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On May 5, SIFMA hosted a Spotlight Series: Risk Retention and Qualified Residential Mortgages.  It was immediately apparent that unintended consequences of the proposed risk retention rules (pdf) abound.

The panelists acknowledged that the regulators had a very tough mandate, and that the rules are way more complicated than anticipated.  It was estimated that approximately 60% of the proposed rule will make its way to the final rule, and that while feelings of annoyance with respect to the drafting of the proposed rule may linger, it is up to the securitization market participants to help the regulators provide us with a clear, workable final rule.

Under the proposed rule, calculation of the amount of required risk retention would be based on a percentage of the par value of the ABS interests in an issuing entity.  The discussion began with a couple questions some of us have already been asking …

What do regulators mean by “par value”?  What is an “ABS interest”?Continue Reading SIFMA Spotlight Series: Risk Retention and Qualified Residential Mortgages

Last Thursday evening, Dechert partners in our Finance and Real Estate Group and Bankruptcy, Business Restructuring and Reorganization Group hosted a cocktail party for our clients at our New York office.  The main item on the agenda for the evening was simply to take the opportunity to learn more about what’s on the minds of our clients and to discuss the outlook for the remainder of 2011.  Also on the agenda for the night – wine, sushi, taking in the view of the Empire State Building and catching up on the latest activity in the Major Leagues.

With well over 100 people in attendance, we had the chance to hear from a wide variety of clients in commercial and residential loan origination, mortgage servicing and securitization (CMBS, RMBS, ABS and CLOs).  Across the board, I would say the mood was upbeat and optimistic.  Lending is ramping up.  Term sheets are being drafted.  Bankers are talking more about securitization as a viable take out strategy.Continue Reading Dechert’s FRE and BRR Groups Host Clients

As you may have heard, several federal regulatory agencies recently jointly issued the Notice of Proposed Rulemaking ("NPR") regarding the general credit risk retention requirements for asset-backed securitizations ("ABS") and the proposed requirements for exemptions from the risk retention requirement for certain securitizations as mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Well, we now have our proposed risk retention rule. The regulator class has been incubating this egg for the better part of nine months and we’re all now well behind the, admittedly, magical thinking schedule proposed in the actual FinReg legislation. Now, I’m not complaining. Particularly having read this missive, I’m all into delay.

If you want to read the proposed rule, feel free to take your pick of announcements from the Department of Treasury, the Federal Reserve, the FDIC, the SEC or the FHFA: it’s here—the long-awaited Credit Risk Retention proposed Rule (large pdf). The Rule shows every evidence of having been written by a committee, in fact, by a committee of committees. We all know that the definition of a committee is something with more than two legs and less than one brain. A committee of committees? Need I say more?Continue Reading CMBS: The Risk Retention Proposed Rule Has Finally Been Unleashed; The Comments Begin

It looks like our recap on covered bonds came not a moment too soon. Representatives Scott Garrett (R-NJ) and Carolyn Maloney (D-NY) teamed up this week to co-sponsor the bipartisan H.R. 940 (pdf), the United States Covered Bond Act of 2011. The new bill is much in keeping with the recently distributed discussion draft (examined in a recent Dechert OnPoint (pdf)). Currently, it is in committee before both the House Committees on Financial Services and on Ways and Means.Continue Reading Covered Bond Update: Rolling the Boulder up the Hill?

Recently, while visiting my in-laws, I took a break from college basketball and the Daytona 500 and caught up on the latest developments in the quest for covered bond legislation in the United States.  Not surprisingly, I quickly found that the quest for covered bond legislation is, well, still a quest.

We have discussed the possibility of covered bond legislation numerous times on this blog (see here, here, here, here, here, here, here and here).  As you may recall, 2010 ushered in optimism for proponents of covered bond legislation, as both the House and Senate at least entertained the possibility.  Representative Scott Garrett (R-NJ), who has long been a strong proponent, led the charge in the 111th Congress pushing a bill out of the House Financial Services Committee and in front of the full House for consideration.  The Senate Banking, Housing and Urban Affairs Committee even went so far as to hold a hearing on the topic.  Despite the attention, the elections and then other distractions took priority, and a lame-duck session came and went without further movement on the topic.  However, the bells ringing in the new year also rung in a new round of this fight, as all interested parties are gearing up for yet another attempt to pass this legislation.Continue Reading Covered Bond Update: Inching Closer?

On January 20th, the SEC finalized its first batch of many rules to come under Dodd-Frank, requiring issuers to perform reviews of the assets underlying their ABS securities and requiring them to disclose fulfilled and unfulfilled repurchase requests for alleged breaches of representations and warranties.  These have effective dates beginning with 2012 issuance so, to a certain extent, we can kick the anxiety can down the road for a while.  Nonetheless, this is a pretty clear window into what may be a bleak regulatory future.  And that’s important now.  More on this later.

Rule 193 (release here (pdf)) requires an issuer to know something about the assets it’s securitizing.  The issuer is supposed to do diligence to understand the assets it securitizes and tell the investor about the nature of its inquiry.  Curiously, and I’m not complaining here, Rule 193 does not purport to define what disclosures need be made, just that there ought to be “robust" and "transparent” diligence behind them. Its inquiry must be “designed and effected to provide reasonable assurances” that the disclosures about the assets are correct.

Hardly shocking.  Call me silly, but that seems to be what we do in structured finance.  I guess more information about exactly what the issuer did to understand the assets it securitizes could be useful, particularly in asset classes in which the asset level data is sketchy and aggregate.  It’s just silly in CMBS when we already deliver vast quantities of granular data in every deal.Continue Reading The FinReg Sheriff Arrives in Town: Do You Feel Safer?

I’m sitting in the Grand Ballroom at the JW Marriot (filled to capacity) and listening to Tucker Carlson give his thoughts on likely GOP challengers to the President. I’ve seen him before – he did a great bit with Paul Begala a few years ago at the MBA in San Diego; very likable and very, very funny (told a great story about receiving a call from Donald Trump that I don’t think I can reprint here). His early pick for the Republican nominee is New Jersey’s Chris Christie.Continue Reading CREFC Day 2: Tucker Carlson, Chuck Schumer and Dodd-Frank

The industry descended on our Nation’s Capital this morning for the 2011 CREFC conference: "Commercial Lending: The New World Order". It was -2 at Logan when my shuttle took to the air – needless to say I’m more than happy for the opportunity to spend a few days with friends, clients and colleagues in a warmer climate. (Current DC temperature is 24 degrees – not quite Stone Crabs at Joe’s, but I’ll take what I can get.) Continue Reading CREFC Day 1: Penn Avenue Freeze Out

I have a Leapster Explorer™ on order for my son’s 5th birthday that I seriously hope arrives in the next two days, but in addition to that delivery, there’s a lot of securitization-related rulemaking required or permitted to be delivered under the Dodd-Frank Wall Street Reform and Consumer Protection Act that was enacted on July 21, 2010 (“Dodd-Frank”).

Fewer than half of the rulemaking provisions in Dodd-Frank specify when the required or permitted rule should be issued or go into effect. Some of the Dodd-Frank rulemaking provisions require multiple agencies to issue rules jointly, some provisions require multiple agencies to issue rules separately, several provisions require that rules be issued by one agency in consultation with another agency… Some rulemaking deadlines are based on date of enactment of Dodd-Frank (July 21, 2010), others on the effective date (July 22, 2010, except as otherwise specifically provided in Dodd-Frank).

Below is a discussion about where we are in connection with some of the Dodd-Frank provisions that are of particular interest to the securitization industry.
 Continue Reading What Are We Still Waiting For and When Should it Arrive?