Rating Agency Developments

On February 23, Fitch published its methodology for assessing credit risk in EMEA (Europe, Middle East and Africa) residential mortgage loans.  This report will replace the country-specific reports previously in use in EMEA.  Fitch Release. 

On February 23, Fitch updated its residential mortgage loss criteria assumptions in the following countries:  the UK, Germany, France, Spain, Italy, Holland, Ireland, and Belgium.  UK Release.  German Release.  French Release.  Spanish Release.  Italian Release.  Dutch Release.  Irish Release.  Belgian Release. 

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SEC Approves Short Selling Restrictions

On February 24, the SEC adopted a rule to place restrictions on short selling when a stock is experiencing significant downward pressure by enabling long sellers to sell before short sellers.  The rule: (i) introduces a circuit breaker that is triggered any day in which the price of a security declines by 10% or more, (ii) applies to short sales for that day and the following day, (iii) applies to all equity securities that are listed on a national exchange, and (iv) requires trading centers to have written policies designed to prevent execution or display of a prohibited short sale.  The rule will become effective 60 days after its publication in the Federal Register and market participants will have six months to comply with the requirements.  SEC Release.

SEC Money Market Fund Reform

On February 23, the SEC adopted amendments to the regulatory framework for money market funds, which include requiring funds to: (i) keep a portion of their portfolios in highly liquid investments, (ii) reduce the maximum weighted average maturity of portfolio holdings, and (iii) provide monthly reports on portfolio holdings to the SEC.  The amendments also permit funds that have “broken the buck” or are at imminent risk of breaking the buck to suspend redemptions to allow for the orderly liquidation of fund assets and limit money market funds’ investments in “second tier securities”.  The amendments will be effective on May 10.  SEC Final Rule.

Rating Agency Developments

On February 12, Fitch discontinued its U.S. ABS Seller/Servicer Ratings product and withdrew all existing U.S. ABS Seller/Servicer Ratings and related criteria.  Fitch Release. 

On February 17, Fitch updated its criteria for stressing interest rate risk for all existing and new structured finance transactions, which are applicable to all structured finance asset classes and covered bonds’ ratings.  Fitch Release. 

On February 16, S&P announced that it plans to comply with the European Regulation on Credit Rating Agencies (in force from December 2009) and that by September 7, all ratings on structured finance transactions will include an additional “(SF)” symbol.  S&P Release.

On February 19, Fitch announced that it intends to add “sf” to all of its structured finance ratings.  Fitch Release.

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Canada Adjusts Rules for Government-Backed Insured Mortgages

On February 16, Canadian Minister of Finance Jim Flaherty announced that the rules for government-backed insured mortgages will be adjusted, effective April 19, to: (i) require all borrowers to meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term, (ii) lower the maximum amount that can be withdrawn in refinancing mortgages to 90% from 95% of the value of a home, and (iii) require a minimum down payment of 20% for government-backed mortgage insurance on non-owner-occupied properties.  Department of Finance Release.

FHFA Proposes Revised Housing Goals

On February 16, the Federal Housing Finance Agency (FHFA) proposed a rule that would establish new affordable housing goals for Fannie Mae and Freddie Mac for 2010 and 2011, and revise and update the rules regarding types of mortgages that qualify for purposes of the new goals. Under the proposed rule, Fannie Mae and Freddie Mac would no longer be able to count private-label securities, second-lien loans, and the financing of some rental units to satisfy federal goals of financing loans for low- and moderate-income homebuyers.  Comments on the proposed rule must be received no later than 45 days after publication in the Federal Register.  Proposed Rule.  FHFA Release.