On May 13, members of the House Financial Services Committee introduced seven bills relating to GSE Reform. Press Release.
Month: May 2011
Senate Hearing on the State of the Securitization Markets
On May 18, the Senate Banking Committee held a hearing on the state of the securitization markets. Senate Hearing.
CFPB Mortgage Loan Disclosure Initiative
On May 18, the Consumer Financial Protection Bureau announced an initiative to combine mortgage disclosures into a single form. The initiative will involve the testing of two prototype forms that will inform the CFPB’s formal rulemaking process. Treasury Release. Mortgage Disclosure Prototypes.
SEC Proposed Rules on Credit Ratings
On May 18, pursuant to Section 932 of the Dodd-Frank Act, the SEC proposed rules for credit ratings, NRSROs, and third-party due diligence providers for ABS. NRSROs would be required to: (i) report on internal controls; (ii) protect against conflicts of interest; (iii) establish professional standards for credit analysts; (iv) publicly provide disclosure concerning specific credit ratings and the methodology used; and (v) enhance public disclosure on the performance of credit ratings. The proposed rules would also require a third-party due diligence provider to provide a public written certification to any NRSRO that rates the ABS. Comments must be submitted within 60 days after publication in the Federal Register. SEC Release. SEC Proposed Rule.
Massachusetts Mutual Life Insurance Co. Files Two New RMBS Actions
On May 6, 2011, Massachusetts Mutual Life Insurance Co. filed two complaints in the U.S. District Court for the District of Massachusetts, both alleging violations of the Massachusetts Uniform Securities Act in connection with MassMutual’s purchases of RMBS. The first action concerns RMBS sponsored by Impac Funding Corporation, and asserts claims against Impac, one of its affiliates, two of its officers who signed the relevant registration statements, and J.P. Morgan Securities as successor-in-interest to two of the RMBS underwriters. The second action concerns RMBS originated by non-party American Home Mortgage Investment Corp. (“AHM”), and asserts claims against one of the RMBS sponsors, several depositors and underwriters, and several of AHM’s and Bear Stearns’s officers who signed the relevant registration statements. MassMutual alleges that in marketing the sale of the RMBS, defendants misrepresented that the underlying loans were prudently underwritten and had certain characteristics, including specific loan-to-value ratios and owner-occupancy statistics. MassMutual v. Impac Complaint. MassMutual v. Goldman Complaint.
Ambac, Underwriters Settle Putative Class Action for $33 Million
On May 6, 2011, Ambac Financial Group, Inc., several of its officers and directors, and several underwriters of Ambac securities offerings filed stipulations of settlement with the Southern District of New York to resolve a putative shareholder class action filed on behalf of purchasers and acquirers of Ambac securities. Plaintiffs claimed that the now bankrupt bond insurer concealed that it had lowered its policy underwriting standards, allowing it to insure risky financial products, including RMBS. The settlements provide for payments of $2.5 million by Ambac, $24.6 million by Ambac’s D&O policy insurers, and $5.9 million by the underwriters, UBS Securities, Goldman Sachs & Co., and JP Morgan Securities. Ambac Complaint. Ambac Settlement. Ambac Underwriters Settlement.
Second Circuit Affirms Dismissal of Rating Agencies in RMBS Suit
On May 11, 2011, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of credit rating agencies from three different RMBS actions, finding that the rating agencies could not be held liable as underwriters or control persons under Sections 11 and 15 the ’33 Act for alleged misstatements or omissions in securities offering documents. Plaintiffs had argued that the rating agencies acted as underwriters of the RMBS securitizations by giving the underwriters preliminary credit ratings and suggestions for credit enhancements to improve the securities’ ratings. The Second Circuit rejected this argument, finding that the statutory definition of “underwriter” did not include parties who provided services to facilitate a securities offering, but did not themselves participate in the distribution of those securities to the public. The Second Circuit also affirmed that the allegations were insufficient to establish control person liability for the rating agencies because they failed to raise an inference that the rating agencies could “direct, rather than merely inform” the alleged primary violators’ actions. Decision.
SEC Proposed Rule on Inflation Indexing of Performance Fees
On May 10, pursuant to Section 418 of the Dodd-Frank Act, the SEC proposed amending Rule 205-3 under the Investment Advisers Act, which mandates certain dollar thresholds be met before an investment adviser may charge a client performance fees. The proposed amendment would increase required assets under management and net worth thresholds from $750,000.00 and $1.5 million to $1 million and $2 million, respectively. The net worth test would exclude the value of a client’s principal residence and existing contracts in compliance with the original Rule 205-3 would be grandfathered. Comments must be submitted no later than July 11. SEC Release. SEC Proposed Rule.
Rating Agency Developments
On May 12, Fitch published a report explaining how its covered bonds counterparty criteria is likely to affect UK covered bond programmes. Fitch Release. Fitch Report.
On May 12, DBRS released its methodology for rating Canadian auto fleet lease transactions. DBRS Methodology.
On May 10, Fitch published its criteria for rating U.S. federal family education loan program student loan ABS. Fitch Release.
Note: Free registration is required for Fitch releases and reports.
Treasury Federal Advisory Committee on Insurance
On May 6, Treasury announced its intention to create a Federal Advisory Committee on Insurance to advise Treasury and the new Federal Insurance Office that will be established under the Dodd-Frank Act. The Director of the new committee will serve as a member of the Financial Stability Oversight Council. Applications for membership on the Committee must be submitted within 15 days after the date of publication in the Federal Registrar. Treasury Release. Notice of Establishment.