Rating Agency Developments

On March 25, Fitch announced that it is proceeding with the recalibration of certain of its U.S. public finance credit ratings. Fitch Release.

On March 24, DBRS outlined its approach to rating parent/holding companies, which will, in some cases, have implications for the ratings of the subsidiaries that are held by the parent organization. DBRS Report.

On March 22, Fitch released criteria for assigning fund credit and volatility ratings to short-term bond funds. Fitch Release.

On March 22, Fitch updated its U.S. auto-loan ABS rating criteria. Fitch Release.

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Rulings on 2010 Executive Pay

On March 24, the Special Master for TARP Executive Compensation, Kenneth R. Feinberg, issued his rulings on 2010 executive pay packages for the ‘Top 25′ executives at the five firms that received and have not yet repaid exceptional assistance from taxpayers: AIG, Chrysler, Chrysler Financial, GM, and GMAC. The Special Master also released a letter requesting information on compensation paid to the ‘Top 25′ executives at each firm that received TARP assistance before February 17, 2009 to obtain information needed for the ‘look back’ review required by the Recovery Act. Press Release.

Geithner Testimony on Housing Finance System Reform

On March 23, Treasury Secretary Geithner testified before the House Financial Services Committee regarding the future of the housing finance system. Geithner set forth the Administration’s objectives for a reformed system, which include: (i) widely available mortgage credit, (ii) housing affordability, (iii) consumer protection, and (iv) financial stability. Treasury and HUD will submit a list of questions by April 15 for public comment to seek recommendations and comments on: (a) the priorities for government housing policy, (b) the role of government in the housing finance system, (c) characteristics of mortgage products available to consumers, (d) best practices to ensure consumer protection, and (e) the most effective design for the housing finance system. Testimony.

HAMP Supplemental Directive on Borrower Outreach

On March 24, Treasury issued a supplemental directive providing guidance to servicers of non-agency first lien mortgage loans for improving outreach to borrowers. The changes, effective June 1, include: (i) clarifying the requirement to proactively solicit borrowers with two or more due and unpaid payments for HAMP, (ii) prohibiting referral to foreclosure until a borrower is determined to be ineligible for HAMP or reasonable solicitation efforts have failed, (iii) requiring servicers to certify that borrowers are not HAMP-eligible and give borrowers 30 days to respond to a Non-Approval Notice before conducting a foreclosure sale, (iv) if requested, requiring servicers to consider borrowers in active bankruptcy for HAMP, and (v) clarifying the requirement that servicers use reasonable efforts to obtain approval from investors to participate in HAMP. Supplemental Directive.

HAMP and FHA Enhancement

On March 26, the Obama administration announced initiatives to enhance HAMP and FHA programs to provide relief for unemployed and underwater borrowers.  The changes to HAMP will: (i) temporarily reduce mortgage payments for unemployed borrowers while they look for new jobs, (ii) encourage servicers to write down principal, (iii) allow more borrowers to qualify for HAMP modifications, and (iv) help borrowers move to more affordable housing where modifications are not possible.  Utilizing up to $14 billion in TARP funding, the FHA initiatives will provide incentives for servicers to refinance underwater mortgage loans into FHA-insured loans and for owners to write down second lien loans for these borrowers.  Release.

Rating Agency Developments

On March 17, Fitch published its global rating criteria for analyzing servicing continuity risk in structured finance transactions.  Fitch Release. 

On March 18, Fitch published a special report clarifying its treatment of rated closed-end fund (CEF) liabilities that carry ‘make-whole’ or other prepayment penalties.  Fitch Release.  Fitch Report

On March 17, S&P published supplemental criteria for assessing structured finance transactions that allow for changes in the priority of payments to subclasses within a specified series of notes following a non-monetary event of default.  S&P Release. 

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Policy Statement on Funding and Liquidity Risk

On March 17, the federal banking agencies, in conjunction with the Conference of State Bank Supervisors, released a policy statement on their expectations for sound funding and liquidity risk management practices.  The statement will be effective 60 days from the date of publication in the Federal Register.  Release.  Policy Statement.