Dodd-Frank

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Ahh, Miami. I’d say it’s good to be back here at the Fontainebleau for ABS East 2011 but it’s been pouring and exceptionally windy so my time outdoors will be limited.  Dechert attorneys Mac Dorris, Ralph Mazzeo, John Timperio, Cindy Williams, Larry Berkovich, Lorien Golaski, Andrew Pontano and I hosted a well-attended cocktail party Sunday night. It was great to catch up with our friends/clients in person.

Monday morning began with a general session where some blurbs about risk retention from this October 14 New York Times article were projected on two very large screens. I later attended the “Evolving Risk Retention Requirements” panel before lunch. It’s been a while since the joint regulators released the credit risk retention NPR back in March of this year. In response, hundreds of comment letters were submitted. Click here for the ones posted by the SEC. We have blogged repeatedly on this topic here at CrunchedCredit.

Recently there has been chatter that the regulators may re-propose a new risk retention rule for comment in lieu of promulgating a final rule.Continue Reading 2011 ABS East Conference

On August 17, the final rules from the SEC came out (“Rules”) regarding an ABS issuer’s duty to file Exchange Act reports — specifically, if and when an issuer can suspend reporting.

The Rules specify that, effective September 22, the duty to file periodic reports under the Exchange Act will be suspended if all outstanding ABS are held by affiliates of the depositor or if no ABS are outstanding.

Before the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), the obligation to file certain Exchange Act reports was automatically suspended for any fiscal year after the year in which the issuer’s registration statement became effective or, for offerings of ABS shelf takedowns, the fiscal year after the takedown. Prior to the Dodd-Frank Act, most ABS issuers could and did take advantage of the suspension. Section 942(a) of the Dodd-Frank Act amended Section 15(d) of the Exchange Act by eliminating the automatic suspension of the duty of ABS issuers to file Exchange Act reports for transactions in which the ABS are held by fewer than 300 persons and authorized the SEC to issue rules providing for the suspension or termination of an ABS issuer’s reporting obligations.Continue Reading SEC Clarifies Exchange Act Reporting for ABS Issuers

The Chairman of the House Committee on Financial Services (“HFSC”) Spencer Bachus (R-AL) and the Chairman of the HFSC Subcommittee on Capital Markets and GSEs Scott Garrett (R-NJ) submitted a letter on August 2, 2011 to the joint regulators addressing the premium capture cash reserve account (“PCCRA”) as proposed in the risk retention NPR.  Under the proposed risk retention rules, if excess spread in a securitization is monetized, any premium received has to be put into a separate PCCRA that would absorb losses first.  So a securitizer who monetizes an IO or earns a premium on the sale of P&I bonds, has to put that money in a PCCRA to serve as a first loss reserve for any losses on the collateral– for the life of the transaction– on top of the 5% risk retention requirement. So, basically, securitizations would be done without profit.  Understandably, the PCCRA has been one of the sore spots of the risk retention NPR.  The Mortgage Bankers Association (“MBA”), among many others, extensively discussed the problems with the PCCRA in its July 11 letter to federal regulators outlining MBA’s views and recommendations from the commercial and multifamily mortgage finance perspective in response to the risk retention NPR.Continue Reading More About that Premium Capture Kerfuffle

Ah, baby is one. I remember when mine was — complete with an over-the-top celebration for an infant who had no idea what was going on and would remember nothing of it. The food, the drink, the fancy cake, the ridiculous crown… I chalk it up to a rite of passage for a parent to throw at least one of those unnecessary first birthday parties. On this, Dodd-Frank’s first birthday, I’m not so sure those who birthed it are donning hats, eating cake and sipping champagne in celebration.

On July 19, the Government Accountability Office (the “GAO”) published an 83 page report entitled “MORTGAGE REFORM Potential Impacts of Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage Market.” The report addresses the potential impact on the mortgage market of qualified mortgage (“QM”) criteria, the credit risk retention requirement, provisions concerning homeownership counseling and regulation of high-cost loans. By examining mortgage loans made from 2001 through 2010 in CoreLogic, Inc.’s database, the GAO has drawn some practically meaningless conclusions about the mortgage market. For starters, the GAO acknowledges that the data used for its examination was not necessarily a representative sample. Furthermore, on several occasions throughout the report, the GAO hedges its analysis to the point of, well, uselessness.Continue Reading Dodd-Frank is One! And We Still Don’t Know What a Resi Mortgage is Going to Look Like

What the hell is going on here? I’ve got a business to run, and it’s really annoying that I can’t sort out whether we’re in the early stages of recovery or on the cusp of another train wreck. When Dad taught me to drive, he had to keep saying “Don’t look at where you are but where you’re going.” Good advice. Yet only as long as I look at the road right in front of me do I feel OK. If my eyes wander to the horizon, I get really itchy.

This recovery feels very brittle. Oh, sure, transactional activity is way up. If Dechert’s practice is the first derivative of the broader capital markets (and I think it is), then things have been getting progressively more robust for the better part of a year now. We’re growing, we’re hiring, deals are coming in at a goodly pace. Yet, everyone I know with the slightest capacity for reflection is touchy, to say the least.

So let’s do a S.W.O.T. analysis of where we sit.Continue Reading What in the Hell is Going on Here Anyway?: A SWOT Analysis of the Financial Recovery

A new kid showed up on the CMBS block in 2010: the operating trust advisor, sometimes also referred to as, among other things, the senior trust advisor (the “OTA”). During the great recession and credit interregnum, investors dreamt of an independent third party who would represent the interests of investment-grade investors to protect them from the conflicted and potentially nefarious behavior of special servicers who were considered by some to be in bed with the B-piece buyer and to facilitate an improved flow of information on a real-time basis. Someone who would somehow be there for bondholders when pools began to wobble. When the New York Fed was rooting around for a structure for TALF that would not only execute well but would also provide a learning opportunity for the market, they listened to the IG bondholders, and the OTA was born.

For the regulatory community and some elements of the investor community, it was love at first sight. But by late 2010, some thought that the OTA was going the way of the Edsel. A one-hit wonder. Then, in April 2011, the regulators embraced the OTA in their proposed risk retention rules. And now the OTA may be here to stay. Perhaps bowing to the inevitable, most recent 2011 CMBS conduit deals (and some single asset deals) have utilized some form of an OTA. Continue Reading The Operating Trust Advisor: Here Today, Here Tomorrow

The process of transforming 2,000 pages of Dodd-Frank into 25,000 pages of regulations is well under way. Front and center is Risk Retention. I assume you, like me, have been studying the 300 plus pages of the proposed Risk Retention rules (known to the cognoscenti as the Risk Retention “NPR”) for the past several weeks getting ready for the June 10th deadline for comments, right? Oddly, almost a full month passed before the government actually posted the NPR to the Federal Register, something which is usually done in a matter of days. (Tea leaf readers, thoughts?)

We have visited Risk Retention in this Blog before, but today we want to really focus on premium capture as it seems to capture all that is wrong with the NPR. My first reaction to reading the words on the page: Where the hell did this come from? On the fifth read, same reaction. There was nary a hint of the premium capture monstrosity in either Dodd-Frank or in the whispering about the rule-making process before the NPR came out.  Continue Reading Premium Capture Kerfuffle: The Poster Child of What’s Wrong with Risk Retention

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

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

ASF 2011 kicked off yesterday, February 6, at the Orlando World Center Marriott.  Dechert attorneys Malcolm Dorris, Ralph Mazzeo, Patrick Dolan, John Timperio, Cindy Williams, Andrew Pontano, Lorien Golaski and I are hosting a cocktail party for clients and friends here this evening.

Congressman Scott Garrett (R-NJ), Chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises (GSEs), delivered the featured address this morning, February 7. In his new role as Chairman, Congressman Garrett will be a key player in the debate over the future of the GSEs, the implementation of the Dodd-Frank Act and the continued development of a legislative framework for a covered bonds market in the U.S.Continue Reading ASF 2011 Kicks Off in Orlando, Florida