On March 8, the Federal Housing Finance Agency (FHFA), acting as conservator for the Federal Home Loan Mortgage Corporation (Freddie Mac) commenced litigation in the Supreme Court of the State of New York against Decision One Mortgage Company, LLC (Decision One), and HSBC Finance Corporation (HSBC) (as an alleged successor in interest). FHFA’s Summons with Notice alleges claims for breach of contract, damages, specific performance, indemnity, and reimbursement arising out of the banks’ alleged failure to repurchase loans. FHFA alleges that Decision One breached contractual warranties as to the quality of the mortgage loans, including that the loans complied with relevant statutes, complied with underwriting guidelines, and were not predatory. FHFA seeks specific performance of alleged repurchase obligations or equitable damages totaling nearly $165,000,000. Summons with Notice.
Month: March 2013
DC Circuit Affirms Dismissal of MBIA’s Claims Against FDIC in IndyMac Litigation
On March 8, the United States Court of Appeals for the District of Columbia Circuit affirmed the district court’s dismissal of MBIA Insurance Corp.’s (MBIA) claims against the Federal Deposition Insurance Corp.’s (FDIC) arising out of mortgage-backed securities backed by IndyMac Bank, F.S.B (IndyMac) loans. The case relates to three securitizations backed by IndyMac loans and supported by MBIA-issued insurance policies. MBIA argued that the FDIC, as conservator of the successor bank to IndyMac, had “approved” IndyMac’s Pooling and Servicing Agreements under FIRREA, and then breached obligations adopted from IndyMac to repurchase loans “put back” from the securitizations. The Court rejected MBIA’s reading of FIRREA, affirming the decision of the district court that approval under the statute required a formal, written acknowledgement. Decision.
SEC No Action Relief for Advisory Agreement Amendment Without Shareholder Approval
On February 27, the SEC Division of Investment Management granted no action relief to Emerging Global Advisors, LLC (EGA) and Emerging Global Shares Trust (Trust), allowing EGA to amend its investment advisory agreement with the Trust without obtaining majority shareholder approval as required under Section 15(a) of the Investment Company Act. This no action relief is preconditioned upon (i) the proposed amendments not reducing or modifying the nature and level of advisory services provided by EGA and (ii) the total advisory fees paid to EGA under the amended advisory agreement would not exceed the advisory fees payable under the current agreement. SEC No Action Letter.
Rating Agency Developments
On March 12, S&P updated its methodology for second-lien RMBS surveillance and cash flow analysis for pre-2009 originations. S&P Report.
On March 11, Moody’s released its approach to rating RMBS using the MILAN framework. Moody’s Report.
On March 11, Fitch updated its criteria for state housing finance agencies’ general obligations. Fitch Report.
On March 11, Moody’s released its methodology for incorporating sovereign risk to multi-pool financial lease-backed transactions in Italy. Moody’s Report.
On March 11, Moody’s released its methodology for incorporating sovereign risk to its approach to rating CDOs of SMEs in Europe. Moody’s Report.
On March 11, Moody’s released its methodology for incorporating sovereign risk to EMEA auto loan methodology. Moody’s Report.
On March 8, Moody’s released its approach to rating transactions backed by intermodal shipping container leases. Moody’s Report.
Note: Free registration is required for rating agency releases and reports.
CFTC Reminds Market Participants of Swap Data Reporting Requirements
On March 8, the CFTC issued an Advisory reminding market participants that swap dealers were required to begin reporting data regarding equity, foreign exchange, and other commodity swaps, under Parts 43 and 45 of the CFTC’s regulations, on February 28. Swap dealers must be in compliance with their reporting obligations with respect to historical swaps in these three asset classes by March 30. CFTC Release.
CFTC Announces the Start of Mandatory Clearing
On March 11, the CFTC announced that swap dealers, major swap participants, and private funds active in the swaps market are required to begin clearing certain index credit default swaps and interest rate swaps that they entered into on or after March 11. The clearing requirement applies to newly executed swaps and changes in the ownership of a swap. CFTC Release.
Solar Power Finance & Investments Summit 2013
March 18-21, 2013 — The major gathering place for the solar power industry’s decision makers, the summit attracts key dealmakers in the solar development and financial communities to network and conduct business in San Diego, CA. Orrick is a Platinum Level Sponsor. On March 18, Howard Altarescu, Chair of the Solar Securitization Workshop, will present Structural & Legal Considerations in Solar Securitizations. Eric Stephens and Michael Meyers will also moderate panels. Click here to view the current agenda.
OFT Launches Review into Payday Lending
On February 24, the OFT launched a review of the payday lending sector, to be carried out alongside enforcement actions being taken within the payday lending sector, as a result of concerns that certain payday lenders were taking advantage of people in financial difficulty.
The OFT will carry out on-site investigations of 50 major payday lenders and review whether they are complying with both the Consumer Credit Act and its guidance on irresponsible lending. The review will focus on: (i) loans which are given to borrowers without sufficient evaluation of repayment likelihood; (ii) inappropriate targeting of groups; and (iii) rolling loans which result in escalating charges.
The OFT intends that the review will increase industry standards, improve customer protection and force non compliant payday lenders to give up their licenses.
FSA Report Relating to the LIBOR Scandal
On March 5, The FSA published a report and management response concerning the manipulation of LIBOR. The report finds that the FSA was aware of disruption in the LIBOR market during the period between summer 2007 and early 2009, but such disruption may have been solely caused by volatile market conditions at the time. Nevertheless, the report concludes that the FSA should have considered whether manipulation of the benchmark interest rate was taking place.
The report recommends improvements in the sharing of intelligence between the soon to be established new financial regulatory authorities (FCA and PRA), to ensure that future indications of misbehavior in the LIBOR market are not ignored or missed.
An investigation by the Serious Fraud Office into the manipulation of LIBOR, which has so far resulted in the arrest of three men, is ongoing.
EBA Issues Good Practices for Banks’ ETF Risk Management
On March 7, the European Banking Authority (EBA) issued an opinion addressed to National Supervisory Authorities (NSAs) on good practices for credit institutions in their risk management of exchange traded funds (ETFs).
The EBA’s opinion aims to assist bank supervisors in assessing risk when participating in ETF businesses, by setting out high level descriptions of non binding good practice and guidance in relation to managing the key risks encountered by credit institutions. The opinion specifically focuses on funding requirements and liquidity, credit risk and collateral management and market risk. The EBA has noted that how credit institutions choose to implement good practice will differ depending on their individual characteristics and their exact involvement with ETFs.