On April 15, the Fed released a notice outlining its intention to apply certain elements of its consolidated supervisory program to savings and loan holding companies which will fall under the supervisory responsibility of the Fed in July pursuant to the Dodd-Frank Act. The guidelines are currently applied to bank holding companies. In the notice, the Fed indicates that the three elements of the current program that are critical to effective evaluation of the consolidated condition of holding companies are: (i) the consolidated supervision program for large and regional holding companies; (ii) the supervisory program for small, noncomplex holding companies; and (iii) the holding company rating system. Comments must be submitted by May 23. Fed Release. Fed Notice of Intent.
Month: April 2011
Assured Guaranty Announces Settlement with Bank of America on Reps and Warranties Action Involving 29 RMBS Deals
On April 15, 2011, Bank of America and Assured Guaranty Ltd. (“Assured”) announced that they had reached a settlement regarding the Bank’s liabilities with respect to 29 RMBS transactions insured by Assured Guaranty, including liabilities relating to Assured’s allegations of breaches of representations and warranties and historical loan servicing issues. Assured reports that Bank of America and its Countrywide subsidiaries agreed to pay Assured $1.1 billion and entered into a reinsurance arrangement that will reimburse Assured for 80% of all paid losses on the 21 of the 29 offerings that were first lien RMBS transactions until aggregate collateral losses in those transactions exceed $6.6 billion. The 29 RMBS offerings in the settlement cover all securitizations insured by Assured that were sponsored by Bank of America and Countrywide and certain additional securitizations backed by specific concentrations of Countrywide-originated loans. Assured 8k. Bank of America Release.
New RMBS Investor Action Filed Against Credit Suisse in S.D.N.Y.
Union Central Life Insurance Company, Ameritas Life Insurance Corp., and Acacia Life Insurance Company (“Plaintiffs”) filed a complaint against Credit Suisse First Boston Mortgage Securities Corp., DLJ Mortgage Capital, Inc., and various executives of Credit Suisse First Boston (“Defendants”), alleging that defendants sold Plaintiffs approximately $55 million in RMBS pursuant to registration statements and prospectuses that contained false statements and omissions of material facts. Plaintiffs assert claims of common law fraud, negligent misrepresentation, unjust enrichment, and violations of Sections 10(b) and 20(a) of the ’34 Act and related Rule 10b-5. Plaintiffs allege that Defendants made false statements and omissions about the origination of the mortgage loans underlying the pools, quality of those loans, conformity with representations and warranties about loan quality, and fees paid to rating agencies. Plaintiffs also allege that Defendants omitted findings by a due diligence firm, Clayton Holdings, that many mortgage loans in the pools did not conform with the stated loan underwriting guidelines. The results of Clayton’s due diligence were allegedly disclosed during a hearing before the Financial Crisis Inquiry Commission. Complaint.
Credit Risk Retention – Joint Regulatory Proposed Rules
On March 28, 2011, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, the Department of Housing and Urban Development and the Federal Housing Finance Agency released a joint notice of proposed rulemaking to implement the credit risk retention requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The paper linked below provides an in-depth examination of the proposed rules and their implications for financial markets. Click here to read more.
Letter from the SEC to Rep. Darrell Issa on Capital Formation and Section 12(g) of the Securities Exchange Act
On April 6, SEC Chairman Schapiro issued a public letter to Rep. Darrell Issa, Chairman of the Committee on Oversight and Governmental Reform, in response to his letter on March 22 concerning the SEC and capital formation. Among the items discussed in the letter, Chairman Schapiro addressed Section 12(g) of the Exchange Act and the limit of 500 holders of record before a company must register its securities with the SEC. In light of the burdensome nature of registering the securities of smaller companies as well as the ability of much larger companies to aggregate multiple shareholders under a single holder of record, thereby avoiding registration, Chairman Schapiro stated, “I believe that both the question of how holders are counted and how many holders should trigger registration need to be examined.” SEC Letter.
Rating Agency Developments
On April 14, Moody’s said that the proposals to give EU-based authorities wide-ranging powers to intervene in the operation of failing credit institutions will be credit neutral for structured finance transactions involving EU banks if the final legislation incorporates appropriate safeguards and policy objectives. Moody’s Release.
On April 11, Fitch released updated rating guidelines for commercial paper note programs with external support. Fitch Release. Fitch Report.
On April 8, Moody’s extended the comment period from April 8 to April 22 for proposed changes to its modeling framework for cash-flow CLOs. Moody’s Release.
On April 8, S&P published its methodology for rating nonsovereign issuers and structured finance transactions above the related sovereign in the 17-member European Monetary Union. S&P Release.
Note: Free registration is required for Fitch, Moody’s and S&P releases and reports.
MSRB Amendments to SHORT System Subscription Service
On April 6, the SEC approved the MSRB proposed rule consisting of amendments to the MSRB’s Short-term Obligation Rate Transparency subscription service. The effective date of the amendments will be May 16 and will coincide with the effective date of changes to MSRB Rule G-34(c). MSRB Notice.
FINRA Proposed Rule on Delaying Know Your Customer and Suitability Rules
On April 7, FINRA filed with the SEC a proposed rule to delay the implementation date for FINRA Rule 2090 (Know Your Customer) and FINRA Rule 2111 (Suitability) until July 9, 2012. Comments on the proposed rule must be submitted by May 4. FINRA Notice.
CFTC and SEC Roundtable on Dodd-Frank Implementation
On April 12, the SEC and the CFTC announced that they will hold a joint public roundtable on May 2-3 to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Act. Public comments on the effective dates and phased implementation for compliance with final rules may be submitted through the CFTC website prior to the roundtable. CFTC Release.
CFTC Proposed Rule on Swap Data Recordkeeping and Reporting Requirements
On April 12, the CFTC proposed rules establishing swap data recordkeeping and reporting requirements for counterparties to swaps executed prior to enactment of the Dodd-Frank Act, and those executed after the Act but before the effective date for rules on swap recordkeeping and reporting. The proposed rules clarify what records must be kept and what data must be reported to swap data repositories, and would require limited recordkeeping for counterparties to historical swaps. For swaps in existence on or after the date of publication of the proposed rules, counterparties would be required to keep records of specified, minimum primary economic terms. The proposed rules would also make data concerning historical swaps available to regulators through swap data repositories beginning on the effective date for swap data reporting. CFTC Release.