects of housing finance on September 12, 2013. SFIG Executive Director Richard Johns will testify on behalf of SFIG.

Given the progress that has been made on the FHA legislation and the fact that the Senate Banking Committee will be holding the September 12 hearing, it is not impossible that a Committee mark-up of the Corker-Warner Bill could occur by year end.

In the House, the most recent development on GSE reform was the approval by the House Financial Services Committee on July 25, 2013 of a bill lead sponsored by Committee Chairman Jeb Hensarling (R-TX). That bill would eliminate Fannie Mae and Freddie Mac and would replace them with a purely private mortgage finance system.

The differences between the Senate and the House’s current versions of GSE reform legislation are great.

Based solely on co-sponsors and votes taken to date, it would appear that the Corker-Warner Bill has more bi-partisan support in the Senate than Representative Hensarling’s alternative approach has in the House.

Also in the House, an FHA solvency bill (H.R.1145) was introduced in March by Representative Maxine Waters. That bill was referred to the Committee on Financial Services, which has yet to take it up.

Turning to the nomination of Representative Mel Watt for FHFA Director, many commenters have suggested that Representative Watt’s positions on housing matters are closer to the positions of the Obama Administration than are those of current FHFA Acting Director Ed DeMarco, with whom the Administration has had some disagreements. This is particularly the case with regard to the issue of permitting principal reductions on loans held in Fannie Mae and Freddie Mac’s portfolios, an approach Mr. DeMarco has rejected. Although Representative Watt has in the past supported the notion of principal reductions, he was more circumspect in his confirmation hearing before the Senate Banking Committee on June 27, 2013. At the hearing, when asked directly about his position on principal reductions, Representative Watt replied:

I suspect I will be asked to look at that again because some people will still think it’s a relevant question, despite the fact that housing prices have gone up and there are fewer and fewer people underwater at this point than there have been.

But I would start, as I would with any issue that has already been decided by FHFA, I would start by studying carefully how that decision was reached, what it was based on, and then I would build on that new information – the information on which that decision was made is a year and a half old now – and make a responsible decision.

Representative Watt’s nomination was not one of those included in the mid-July deal in the Senate in which Majority Leader Harry Reid (D-NV) agreed to drop the threat of filibuster reform in exchange for receiving Senate confirmation of three other appointees, including Consumer Financial Protection Bureau Director Richard Cordray.

Senators Corker and Crapo both oppose Representative Watt’s nomination.

Congress and The President

Currently, the House is expected to be in session only nine days in September and the Senate plans to be in session sixteen days. As noted above, when Congress left for its recess there were three items that absolutely required Congress’ attention when it returned: the Chair of the Federal Reserve replacement, the 2014 federal budget and the debt ceiling.

Chairman Bernanke’s term at the Federal Reserve expires on January 31, 2014 and his replacement is subject to U.S. Senate confirmation. The new federal fiscal year begins on October 1, 2013, so some action on budget issues will need to be taken before that time. When precisely the U.S. Department of the Treasury (Treasury) will “hit” the current debt ceiling is not known with precision, although estimates run from mid-October to mid-November.

However, it appears that none of these items will in fact be first on Washington’s agenda during the first weeks of the new session. Rather the first items of business will be President Obama’s call for Congress to pass a use-of-force authorization against Syria.

Any Congressional action on Syria may also impact negotiations concerning the funding of the federal budget, according to several press reports. The reason is that some Members of Congress may wish to revisit the so-called “sequester” as it relates to military spending in connection with any use-of-force authorization. If the sequester is re-addressed in the context of military spending, it begs the question whether the sequester should be re-addressed more generally.

Were the sequester to be lifted generally, there may be a tangential effect on the securitization industry by restoring funding to various federal agencies, such as the Commodities Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), that have substantial remaining tasks to complete for Dodd-Frank rulemaking. Presumably, a higher level of funding at these agencies would be a positive development for quicker action on rulemaking, although any such connection may be speculative.

Politico reports that the U.S. House of Representatives may try to make progress during the week of September 9, 2013 on a continuing resolution to fund the government through mid-December of 2013. Any continuing resolution adopted by the House would likely keep the sequester in place.

Another legislative initiative left over from the summer – passing a farm bill – may also impact any resolution of federal budget matters before the start of the fiscal year. Some observers predict that failure to take any action on the farm bill before October 1, 2013 may cause the prices of certain commodities – including milk – to double. Passage of a farm bill has been delayed due to differences between the two chambers on food stamps in particular.

The second financial matter facing Congress and the President this fall is the raising of the debt ceiling. Unlike the commencement of the federal fiscal year, there is no hard date that attaches to this event, with estimates ranging from mid-October through mid-November.

Besides Syria and the farm bill, action on both the budget and the debt ceiling could be impacted by continued negotiations over the continuance of the sequester and by various aspects of the Affordable Care Act. The health exchanges required under the Affordable Care Act are scheduled to open on October 1, 2013 and funding requirements for certain elements of the program will increase on that date.

The Federal Reserve’s September Meeting

The Federal Reserve will meet on September 17 and 18, 2013 and is expected to make a decision on whether to begin to reduce the level of quantitative easing, currently $85 billion per month. The current reported consensus of economists is that the Federal Reserve will announce a “dovish taper” following that meeting, reducing the $85 billion per month level to $70-$75 billion. The economists also are generally of the view that any tapering will be concentrated in the current level of U.S. Treasuries being purchased by the Federal Reserve - $45 billion per month – rather than in the agency MBS portion of $40 billion per month.

If tapering is apportioned to Treasuries rather than agency MBS, that would be important for the housing markets, which have seen rates on 30-year fixed rate mortgages recently rise by over one percentage point. Any further increase in interest rates would not only continue to decrease refinance volume (which accounts for over two-thirds of Fannie Mae and Freddie Mac’s volume) but would also affect the purchase money market and first time buyers in particular. First time buyers are usually sensitive to the absolute level of their monthly mortgage payment. Some research presented at the recent Jackson Hole monetary conference suggested that although the Federal Reserve’s purchases of Treasuries had little impact on other interest rates and was not a macro stimulus, an impact on mortgage rates was found as a result of the agency MBS purchases.

Some commenters remain bullish on the Federal Reserve’s approach in general. Writing recently in the on-line edition of Barron’s, associate editor Randal W. Forsyth observed:

Keeping the monthly [payment] in check for automobiles is another sign of the Fed’s success. Car and light-truck sales surged to a 16 million seasonally adjusted annual rate in August, matching the cyclical peak of 2006-07. While the average selling price of a new car is north of $30,000, cheap leases can put you behind the wheel for $200 or less for mid-sized sedans and under $400 for some luxury models. Credit the revival of the asset-backed securities market by the Fed’s zero-rate policy for the boom in car sales.

Progress on Dodd-Frank Regulations 

On the regulatory agenda, the six agencies (Joint Regulators) re-proposed the credit risk retention rule (Risk Retention Rule) on August 28, 2013. Indications are that the Joint Regulators intend to produce a final rule by the end of 2013.

In addition to the Risk Retention Rule, three other rules of substantial importance to the industry remain unfinished: the so-called “Volcker Rule” required by Section 619 of the Dodd-Frank Act, which is also the product of a joint rule-making effort by the Joint Regulators; the “Securitization Conflicts of Interest” Rule required by Section 621 of the Dodd-Frank Act and for which the (SEC) has sole rule-making authority; and the re-proposal of Regulation AB (Reg AB2), for which the SEC is responsible.

Indications are that the Joint Regulators intend to make progress on the Volcker Rule by the end of 2013, although that may be overly ambitious. The SEC is likely to wait until the Joint Regulators take action on the Volcker Rule before proposing a final rule, or taking other action on the Conflicts of Interest Rule. There has been little indication as to when the SEC will propose a final Reg AB2.


The City Council of the City of Richmond, California voted 4-3 early this morning to continue exploring Mortgage Resolution Partners’ (MRP) proposal to use the City’s power of eminent domain to seize underwater mortgages – mortgages in which the outstanding principal balance of the mortgage note exceeds the current fair market value of the related property.

According to a press report in the on-line version of the San Francisco Chronicle, there remain substantial divisions among the members of the City Council regarding the MRP proposal. The Chronicle reports that it will take a five member super-majority of the Council to proceed further with the plan, and “there does not currently appear to be the necessary fifth vote.”

Richmond parts company with the City of North Las Vegas, Nevada, which last week decided against proceeding with MRP’s proposal.

Click here for the article from the San Francisco Chronicle. Click here for the SFIG’s Alert on North Last Vegas’ action.


HousingWire reported on September 9, 2013 that the Federal Housing Finance Agency (FHFA) is contemplating reducing the conforming loan limits – the maximum size of home loans eligible for acquisition by Fannie Mae and Freddie Mac – on January 1, 2014.

The conforming loan limits are currently $417,000 in most of the country, and up to $625,000 in expensive housing markets.

Mortgage Bankers Association President and Chief Executive Officer David Stevens believes that the loan limits will be reduced to $400,000 and $600,000, according to the HousingWire article. Mr. Stevens was quoted in the article as saying:

While the change will be small, it will be assumed that borrowers in the middle class won’t have an option for a home loan unless FHA takes over the loans that are no longer eligible. It’s just going to frankly totally eliminate the access for any borrowers who are now cut out of those loan limits.


Former U.S. Senator and co-lead sponsor of the Dodd-Frank Act, Chris Dodd, was recently interviewed by Gerald Seib of The Wall Street Journal. The transcript of the interview was released on the Journal’s blog on September 8, 2013.

In the interview, the former Senator said that one thing he would have done differently in drafting the legislation would have been to include a measure to reform the two government-sponsored entities (GSEs), Fannie Mae and Freddie Mac. He said that “…it wasn’t for lack of trying… we just couldn’t come up with an answer.” He added that he thought the GSE reform bill lead-sponsored by Senators Bob Corker (R-TN) and Mark Warner (D-VA) “has some chance of building some broad bipartisan support…”


Consumer Financial Protection Bureau (CFPB) Director Richard Cordray stated in a recent interview that the January 10, 2014 effective date of the CFPB’s new mortgage rules, including the ability-to-repay “qualified mortgage” (QM) rule, is “a date that Congress was pretty firm in setting.” Mr. Cordray was quoted in a September 6, 2013 item appearing in RegWatch, the regulation blog of the Washington newsletter The Hill.

Some mortgage industry participants have indicated that substantial uncertainty remains regarding the QM rule, and that a delay in its effectiveness may be appropriate while these issues are addressed.

The RegWatch article indicated that Mr. Cordray’s response to any suggested delay was that the general contours of the regulations have been apparent since the passage of the Dodd-Frank Act in 2010. Mr. Cordray was quoted as saying:

We have been responding to concerns, offering clarifications where needed, making sure that practical issues that are arising are being addressed. We’ll continue to work closely with [commenters on the QM rule] to see that these rules are implemented on time and that consumers can have the benefit of the rules and the industry can continue to move forward without further uncertainty of interim periods.


Mortgage credit availability decreased in August according to the Mortgage Credit Availability Index (MCAI) according to a report from the Mortgage Bankers Association (MBA).

The MCAI decreased 0.7% to 111.5 in August, the first drop following four consecutive months of increases. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of a loosening of credit. The Index was benchmarked to 100 in March 2012.

According to Mike Fratantoni, MBA’s Vice President of Research and Economics:

The slight decline in the MCAI in August reflected a reduction in the availability of certain loan features, particularly interest-only and terms exceeding 30 years. As these loan features are outside of the qualified mortgage (QM) definition, these changes may reflect the beginning of QM implementation, and the fact that Fannie Mae and Freddie Mac are limited to acquiring loans that meet the QM definition.

Click here for the MBA’s press release on the August MCAI.


On September 5, 2013, the Federal Reserve Bank of New York released a study (FOMC Study) authored by economist Carlo Rosa that examines the effect of the release of Federal Open Market Committee (FOMC) minutes on U.S. asset price volatility.

The FOMC Study found that the release of the FOMC’s minutes generated higher than normal volatility across different asset classes (U.S. Treasury, equity, U.S. dollar exchange rates). For example, the volatility of the two-year Treasury is roughly three times larger on days when the FOMC minutes were released.

The FOMC Study also concluded that the effect of releasing the FOMC minutes has declined since 2008. This was thought to result from an increased level of transparency from the Federal Reserve, as news of the FOMC deliberations has been released more promptly following the meetings.

Click here for the FOMC Study.


On September 4, 2013, the Consumer Financial Protection Bureau (CFPB) released a bulletin (Bulletin) regarding the Fair Credit Reporting Act’s (FCRA) requirement to investigate disputes and review “all relevant” information provided by consumer reporting agencies about the dispute.

The Bulletin is directed towards “furnishers” – those who furnish information to the consumer reporting companies such as Equifax, TransUnion and Experian.

The CFPB cautions furnishers that when a consumer dispute is brought to a furnisher’s attention by a credit reporting company following a compliant of inaccuracy by a consumer, the furnisher must review and consider all relevant information relating to the dispute.

The Bulletin states that the CFPB expects each furnisher to fulfill its legal obligations under the FCRA by:

  • Receiving information and investigating disputes: When a consumer files a dispute about a credit report item, companies are required to be able to receive information about the dispute and must investigate the consumer’s concerns.
  • Providing investigation results: Furnishers must report the results of the investigation to the consumer reporting company that sent the dispute originally.
  • Correcting inaccurate information: Furnishers are required to report the results of the investigation to consumer reporting companies if those companies may have received inaccurate or incomplete credit information. Furnishers also have to modify, delete, or permanently block disputed information that is incomplete, inaccurate, or cannot be verified.

Click here for the Bulletin.


The Securities and Exchange Commission (SEC) announced on September 4, 2013, that Paula Dubberly, Deputy Director of the Division of Corporation Finance, is retiring later this month after more the 20 years of service at the SEC.

Ms. Dubberly is well-known to securitization industry participants through her work on Regulation AB and other rules governing the securitization markets.

Click here for the SEC’s press release on Paula Dubberly’s retirement.


The latest Real-Time Homebuyer Survey (Homebuyer Survey) released on September 4, 2013 by Redfin suggests that rising mortgage rates are having a significant impact on homebuying decisions.

According to the Mortgage Bankers Association, the average rate on a 30-year fixed rate mortgage was 4.75% at the end of August, up from 3.60% at the end of April.

According to a summary of the Homebuyer Survey:

  • Rising mortgage rates are making it harder for would-be buyers to afford a home: A total of 63% of respondents said that rising mortgage rates this summer have negatively impacted their ability to buy a home.
  • Rising mortgage rates are causing some buyers to speed up, others to slow their search: 33% of respondents said that the rising level of mortgage rates this summer led them to increase the pace of their home search while 20% have slowed their pace. 1% reported that higher rates stopped their search altogether.
  • Homebuyers believe that the market may still be shifting from seller control: Buyers who believe now is a good time to sell in their neighborhood fell to 63% from 66% last quarter, marking the first drop in three quarters.
  • Homebuyers are most worried about low inventory, rising mortgage rates: Low inventory remains a key concern for buyers at 58%, down 8% from 66% last quarter. Respondents cited rising mortgage rates, a new question, as their second largest concern at 53%.

Click here for the Homebuyer Survey.



Residential Mortgage Roundtable – October 16, 2013, New York City, New York, 2pm – 6pm. Further details to follow.

ABS Vegas 2014 – January 21-24, Las Vegas, Nevada. Click here for more information.

SFIG is now accepting sponsorship contracts for this conference. Please contact us if you are interested.



SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry. Please visit our website 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 to learn about membership opportunities.


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