On July 15, HUD published a notice seeking public comment on three measures to restore the Mutual Mortgage Insurance Fund (the FHA capital reserve) to its statutorily mandated threshold. The proposed policy changes are to: (i) update the combination of credit and down payment requirements for new borrowers, (ii) reduce allowable seller concessions from 6% to 3%, and (iii) tighten underwriting standards for manually underwritten loans. Comments may be submitted through August 16th. HUD Release. HUD Notice.
Month: July 2010
SEC Adds New Units
On July 16, the SEC announced the creation of three specialized offices within the Department of Corporation Finance: (i) a disclosure review office to expand the Division’s enhanced reviews of large financial services companies, (ii) an office focusing exclusively on disclosure reviews and policy-making for ABS and other structured finance products, and (iii) an office to review new securities products and capital markets trends and to develop recommendations for changes to enhance investor protection in securities offerings. SEC Release.
TALF Reduces Credit Protection
On July 21, the Fed announced that Treasury will reduce the credit protection provided for TALF from $20 billion to $4.3 billion. The Fed had authorized up to $200 billion in TALF loans, but when the program closed on June 30, there were $43 billion in loans outstanding. The TALF FAQs and Terms and Conditions have been revised accordingly. Fed Press Release. Revised FAQs. Revised Terms and Conditions.
SEC Allows Omission of Credit Rating Disclosure from ABS Deals
On July 22, the SEC released a ‘No Action Letter’ allowing issuers to omit credit rating disclosure from ABS prospectuses for a period of six months. The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated SEC Rule 436(g) which effectively exempted NRSROs from liability as experts under Section 11 of the Securities Act. For the six month period covered by the No Action Letter, issuers will be able to omit prospectus disclosure of ratings and accordingly will not need to obtain rating agency consent to be named as an expert. Also in connection with the repeal of Rule 436(g) under the Act, S&P, Moody’s, Fitch, and DBRS have each released comments addressing the effect of the Act on credit rating agencies. Sec No Action Letter. S&P. Moody’s. Fitch. DBRS.
Rating Agency Developments
On July 15, DBRS released its methodology for rating U.S. and European structured finance CDO restructurings. DBRS Release.
On July 14, DBRS released its methodology for rating global film rights securitizations. DBRS Release.
On July 15, Moody’s released a revised update on rating debt obligations with variable promises which updates its approach as set forth in the June 2009 report. Moody’s Release.
On July 14, Moody’s released its methodology for evaluating the credit quality of bonds issued to leverage State Revolving Funds. Moody’s Release.
Note: Free registration is required for DBRS and Moody’s releases and reports.
SEC Seeks Comment on U.S. Proxy System
On July 14, the SEC issued a concept release seeking public comment on the U.S. proxy system and asking whether rule revisions should be considered to promote greater efficiency and transparency. The concept release focuses on accuracy and transparency of the voting process, communication between shareholders and corporations, and the relationship between voting power and economic interest. Comments will be accepted for 90 days after publication of the release in the Federal Register. Press Release. Concept Release.
FHFA Issues Subpoena for Private-Label MBS Documents
On July 12, the FHFA, as conservator of Fannie Mae and Freddie Mac, announced that it has issued 64 subpoenas requesting documents related to private-label MBS in which both Fannie and Freddie are invested. The goal of receiving the documents is to enable the FHFA to determine whether any parties to the MBS are liable to Fannie or Freddie for certain losses suffered on the MBS. Any recouped funds will be used to offset payments made to Fannie and Freddie by Treasury. FHFA Release.
Senate Passes Financial Reform Bill
On July 15th, the Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed by the House of Representatives on June 30th and which will likely be signed by the President next week. The legislation covers a wide variety of topics in an effort to address the causes of the recent turmoil in the financial markets. Unofficial Conference Report (H.R. 4173).
Dodd-Frank Bill Orrick Client Alerts:
TITLE IV – Regulation of Advisors to Hedge Funds and Others
TITLE IX – Investor Protections and Improvements to the Regulation of Securities
- Subtitle C – Improvements to the Regulation of Credit Rating Agencies
- Subtitle D – Improvements to the Asset-Backed Securitization Process
- Subtitle H – Municipal Securities
Rating Agency Developments
On July 7, S&P released revised recovery assumptions for European bank hybrid capital securities in CDO transactions. S&P Release.
On July 5, Fitch updated its global rating criteria for corporate debt-backed CDOs. Release.
Note:
Free registration is required for Fitch and S&P releases and reports.
FHFA Statement on PACE Programs
On July 6, the FHFA issued a statement expressing its determination that Property Assessed Clean Energy (PACE) programs present significant safety and soundness concerns that must be addressed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks as well as other mortgage market participants. Under PACE programs, these PACE loans often acquire lien priority over existing mortgages. The FHFA cautions that first liens for these loans represent a key alteration of traditional mortgage lending practice and present significant risk to lenders and secondary market entities. Release.