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ASF Strongly Concerned FDIC Safe Harbor Proposals Will Add to Investor Uncertainty and Slow Credit to Main Street
News Release
February 22, 2010
New York, NY—In a letter submitted to the Federal Deposit Insurance Corporation today, the American Securitization Forum (ASF), the broad-based professional forum representing the U.S. securitization markets, expressed significant concerns regarding the FDIC’s proposed new rules on safe harbor for securitizations. The ASF strongly believes the proposals, which include new preconditions for safe harbor, will create substantial uncertainty for investors, thus harming the drive to reopen securitization markets and get credit flowing again to Main Street.
“Under the FDIC’s proposals, investors will bear the burden of the loss of the safe harbor if any of the securitization preconditions are not satisfied by the sponsor.” said Ralph Daloisio, Managing Director at Natixis, and Chairman of the ASF Board of Directors. “As an investor, it is imperative that I be able to determine whether the safe harbor will apply so that risks can be appropriately assessed and a transaction can be efficiently priced.”
The safe harbor was originally created so that investors could look to securitized assets for payment without concern that the assets would be interfered with by the FDIC in the event of a bank failure. The FDIC proposes to revise the rule to include numerous preconditions, including requirements relating to a transaction’s capital structure, disclosure, documentation, origination and compensation. For this reason, the ASF is proposing that the applicability of the safe harbor not be conditioned upon the numerous requirements included in the FDIC’s Advance Notice of Proposed Rulemaking and instead limit any requirements to clear, bright-line conditions that allow investors to rely upon the safe harbor without fear that its benefits could disappear.
The proposed safe harbor would not only affect investors. The ASF points out the proposals could fundamentally change the economics of securitization for sponsors and potentially lead to the elimination of securitization in some sectors. If the aggregate burden is too great, the proposals could prevent U.S. insured depository institutions from re-engaging in the securitization markets and force them to rely solely on deposits or other sources of funding, thus seriously harming the availability of credit for consumers and small businesses.
“We appreciate the FDIC’s ongoing support for sustainable securitization but we are concerned that their proposals would greatly inhibit the restart of these critical markets,” said Tom Deutsch, Executive Director of the ASF.
Finally, with both legislative and regulatory changes being proposed for the industry, the ASF is concerned about the potential impact of multiple layers of securitization regulation without coordination among legislators and regulators. “The ASF is a strong advocate for targeted reforms in the securitization market, but we believe that reforms should only arise out of an interagency process to ensure a level playing field for market participants,” said Mr. Deutsch. “Securitization market reforms can have broad implications, so it is best to collectively seek solutions to ensure that unintended negative effects do not occur.”
The ASF has taken this collective approach with ASF Project RESTART, a broad-based industry initiative that has developed commonly accepted and detailed standards for transparency, disclosure and diligence for mortgage-backed securities transactions. Through Project RESTART, the ASF has developed loan-level disclosure and reporting templates, a unique identification number for tracking assets called the ASF LINC™, and model representations and warranties. The ASF will also be developing model repurchase provisions, model servicing provisions and due diligence standards throughout 2010.
To view the ASF’s letter to the FDIC, please click here: http://www.americansecuritization.com/uploadedFiles/ASF_FDIC_ANPRResponseLetter022210.pdf.
The American Securitization Forum is a broad-based professional forum through which participants in the U.S. securitization market advocate their common interests on important legal, regulatory and market practice issues. ASF members include over 350 firms, including issuers, investors, servicers, financial intermediaries, rating agencies, financial guarantors, legal and accounting firms, and other professional organizations involved in securitization transactions. The ASF also provides information, education and training on a range of securitization market issues and topics through industry conferences, seminars and similar initiatives. For more information about ASF, its members and activities, please go to www.americansecuritization.com.
Media Contact: Jon Teall, jteall@teallassociates.com, 212.317.8296