September 18, 2013 Newsletter
Problem viewing this email? Click here for our online version.
September 18, 2013


Issue Spotlight

Recent Developments


On September 17, 2013, representatives of SFIG met with representatives of the Securities Industry and Financial Markets Association, the Mortgage Bankers Association, the Financial Services Roundtable and a number of other industry participants to discuss and co-ordinate the participants’ next steps with regard to eminent domain (the “Joint Meeting”).

SIFMA circulated to the participants draft letters prepared by Congressman Keith Ellison (D-MN) and Congressman Raul Grijalva (D-AZ) to Secretary Donovan of the U.S. Department of Housing and Urban Development (HUD) and Acting Director DeMarco of the Federal Housing Finance Agency (FHFA) urging HUD and FHFA to ensure that Federal Housing Administration programs and Fannie Mae and Freddie Mac investments “will not discriminate against low-income borrowers, including Latinos and African Americans, who seek short refinances of toxic underwater loans that American cities acquire through their powers of eminent domain”. These letters are being circulated in the U.S. House of Representatives for execution by other members as evidence of their support.

Participants at the Joint Meeting decided against a similar letter campaign and are moving forward with scheduling meetings with various members of Congress and their staffs to discuss the public policy and legal concerns that would arise from the use of the power of eminent domain to seize underwater mortgage loans.

The participants agreed that meetings related solely to eminent domain may not be as well attended as meetings to discuss housing policy reform in general that include a segment on eminent domain. The participants discussed the need to continue discussions with the U.S. Department of the Treasury and HUD on this issue, and will reach out to the Consumer Financial Protection Bureau for its view.

As noted below under RECENT DEVELOPMENTS, a judge in California has dismissed an action brought by two securitization trustees to enjoin the City of Richmond, California from proceeding with an eminent domain strategy to seize “underwater mortgages.” Also reported below is that Seattle, Washington has retained Professor Robert Hockett to deliver a report regarding Seattle’s possible responses to its underwater mortgage loans, including eminent domain. Professor Hocket is one of the legal architects of the eminent domain strategy.

Last week the City of North Las Vegas, Nevada rejected proceeding with an eminent domain strategy.


On June 5, 2013, the Securities and Exchange Commission (SEC) proposed revisions to Rule 2a-7 under the Investment Company Act of 1940 (Rule). If adopted as proposed, these changes would affect asset-backed commercial paper (ABCP) programs in a variety of significant ways:

A sponsor of an ABCP program would be treated as a guarantor of all of the ABCP conduit's commercial paper notes unless the board of directors of a money market fund made a determination that the fund did not rely on the sponsor’s financial strength for credit or liquidity purposes (New Sponsor Rule).

Sponsors treated as guarantors under these new provisions would no longer be “noncontrolled persons” for purposes of the Rule’s guarantor diversification limit, and therefore both partially and fully supported ABCP conduits would need to comply with both the Rule’s 5% issuer diversification limit and its 10% guarantor diversification limit.

ABCP conduits that are affiliated by equity ownership would be treated as a single issuer for purposes of the Rule’s 5% issuer diversification limit (New Affiliate Rule).

The New Sponsor Rule would apply in determining what entities are guarantors of 10% obligors for purposes of the Rule.

The New Affiliate Rule would apply in determining what entities are 10% obligors of ABCP (and therefore issuers for purposes of the Rule’s 5% issuer diversification limit).

On September 17, 2013, SFIG submitted a comment letter on the Rule 2a-7 aspects of the SEC's money market fund reform proposal (Comment Letter). The Comment Letter requested the following changes to the proposed Rule revisions:

The New Affiliate Rule should not apply to independent owners of ABCP conduits.

The New Affiliate Rule also should not apply to commonly-owned special purposes entities for purposes of determining whether such SPEs financed by ABCP conduits are 10% obligors that must be treated as issuers for purposes of the Rule’s issuer diversification limit.

The term “sponsor” under the Rule should be defined with respect to ABCP conduits as entities providing more than 50% of the credit and liquidity support to such conduits. Non-financial institution administrators of such conduits do not provide meaningful financial support to such vehicles and as such should not be treated as guarantors of the relevant ABCP for purposes of the Rule’s guarantor diversification limit.

The New Sponsor Rule should not apply to ABS other than ABCP or for purposes of determining whether the obligations of any 10% obligor is guaranteed.

Click here for the Comment Letter.


SFIG Executive Director Richard Johns joined three other witnesses yesterday at a hearing held by the U.S. Senate Banking Committee on "Essential Elements of Housing Finance Reform." The other witnesses were Julia Gordon from the Center for American Progress, Jerome Lienhard, II from SunTrust Mortgage, Inc. and Mark Zandi of Moody’s Analytics.

In his testimony on behalf of SFIG, Mr. Johns emphasized that a central focus of any reform effort must be the preservation of the “To Be Announced” or “TBA” market and proposed a phased-in approach to satisfy that goal, notably:

  • A conversion into a common TBA, making Freddie Mac and Fannie Mae MBS fungible and therefore deliverable into a single TBA market.
  • Provision for the creation of a single agency security, facilitating the conversion and continued liquidity of legacy securities and promoting a deep and liquid new-issue MBS market.
  • Creation of a common securitization platform to oversee and maintain the standardization of the market for government-guaranteed MBS.

Mr. Johns highlighted the role of the catastrophic government guarantee in maintaining the deep liquidity and homogenous nature of the TBA market, while at the same time offering specific views around risk-sharing structures aimed at introducing a first loss position provided by private capital.

Committee Chair U.S. Senator Tim Johnson (D-SD) and Ranking Member U.S. Senator Mike Crapo (R-ID) said that the Committee will hold several more hearings during the fall, and that they are "undertaking this in-depth process with a goal of reaching agreement by the end of the year."

Senator Crapo added that "there seems to be more traction toward moving forward with housing finance reform than there has been at any point during the five-year conservatorships of Fannie Mae and Freddie Mac."

Should a GSE reform bill pass the Senate Banking Committee by year-end, significant hurdles to enactment would still remain, including full Senate passage and harmonization with any effort that emerges from the U.S. House of Representatives. In the House, House Financial Services Committee Chairman Jeb Hensarling (R-TX) has moved his GSE bill – the PATH Act (H.R. 2767) – through committee. A vote in the full House could occur this fall. As previously noted, the PATH Act differs in many key respects from the Corker-Warner bill in the Senate (S.1217). Please see the June 19, 2013 and the July 17, 2013 editions of SFIG’s Newsletter for articles about these key pieces of legislation.

Click here for Mr. Johns' testimony.




Among the major themes of the many provisions of the Dodd-Frank Act that are important to the securitization industry is that securitization is at its most effective in providing an economic benefit to the nation when the incentives to the various participants in securitization transactions are properly aligned.

Mis-alignment of incentives, it is alleged, may come from a number of sources, including asymmetric information, a lack of transparency resulting from overly complex transaction structures, an “issuer-pay” model for credit rating agencies, and “originate-to-distribute” business model employed by some lenders.

The Securities and Exchange Commission (SEC), along with the federal banking and housing regulators (Joint Regulators), have recently re-proposed the credit risk retention rule contemplated by Section 941 of the Dodd-Frank Act. Various industry participants, including SFIG, are in the process of preparing comment letters to express their views.

The bulk of the re-proposed credit risk retention rule is concerned with the implementation of the credit risk retention requirement: the definitions of “vertical” and “horizontal” slices, the tenor of the restriction on hedging, as well as on certain underwriting-based exemptions, in particular the “qualified residential mortgage” exemption.

In his separate statement on the recent risk retention re-proposal, SEC Commissioner Michael S. Piwowar stated that he could not support the re-proposal because, among other reasons, that he believes it “does not adequately consider alternatives to credit risk retention requirements and the interplay between those requirements and other regulatory reforms.”

Among the authorities to which Commissioner Piwowar cites are Section 941(c)(1)(G) of the Dodd-Frank Act, which provides that the regulations promulgated by the Joint Regulators may provide for “a total or partial exemption of any securitization [from the risk retention requirements] as may be appropriate in the public interest and for the protection of investors,” and Section 941(c), which permits for “exemptions, exceptions or adjustments” to the risk retention requirements.

Commissioner Piwowar further notes that separate studies previously conducted by the Board of Governors of the Federal Reserve System (Federal Reserve) and by the Financial Stability Oversight Council (FSOC) each recommended that the Joint Regulators consider the risk retention requirements in the context of all the other Dodd-Frank Act rulemakings. Commissioner Piwowar quotes the FSOC study:

While risk retention offers many benefits, it is one of many reforms. It cannot address all problems in the securitization chain, and will work in conjunction with other reforms. Moreover, risk retention may be more suitable in some circumstances than others, depending on the specific nature of the underlying financial assets.

Arguments in Favor of Risk Retention

Perhaps the most common justification for a risk retention requirement is that it is important for a securitizer to have “skin in the game” when selling asset-backed securities, otherwise the incentives between securitizers and investors may be mis-aligned. This argument suggests that other forms of liability for loss to which a securitzer may be subject (for example, legal liability for representation and warranty breaches) are inadequate to provide the requisite “skin the game.”

The “skin in the game” argument is often coupled with an argument based on “asymmetric information” – that the securitizer is in possession of substantially more information than the investors.

Among Commissioner Piwowar’s suggestions for alternatives to risk-retention are enhanced disclosure requirements, including “mandatory disclosure… to directly reduce informational asymmetries and moral hazard problems.” Some of the disclosure enhancements to which he cites are loan level data and the amount of credit risk actually retained by the securitzer (on a voluntary basis). He also references the repurchase demand disclosure requirements of Section 943 of the Dodd-Frank Act and the issuer asset review requirements of Section 945 as being potentially responsive to the same concerns underlying the risk retention requirements.

The Federal Reserve Report

The Federal Reserve report to which Commissioner Piwowar cites is the Federal Reserve’s “Report to Congress on Risk Retention,” dated October, 2010 (Federal Reserve Report).

In its section entitled “Mechanisms to Align Incentives and Mitigate Risk,” the Federal Reserve Report observes:

Participants in securitization markets – originators, securitizers, rating agencies, and investors – have come to recognize that investors have less information than other members of the securitization chain, particularly about the credit quality of the underlying assets. Furthermore, in some cases, the interests of some participants in the securitization may not be aligned with the interests of investors.

Over time, a series of mechanisms has developed to mitigate these incentives and information problems. All mechanisms share to a certain extent two features: They increase overall the odds that an investor is repaid, and they put at least one member of the securitization chain at risk of loss should the assets perform worse than expected. The latter feature is often referred to as “skin in the game.”

The Federal Reserve Report lists common mechanisms designed to align incentives and protect investors: overcollateralization, subordination, third-party credit enhancement, representations and warranties, conditional cash flows [a waterfall that is reactive to a transaction’s performance] and retention of credit risk.

The Federal Reserve Report notes that the financial crisis put all of the mechanisms to a severe test. It further states that at least with respect to some asset classes, representations and warranties, third-party guarantees and conditional cash flows “failed ex ante to prevent originators and securitizers from originating low quality loans, or failed ex post to limit the losses from poor underwriting practices.”

According to the Federal Reserve Report, those asset categories where significant retention of risk by participants in the securitization process was common market practice – auto loans and leases, credit cards and CLOs – fared relatively well.

The “Qualified B-piece Investor”

With the possible exception of representations and warranties, the risk retention alternatives identified by the Federal Reserve (overcollateralization, subordination, third-party credit enhancements and conditional cash-flows) would, to the extent they are a true alternative to risk retention, involve the sale by the securitizer of the subordinate interest in a securitization to a third-party investor. Put another way, these “alternative mechanisms” appear to be nothing other than credit tranching, to meet the risk appetite of an existing class of investors having a high tolerance for risk in structured credit products. These investors – sometimes referred to as “B-piece” or “residual” investors – are likely to be a different group of investors from those who purchase the investment grade tranches of the related securitization. These investors purchase the tranches that represent the overcollateralization, subordination, junior unrated securities, or provide the third-party credit wrap.

Section 941 expressly recognizes that B-piece investors may provide an alternative to risk retention, although the statutory alternative is limited only to the commercial mortgage space. Section 941(c)(l)(e) provides that, with respect to commercial mortgages, the Joint Regulators may consider:

retention of the first-loss position by a third-party purchaser that specifically negotiates for the purchase of such first loss position, holds adequate resources to back losses, provides for due diligence on all individual assets in the pool before the issuance of the asset-backed securities, and meets the same standards for risk retention as the [Joint Regulators] require of the securitizer.

The statute, by imposing requirements on such a B-piece investor, essentially creates a “qualified B-piece investor,” although the application of this alternative is limited to commercial mortgages.

In its discussion of the re-proposed risk retention rule, the Joint Regulators observed, in the context of this alternative:

In response to the [Joint Regulators’] question in the original proposal as to whether a third-party risk retention option should be available to other asset classes, commenters’ views were mixed. Some commenters expressed support for allowing third parties to retain the risk in other asset classes, with other commenters supporting a third-party option for RMBS and another commenter suggesting the option be made available to any transaction in which individual assets may be significant enough in size to merit the individual review required of a third-party purchaser.

The [Joint Regulators] believe that a third-party purchaser that specifically negotiates for the purchase of a first-loss position is a common feature of commercial mortgage securitizations that is generally not found in other asset classes. However, the [Joint Regulators] believe there is insufficient benefit to market liquidity to justify an expansion of third-party risk retention to other asset classes, and propose to maintain the most direct alignment of incentives achieved by requiring the sponsor to retain risk for the other asset classes…

To further assess this qualified “B-piece investor” alternative to risk retention with regard to other asset classes, it may be useful to consider where the risk lies when it is retained by a securitizer.

To the extent that risk is retained, the answer must be that the risk is borne by the equity holders (and perhaps the debt holders) of the securitizer. One argument may be that this is appropriate, as the holders of the corporate debt and equity of the securitizer are perhaps in a better position to assess the retained risk – or at least perhaps to evaluate management – than are asset-backed investors, including B-piece investors.

On the other hand, one could look at a credit-tranched asset-backed securities offering as representing the capital structure of an entity – the issuing entity – and see that the B-piece is the comparable investment to an equity investment in the entity that owns that B-piece, except that the entity may hold other assets and/or also engage in other businesses.

It is not surprising that risk retention would shift risk from asset-backed investors to comparable investors in the securitizer, and indeed appears to be what is intended. Possibly the Federal Reserve Report is suggesting is that “overcollateralization” and “subordination” are alternatives to risk retention because risk retention, as an investor protection mechanism, is not necessarily meant to protect all investors. Of course, it does not protect investors in the securitizer, but if there were a class of “qualified B-piece investors” whose business was to attempt to adequately to price the risk of their B-piece investments, then perhaps risk retention is not necessary to protect them: the business model of these investors is to assess and acquire that type of risk.

The upshot may be that, in the post-crisis securitization industry, to the extent that “qualified B-piece investors” emerge in other asset classes, the Joint Regulators may revisit the current limitation of this alternative to commercial mortgage securitizations. In this context, it may be important to note the many ongoing industry initiatives, especially in the RMBS space on issues such as representation and warranty enforcement mechanics that may encourage the development of “qualified B-piece purchasers” in other asset classes.

The FSOC Study

In January 2011, the FSOC released the report entitled “Macroeconomic Effects of Risk Retention Requirements” (FSOC Study) that is referenced by Commissioner Piwowar in his statement.

As the title indicates, the FSOC Study focuses in large part on the “macroeconomic effects” of the Dodd-Frank Act’s risk retention requirements. The FSOC was required by Section 946 of the Dodd-Frank Act to undertake this study.

Although the FSOC Study does, as Commissioner Piwowar suggests, endorse the notion that the risk retention requirement should be considered by the Joint Regulators in conjunction with other provisions of the Dodd-Frank Act as well as other national and international reform initiatives, a fair reading of the FSOC Study indicates that it is generally supportive of the concept of risk retention:

Based on the available literature, there is evidence that risk retention could minimize the pro-cyclical macroeconomic effects of securitization by aligning incentives and improving underwriting standards.

The FSOC Study also states that, “[o]n the other hand, if risk retention requirements are too stringent, they could constrain lending, and consequently, the formation of credit.”

The FSOC Study gives particular emphasis to the “information asymmetry” issue that, as previously noted, is one of the alleged principal causes of the mis-alignment of incentives in securitization. It makes reference to academic studies of the syndicated loan market, where it has been found that a larger retained share in the loan by its originating lender may have an especially large impact on loan prices for “risky and opaque firms.” Assuming that securitization vehicles are also somewhat “risky and opaque,” the implication is that more capital is attracted to an asset-backed offering the higher is the level of retained credit risk.

The GSE Exemption

The Joint Regulators did recognize an alternative to risk retention in the case of the two government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, at least for so long as they are under the conservatorship or receivership of the Federal Housing Finance Agency (FHFA) and receiving capital support from the United States. In the case of the GSEs, the 100% guarantee of principal and interest payments on their MBS issuances will satisfy the risk retention requirement.

The GSE risk retention exemption is worth examining as an alternative to “regular” risk retention since it considers a legal liability on asset-backed securities, combined with the federal government’s continued support and the FHFA’s continued direct supervision, to satisfy the risk retention requirements.

The 100% guarantee provided by the GSEs essentially covers all credit-related risks inherent in an agency MBS offering – not only risk of loss resulting from any underwriting, origination or servicing flaws negatively affecting pool assets, but also the risks of a decline in home prices and of generally unfavorable economic conditions.

To the extent that 100% legal liability for all risks on asset-backed securities would be a prerequisite for allowing legal liability to serve as an alternative form of risk retention, that result arguably is inconsistent with some of the basic structural elements of securitization, including the notion of the “legal isolation” of the securitized assets from the estate of the securitizer in the event of a bankruptcy of that entity. Under the Federal Bankruptcy Code, legal isolation or “true sale” is generally thought not to be achievable when a securitizer retains 100% of the credit risk associated with a pool of assets. The GSEs have a special insolvency regime that essentially allows them both to assume all risk of the assets in an agency MBS while at the same time having those assets legally isolated from other creditors of the related GSE.

In addition to difficulties in achieving legal isolation, a securitizer’s general guarantee of its asset-backed securities would appear to allocate to it those types of risk with respect to which the securitizer has no special knowledge, such as a decline in asset values, general economic conditions and the occurrence of “life events” by borrowers in the securitized pool. These types of risks are not subject to “information asymmetries.”

Finally, asset-backed securities that are 100% guaranteed by the related securitizer, at least outside of the GSE context, may not be asset-backed securities at all. One of the essential features of asset-backed securities is that they are able to accomplish the de-linking of the securitizer’s corporate credit from the credit of the asset pool. Asset-backed securities with a 100% guarantee are more similar to common notions of secured corporate debt than asset-backed securities.

However, to the extent that the risks covered by a legal liability approach could be scaled back from the “blanket” type of risk assumption provided by the GSEs, that approach might provide a model for more typical representations and warranties and securities law liabilities to provide an alternative to risk retention.

In this regard, it may be safe to say that the pre-crisis enforcement mechanisms on loan-level representations and warranties, particularly in the RMBS asset class, have not proven ideal from an investor perspective. In the event that various industry initiatives can re-formulate these mechanisms in a more robust fashion, it is possible that a realistically enforceable legal liability based on representations and warranties, when combined with an issuer’s securities law liability for its offering documents, may create a sufficient (although not GSE–like) level of legal liability to encourage the Joint Regulators to revisit legal liability as an alternative to risk retention.

Click here for Commissioner Piwowar’s statement. Click here for the Federal Reserve Report. Click here for the FSOC Study.


On September 16, 2013, Judge Charles R. Breyer of the United States District Court for the Northern District of California dismissed the case in which Wells Fargo Bank, National Association, and Deutsche Bank National Trust Company, in their capacities as trustees of various “private-label” RMBS securitization trusts, sought an injunction against the City of Richmond, California and Mortgage Resolution Partners with respect to the possible use of Richmond’s eminent domain authority to seize underwater mortgages.

The judge decided that the issues raised in the case were not ripe for adjudication because it is not certain that Richmond will move forward with its plan, and that therefore the case should be dismissed rather than held in abeyance. The case was dismissed without prejudice, and could be re-commenced if Richmond moves forward with its plan.

SFIG had filed an amicus curie brief in the case, supporting the trustees’ position.

Click here for Judge Breyer’s decision.


Cornell University law professor Robert Hockett has been retained by the City of Seattle, Washington to provide recommendations regarding Seattle’s underwater mortgages loans — mortgage loans in which the outstanding principal balance of the mortgage note exceeds the current fair market value of the related mortgaged property.

Professor Hockett’s involvement with Seattle was the subject of press reports appearing last week. The Seattle City Council held a hearing on September 11, 2013, on a report Professor Hockett delivered to the City.

The legal basis for the eminent domain approach to underwater mortgages has been attributed to Professor Hockett. He is believed to be an advisor to Mortgage Resolution Partners, a for-profit advisory firm that has promoted the strategy to numerous U.S. municipalities. Please see the August 14, 2013 of SFIG’s Newsletter for a more in-depth treatment of the eminent domain issue.

Click here for Professor Hockett’s report to Seattle.


On September 16, 2013, SFIG joined in a request for extension (Extension Request) for the comment period on the credit risk retention re-proposal released by the federal banking and housing regulators and the Securities and Exchange Commission (Joint Regulators) on August 28, 2013. The Extension Request was submitted by SFIG, the Securities Industry and Financial Markets Association and the Association for Financial Markets in Europe.

The Extension Request supported an extension request from the Loan Syndications and Trading Association (LSTA), that had requested a 40-day extension of the comment period. The comment period currently expires on October 30, 2013.

LSTA’s request was driven by the concerns of the CLO market. The Extension Request agreed with the LSTA with respect to CLOs, but added that an extension would be beneficial for a wider range of asset classes, and would also allow additional time for non-U.S. organizations adequately to assess the re-proposal.

Click here for the Extension Request.


In a speech delivered on September 14, 2013, Commodities Futures Trading Commission (CFTC) Commissioner Bart Chilton called on Congress either to increase funding to the CFTC, or, alternatively, allow the CFTC to assess and collect certain transaction fees.

Specifically, the Commissioner said:

[Congress should] allow the CFTC to collect a transaction fee from speculators using commodity markets (both futures and swaps). End-users would be exempt … We are the only federal agency that does not, at least in part, self-fund through fees.

Separately, Bloomberg reported that the White House’s Office of Management and Budget sent a proposal to members of Congress on September 12, 2013 seeking authorization for the CFTC to assess transaction fees.

In testimony on July 17, 2013, before the U.S. Senate Committee on Agriculture, Terrence A. Duffy, the Executive Chairman and President of CME Group, Inc., opposed any proposal to fund the CFTC through transaction fees. He stated that such fees would “impose a $315 million per year transaction tax on market making, which is an essential source of market liquidity …[and]… would increase the cost of business for all customers, even those the Administration wants to exempt…”


On September 12, 2013, Reuters reported that Fannie Mae was about to begin marketing its first risk-sharing transaction.

The Fannie Mae deal follows the Freddie Mac “Structured Agency Credit Risk” (STACR) risk-sharing transaction that closed in July.

Both Fannie Mae and Freddie Mac (GSEs) have been mandated by the Federal Housing Finance Agency (FHFA), their conservator, to engage in transactions to share risk on at least $30 billion each on their loan portfolios.

Reuters indicated that similar to the STACR transaction, the Fannie Mae transaction would be structured as a synthetic risk-transfer with Fannie Mae issuing corporate debt that may be written down as a result of the performance of a reference pool of loans in Fannie Mae’s portfolio.

The transaction is not expected to be rated.

Reuters reported that the STACR transaction was upsized at pricing from $400 to $500 million based on strong investor demand. Spreads on the STACR’s $250 million M-1 Class have tightened from one-month LIBOR plus 340 basis points at pricing to LIBOR plus 291 basis points as of September 10, 2013.

Click here for the Reuters article.


The twelve Federal Reserve Bank Presidents (Bank Presidents) submitted a comment letter (Comment Letter) on September 12, 2013, to the Securities and Exchange Commission (SEC) in response to the SEC’s June 5, 2013 money market reform proposal.

The Bank Presidents:

Supported the SEC’s money market fund reform proposal that would introduce a floating net asset value per share (NAV) requirement for prime money market funds.

Disapproved of the SEC’s second alternative money market reform proposal, the imposition of standing liquidity fees and temporary redemption gates for non-government money market funds that breach a pre-determined trigger.

In the Comment Letter, the Bank Presidents supported the SEC’s proposal to reduce issuer concentration risk by requiring prime money market funds to consider the aggregate exposure of affiliated issuers for the purposes of the 5% issuer diversification requirement.

Click here for the Comment Letter.


On September 13, 2013, U.S. Department of the Treasury (Treasury) Deputy Assistant Secretary for Public Affairs Anthony Coley responded on Treasury’s Treasury Notes blog to Time Magazine’s cover story last week, “How Wall Street Won.”

Mr. Coley stated that the notion, expressed in the Time story, that the reforms initiated by the Dodd-Frank Act “are somehow a ‘myth’… is wrong.”

Among the accomplishments of financial reform cited by Mr. Coley is that the risk in the “so-called ‘shadow banking system’… has fallen substantially since the crisis… asset-backed commercial paper outstanding — which was often used to fund leveraged off-balance sheet vehicles — is a third of what it was in 2007.”

Mr. Coley also stated that “the core provisions of the Dodd-Frank Act, including the Volcker Rule,” will be “substantially in place” by the end of 2013.

Click here for Mr. Coley’s defense of the recent financial reforms. Click here for the Time article’s author’s response.


On September 13, 2013, the Consumer Financial Protection Bureau (CFPB) finalized amendments and clarifications (Rule Amendments) to the mortgage rules released in January of 2013. According to the CFPB, the changes were made to “answer questions that have been identified during the implementation process.”

Among the new rule modifications are provisions which:

  • Clarify which servicer activities are prohibited in the first 120 days of delinquency: The CFPB’s servicing rule prohibits servicers from making the “first notice or filing” under state law during the first 120 days a borrower is delinquent. Under the final rule, servicers will be allowed to send certain early delinquency notices required under state law to borrowers that may provide beneficial information about legal aid, counseling, or other resources.
  • Facilitate servicers’ offering of short-term forbearance plans: The modifications make it easier for servicers to offer short-term forbearance plans for delinquent borrowers who need only temporary relief without going through a full loss-mitigation evaluation process. Under the final rule, a servicer may, upon reviewing an incomplete loss mitigation application, provide a six-month forbearance to a borrower suffering from a short-term, temporary hardship.
  • Make clarifications about financing of credit insurance premiums: The CFPB’s loan originator compensation rule adopted the Dodd-Frank Act’s prohibition on creditors financing credit insurance premiums in connection with certain mortgage transactions.
    • In response to interpretive questions, the final rule makes clear that credit insurance premiums are “financed” by a creditor when the creditor allows the consumer to defer payment of the premium past the month in which it is due.
    • The final rule also explains how the rule applies to “level” or “levelized” premiums, where the monthly premium is the same each month rather than decreasing along with the loan balance.
  • Clarify the definition of a loan originator: Under the CFPB’s new rules, persons classified as loan originators are required to meet qualification requirements and are also subject to certain restrictions on compensation practices. Creditors and loan originators expressed concern that tellers or other administrative staff could be unintentionally classified as loan originators for engaging in routine customer service activities. The final rule modification clarifies the circumstances under which a loan originator’s or creditor’s administrative staff acts as loan originators.
  • Revise effective dates of many loan originator compensation rule provisions: Prior to the rule modifications, the provisions of the CFPB’s loan originator compensation rule that have not yet gone into effect were scheduled to take effect on January 10, 2014. The new rule changes the effective date for certain provisions of the rule to January 14, 2014.

Click here for the Rule Amendments.



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

Fall Symposium – October 29, 2013, New York City, New York, 5pm – 8pm. The Symposium will be followed by a cocktail party. The event is open to both members and non-members. The event will be held at the offices of Cadwalader, Wickersham & Taft, One World Financial Center, New York City, New York.

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 SFIG 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.


Contact us at


Structured Finance Industry Group
WebsiteEmail Us | Web Archive

To unsubscribe from this email listing, please click here.

Sign Up for Our Newsletter


Connect with SFIG
LinkedIn logo
Join us on LinkedIn >
Twitter logo
Follow us on Twitter >
Wilmington ad

Quick Search

Advanced Search
Terms and Conditions | Privacy Policy