FHFA, Fannie and Freddie Launch Representation and Warranty Framework

On September 11, the FHFA announced that Fannie Mae and Freddie Mac are launching a new representation and warranty framework for conventional loans sold or delivered on or after January 1, 2013.  The framework’s objective is to clarify lenders’ repurchase exposure and liability on future deliveries.  Under the new framework: (i) lenders will be relieved of some repurchase obligations for loans that meet specific payment requirements; (ii) HARP loans will be eligible for representation and warranty relief after 12 months’ of acceptable payment history; (iii) information about exclusions from representation and warranty relief will be detailed; and (iv) Fannie Mae and Freddie Mac will make available for lenders a range of tools to improve loan quality. FHFA Release.

Rating Agency Developments

On March 14, S&P revised its criteria for using third-party due diligence results to assess U.S. residential loan types, including prime, Alt-A, HELOC and subprime.  Changes from the previous criteria include (i) provision for modified sampling for flow originations; (ii) provision for accepting data in the ASF file format; (iii) removal of the potential link between an RMBS rating and the rating of the representations and warranties provider, as well as the resulting impact on due diligence sampling; and (iv) clarification regarding the materiality of regulatory compliance findings.  S&P Report.

On March 14, S&P revised representations and warranties criteria for U.S. RMBSS&P Report.

On March 13, S&P revised its default and correlation parameters for sovereign debt assets in CDOsS&P Report.

On March 13, S&P released its methodology for CDOs and pooled TOBs backed by U.S. municipal debtS&P Report.

On March 13, Fitch published an exposure draft on revised criteria for counterparty risk in covered bond programmesFitch Exposure Draft.

On March 12, Fitch published an exposure draft of its criteria for analyzing counterparty risk in structured finance transactions.  Feedback is requested by April 13.  Fitch Release.  Fitch Exposure Draft.

On March 12, S&P released its methodology for U.S. federal future flow securitizationsS&P Release.

On March 12, S&P requested comment by April 12 on proposed criteria for evaluating enterprises’ management and governanceS&P Release.

Note: Free registration is required for Fitch and S&P releases and reports.

 

 

Rating Agency Developments

On June 30, Fitch updated its U.S. RMBS criteria for originator reviews, due diligence, and representations and warranties. Fitch Release.

On June 30, Fitch updated its criteria for rating U.S. timeshare loan ABS. Fitch Release.

On June 28, Fitch updated its criteria for global credit card ABS. Fitch Release.

On June 28, Moody’s published methodology for rating ABS backed by utility cost recovery charges. Moody’s Release.

On June 28, Moody’s released a report on its approach to analyzing performance disruption risk in securitizations. Moody’s Report.

On June 27, Moody’s issued a request for comment on changes to its ABCP operational risk guidelines. Comments are due by July 15. Moody’s Release.

On June 24, Fitch updated its future flow securitization rating criteria. Fitch Release.

Note: Free registration is required for Fitch and Moody’s releases and reports.

SEC Proposed Rules on Reps and Warranties

On October 4, the SEC issued a proposed rule related to representations and warranties for ABS offerings as required by the Dodd-Frank Act.  The proposed rule would require that:  (i) “securitizers” disclose fulfilled and unfulfilled repurchase requests across all transactions and (ii) NRSROs include information regarding representations, warranties, and enforcement mechanisms in any report accompanying a credit rating (including a preliminary credit rating) issued in connection with an offering. SEC Release. SEC Proposed Rule.