Industry Developments

Agencies to Propose Amending CRA Regulations to Conform to HMDA Regulation Changes, and Remove References to the Neighborhood Stabilization Program

 

On September 13, 2017, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly released proposed changes to each agency’s Community Reinvestment Act’s regulations relating “Regulation C, which implements the Home Mortgage Disclosure Act[.]” FDIC Release. Federal Reserve Release. OCC Release.

Rating Agency Developments

 

On September 13, 2017, DBRS issued a report entitled Third-Party Due Diligence Criteria for U.S. RMBS Transactions. Report.

On September 13, 2017, Fitch issued a report entitled Fitch Updates Future Flow Securitisation Criteria; No Rating Impact. Release.

On September 11, 2017, KBRA issued a report entitled Financial Institutions: Global Asset Manager Rating Methodology. Report.

On September 11, 2017, KBRA issued a report entitled Public Finance: U.S. Third Party Liquidity Facility-Supported Variable Rate Demand Obligations and Commercial Paper Rating Methodology. Report.

On September 11, 2017, KBRA issued a report entitled Corporates: General Corporate Rating Methodology. Report.

On September 7, 2017, Fitch issued a report entitled Fitch: LIBOR Transition Creates Uncertainty for SF Market. Release.

S.D.N.Y. Grants in Part and Denies in Part Trustee Bank of New York Mellon’s Motion for Summary Judgment in Suit Brought by Certificateholder Phoenix Light

 

On September 7, 2017, Judge Valerie Caproni in the United States District Court for the Southern District of New York granted the majority of RMBS trustee Bank of New York Mellon’s (“BNYM“) summary judgment motion and denied certificateholder Phoenix Light SF Ltd.’s (“Phoenix Light“) cross motion in its entirety in Phoenix Light SF Ltd. v. Bank of New York Mellon. Judge Caproni’s decision significantly curtailed Phoenix Light’s Complaint, which alleged various breaches of the trustee’s duties in connection with 21 RMBS trusts. For eight of the trusts at issue, Judge Caproni rejected Phoenix Light’s breach-of-contract claims alleging that BNYM failed to notify other parties upon discovery of breaches of representations and warranties due to lack of evidence that BNYM actually discovered any breaches. Judge Caproni also rejected the breach claims in connection with another eight trusts due to Phoenix Light’s failure to support the claims with evidence on a “loan-by-loan and trust-by-trust” basis. Only Phoenix Light’s breach-of-contract claims related to trusts where BNYM had notice of a specific breach or an event of default survived, as did Phoenix Light’s Trust Indenture Act claims for three trusts (because BNYM did not address the claims in its reply brief). The Court also granted BNYM’s motion with respect to Plaintiffs’ negligence, gross negligence, and negligent misrepresentation claims, finding that Plaintiffs’ tort-based arguments were duplicative of their breach-of-contract allegations.

NY DFS Charges the NY Branch of Habib Bank and Habib Bank Limited for Compliance Failures

 

On August 24, 2017, the New York State Department of Financial Services (“NY DFS“) issued a Notice of Hearing and Statement of Charges to the New York Branch of Habib Bank Limited and Habib Bank Limited, the largest bank in Pakistan, based upon its determination that “compliance failures at the New York Branch are serious, persistent and apparently affect the entire Habib banking enterprise.” The NY DFS asserted that the Bank’s compliance function is dangerously weak and indicates “a fundamental lack of understanding of the need for a vigorous compliance infrastructure, and the dangerous absence of attention by Habib Bank’s senior management for the state of compliance at the New York Branch.” The deficiencies cited include the New York Branch’s failure to comply with New York and Federal laws and regulations concerning anti-money laundering (“AML“) compliance, including the Bank Secrecy Act.

The Superintendent is seeking to impose a civil monetary penalty upon the Respondents in an amount of up to approximately $620 million.

A hearing is scheduled for September 27, 2017, before the NY DFS’s Deputy Superintendent for Compliance. The Bank is contesting the NY DFS’s allegations and has indicated that it plans to challenge the penalty and surrender its DFS banking license, thus eliminating its only U.S. branch.

On August 24, 2017, the NY DFS also issued two companion orders. One expands the scope of a review of prior transactions for AML and sanctions issues that was already underway under the terms of an earlier consent order; the other outlines the conditions under which the Bank could surrender its NY DFS banking license, including the retention of a consultant selected by NY DFS to ensure the orderly wind down of the Bank’s New York Branch. Read more here.

CFPB Issues Final Rule Temporarily Raising Reporting Threshold for Home Equity Loans Under Home Mortgage Act Rules

 

On August 24, 2017, the Consumer Financial Protection Bureau (the “CFPB“) issued a new rule that amends the 2015 updates to the Home Mortgage Act (“HMDA“) rules. Under the HMDA rules that are scheduled to take effect in January 2018, financial institutions would have been required to report home‑equity lines of credit if they made 100 such loans in each of the last two years. The new final rule issued by the CFPB increases the threshold from 100 loans to 500 loans through 2018 and 2019 while the CFPB considers whether to make a permanent adjustment. Read more here.

Rating Agency Developments

 

On August 31, 2017, S&P published its methodology for rating U.S. Credit Card Securitizations. Report.

On August 31, 2017, S&P published a Table of Contents to its Structured Finance Criteria. Report.

On August 31, 2017, Moody’s published its approach to rating SME Balance Sheet Securitizations. Report.

On August 31, 2017, Moody’s published a proposed revised framework to its approach to Mapping Ratings and Scores Provided by Third-Party Entities. Report.

On August 31, 2017, Moody’s published its approach to rating Corporate Synthetic Collateralized Loan Obligations. Report.

On August 31, 2017, Moody’s published its global approach to rating Collateralized Loan Obligations. Report.

On August 29, 2017, Moody’s published its global approach to rating Municipal and Sub-Sovereign CDOs. Report.

On August 24, 2017, DBRS published an update to its rating methodology for Companies in the Mining Industry. Report.

On August 24, 2017, DBRS published an update to its rating methodology for Container Terminal Operators. Report.

On August 24, 2017, Fitch published an update to its rating criteria for Global Rental Fleet ABS. Release.

Federal Reserve Seeks Comments on LIBOR Alternatives

 

On August 24, 2017, the U.S. Federal Reserve requested public comments on a plan for the New York Federal Reserve and the Office of Financial Research to come up with three reference rates based on U.S. Treasuries-backed repurchase agreements (repos). The proposed rates are to be called:

  • Tri-party General Collateral Rate (TGCR)
  • Broad General Collateral Rate (BGCR)
  • Secured Overnight Financing Rate (SOFR)

The most comprehensive of the rates, SOFR, would be a broad measure of overnight Treasury financing transactions and was selected by the Alternative Reference Rates Committee (ARRC) as a U.S. dollar LIBOR alternative. LIBOR is a benchmark for $350 trillion worth of financial products worldwide, including $150 trillion in derivatives.

Public comments on these proposed rates are requested within 60 days of publication in the Federal Register, which is expected shortly, according to a Federal Reserve Board press release. To read the press release, click here.

Federal Banking Agencies Propose Extension of Certain Capital Rule Transitions

 

On August 22, 2017, in preparation for a forthcoming proposal that would simplify regulatory capital requirements, federal banking regulators proposed a rule that would extend the existing transitional capital treatment for certain regulatory capital deductions and risk weights. The extension would apply to banking organizations that are not subject to the agencies’ advanced approach to capital rules, which are generally those with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. Comments on this proposal will be accepted for 30 days after publication in the Federal Register. FDIC Press Release. Federal Reserve Press Release. OCC Press Release. Proposal.

LIBOR Discontinuance and the Derivatives Market

 

On July 27, 2017, the Chief Executive of the UK Financial Conduct Authority (“FCA“) announced that, after the end of 2021, the FCA would no longer use its power to persuade or compel panel banks to submit rate information used to determine the London Interbank Offered Rate, known as “LIBOR.” LIBOR serves as a benchmark rate for hundreds of trillions of dollars of securities, loans and transactions, including over-the-counter and exchange-traded derivatives. The potential permanent discontinuance of LIBOR has significant implications for the derivatives market, especially for legacy transactions. Read more here.

Rating Agency Developments

 

On August 7, 2017, Fitch released a report entitled: Corporate Rating Criteria. Report.

On August 4, 2017, Fitch released a report entitled: U.S. Private Student Loan ABS Rating Criteria. Report.

On August 4, 2017, Fitch released a report entitled: CMBS Large Loan Rating Criteria. Report.

On August 3, 2017, Fitch released a report entitled: Toll Roads, Bridges and Tunnels Rating Criteria. Report.