Rating Agency Developments

On January 28, S&P refined its methodology and assumptions for U.S. credit card ABS. The principal updates include: (i) comparing all credit card master trust portfolios with S&P’s Bankcard Credit Card Quality Index, (ii) establishing a ‘AAA’ peak charge-off rate of 33% for the benchmark pool, (iii) evaluating the credit risk of an actual pool relative to that of the benchmark pool as well as its peer group, and (iv) adjusting the actual pool’s specific ‘AAA’ stressed charge off rates to reflect a number of factors.  S&P Release.

On January 28, S&P revised its interest rate assumptions for U.S. RMBS with a first distribution date in January 2010.  S&P Release.

On January 26, S&P changed its analysis approach for state housing finance agency (HFA) mortgage insurance fundsS&P Release.  

On January 27, Moody’s revised its loss projections for U.S. Option ARM RMBS issued from 2005 through 2007.  Moody’s Release.   

On January 28, DBRS released its methodologies for rating U.S. auto lease and retail auto loan securitizations.  DBRS Retail Auto Loan MethodologyDBRS Auto Lease Methodology.  

On January 26, DBRS published its final rating methodology for U.S. ABS backed by rental car fleets.  DBRS ReleaseDBRS Methodology.

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FASB Update on Fair Value Standards

On January 21, the FASB issued an Accounting Standards Update (ASU) amending the Accounting Standards Codification Subtopic 820-10 (originally FAS 157), Fair Value Measurements.  The ASU requires new disclosures regarding transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements.  It also clarifies the level of disaggregation and types of disclosure about inputs and valuation techniques that should be provided with respect to existing disclosure requirements.  ASU.

Updated HAMP Documentation

On January 28, Treasury issued Supplemental Directive 10-01, which provides updated guidance for servicers participating in HAMP and revises documentation requirements in an effort to expedite the conversions of trial modifications to permanent modifications. Under the new procedures, a set of standard documents (including proof of income) must be obtained from the borrower upfront before the borrower can be evaluated for and receive a trial modification. This process will be required for all new HAMP modifications with effective dates on or after June 1, although servicers may elect to implement it sooner.  Treasury Release.  Supplemental Directive 10-01.

SEC Approves Money Market Fund Reforms

On January 27, the SEC adopted new rules designed to significantly strengthen the regulatory requirements governing money market funds and better protect investors. The rules impose: (i) tightened maturity and credit quality standards, (ii) new liquidity requirements, (iii) enhanced disclosure, and (iv) operational changes. The rules will be effective 60 days after their publication in the Federal Register, and mandatory compliance with some of the rules will be phased in throughout the year.  SEC Release.  Orrick Client Alert.

Derivatives Decision in Lehman Bankruptcy Case

On January 25, the U.S. Bankruptcy Court for the Southern District of New York granted summary judgment to Lehman Brothers Special Financing Inc. (LBSF) in a dispute arising out of a credit-linked note program known as Dante.  The court found that the document provisions related to the subordination of a swap counterparty’s rights to a swap early termination payment when the swap counterparty or one of its close affiliates goes into bankruptcy were unenforceable.  Orrick Client Alert.

OCC Approves First Use of “Shelf Charter”

On January 22, the OCC approved the first use of a “shelf charter” for the acquisition of a failed bank, allowing Bond Street Bank, National Association to acquire a Florida bank that was placed in receivership.  A “shelf charter” gives preliminary approval to investors to establish a national bank charter and remains inactive, or “on the shelf”, until the investor group is in a position to acquire a troubled institution.  Final approval for a national bank charter is subject to various conditions.  OCC Release.

Rating Agency Developments

On January 15, S&P released its revised methodology and assumptions for projected losses for certain U.S. RMBS prime, subprime, and Alt-A transactions issued from 2005 through 2007.  S&P Methodology

On January 13, DBRS updated its rating criteria for U.S. RMBS to provide standardized representations and warranties for newly originated collateral, as well as a standardized set of representations and warranties for seasoned pools.  DBRS ReleaseDBRS Methodology

On January 15, DBRS released its CMBS rating methodology.  DBRS Methodology.  

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Treasury and HUD HAMP Update

On January 19, Treasury and HUD released an update on the progress of the Administration’s campaign to help borrowers convert from the trial phase of a mortgage modification to a permanent modification under HAMP.  The Administration has implemented a temporary review period, through January 31, to ensure that borrowers are fairly evaluated for the program.  Treasury Release.  Treasury Report.

TALF Updates

On January 15, the New York Fed issued revised TALF documents, FAQs and Conflicts of Interest Guidance for TALF Agents.  The Master Loan and Security Agreement was revised to: (i) provide that all releases of Collateral be settled on a “delivery versus payment” basis, (ii) remove the definition of “TALF Loan Payment Date Change Date”, and (iii) amend the definition of “Payment Date”.  New York Fed Release.  MLSA.  MLSA (showing changes).  FAQs.  FAQs (showing changes).  Conflicts of Interest Guidance.  Conflicts of Interest Guidance (showing changes).